In recent years, many investors have adopted a simple strategy to outperform the market: loading up on the biggest US tech stocks.
For a long time, this approach paid off handsomely. But last year, it didn’t. For the first time since the Federal Reserve started raising interest rates in 2022, the majority of the Magnificent 7 tech giants underperformed the S&P 500 Index. While the Bloomberg Magnificent 7 Index rose 25% in 2025, compared to 16% for the S&P 500, this was largely due to enormous gains from Alphabet and Nvidia.
Many Wall Street experts foresee this trend continuing in 2026, as profit growth slows and concerns about the returns from heavy artificial intelligence (AI) spending mount. So far, they’ve been correct, with the Magnificent 7 index up only 0.5% and the S&P 500 climbing 1.8% to start the year. This makes stock picking within the group crucial.
“This isn’t a one-size-fits-all market,” said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers Solutions, which manages $1.4 trillion in assets. “If you’re just buying the group, the losers could offset the winners.”
The three-year bull market has been driven by tech giants, with Nvidia, Alphabet, Microsoft, and Apple accounting for over a third of the S&P 500’s gains since the bull market began in October 2022. However, enthusiasm for these companies is cooling as interest shifts to other sectors in the S&P 500.
With Big Tech’s earnings growth slowing, investors are no longer content with promises of AI riches — they want to see actual returns. Profits for the Magnificent 7 are expected to rise around 18% in 2026, the slowest pace since 2022, and not much better than the 13% projected for the other 493 companies in the S&P 500, according to Bloomberg Intelligence.
“We’re already seeing a broadening of earnings growth, and we think that will continue,” said David Lefkowitz, head of US equities at UBS Global Wealth Management. “Tech is not the only game in town.”
One source of optimism is the relatively subdued valuations of these companies. The Magnificent 7 Index is priced at 29 times projected earnings over the next 12 months, significantly lower than the 40+ multiples earlier in the decade. The S&P 500 is trading at 22 times earnings, and the Nasdaq 100 Index at 25 times.
Here’s a look at expectations for the year ahead:
Nvidia
The dominant AI chipmaker is under pressure from rising competition and concerns over the sustainability of spending by its biggest customers. The stock has surged 1,165% since the end of 2022 but has fallen 11% since its record high on October 29.
Rival Advanced Micro Devices (AMD) has won data center orders from OpenAI and Oracle, and Nvidia’s clients, like Alphabet, are increasingly deploying their own custom-made processors. Still, Nvidia’s sales continue to surge as demand for chips exceeds supply.
Wall Street remains bullish, with 76 of the 82 analysts covering the company holding buy ratings. The average analyst price target suggests a roughly 39% gain over the next 12 months, the best in the group.
Microsoft
2025 marked the second consecutive year that Microsoft underperformed the S&P 500. As one of the biggest AI spenders, it is expected to invest nearly $100 billion in capital expenditures this fiscal year, with projections to rise to $116 billion next year.
The company’s cloud-computing business is seeing a resurgence in revenue growth driven by data center investments, but Microsoft has struggled to monetize its AI-enhanced software products. Investors are eager to see a return on these AI investments.
Apple
Apple has been much less aggressive with its AI ambitions compared to other tech giants. Its stock took a hit last year, falling almost 20% through early August.
However, the stock then soared 34% as it became seen as an "anti-AI" play, with investors rewarding its lack of AI-related spending risks. Strong iPhone sales also reassured investors about the ongoing demand for the company's flagship product.
Accelerated growth will be key for Apple’s stock in 2026. Despite some recent slowing momentum, its revenue is expected to grow by 9% in fiscal 2026, the fastest pace since 2021. With the stock priced at 31 times estimated earnings, second only to Tesla among the Magnificent 7, the company will need solid performance to keep its rally going.
Alphabet
A year ago, OpenAI was seen as the leader in the AI race, and investors feared Alphabet would fall behind. Today, Google’s parent company is considered a consensus favorite, with dominant positions in AI.
Alphabet’s latest Gemini AI model has received rave reviews, easing concerns about OpenAI. Its tensor processing unit (TPU) chips are considered a potential major driver of future revenue growth, threatening Nvidia’s dominance in the AI semiconductor market.
The stock rose more than 65% last year, the best performance among the Magnificent 7. However, as the company nears a $4 trillion market value and its shares trade at around 28 times projected earnings (well above the five-year average of 20), its future upside seems limited. The average analyst target suggests just a 3.9% gain this year.
Amazon
The e-commerce and cloud giant was the weakest performer in the Magnificent 7 in 2025, marking its seventh consecutive year in that position. However, Amazon has surged at the start of 2026 and is leading the pack.
Much of the optimism comes from Amazon Web Services (AWS), which posted its fastest growth in years. Despite concerns that AWS is lagging behind its competitors and the company’s heavy spending on AI, efficiency improvements from AI in warehouses could soon pay off, making this the year Amazon turns its performance around.
Meta
Meta’s stock shows how investor sentiment has soured on lavish AI spending. CEO Mark Zuckerberg has pushed for expensive acquisitions and talent hiring, including a $14 billion investment in Scale AI, while also appointing its CEO as Meta’s Chief AI Officer.
This strategy was initially well-received by shareholders, but when Meta raised its 2025 capital expenditures forecast to $72 billion and projected even higher spending in 2026, the stock tumbled. Demonstrating how this spending boosts profits will be crucial for Meta in 2026.
Tesla
Tesla’s stock was the worst performer in the Magnificent 7 in the first half of 2025 but rallied over 40% in the second half as CEO Elon Musk shifted focus from struggling electric vehicle sales to self-driving cars and robotics.
After two years of stagnant revenue, Tesla is expected to see a 12% revenue increase in 2026 and an 18% rise in 2027. However, Wall Street remains pessimistic about Tesla’s stock this year, with analysts projecting a 9.1% decline over the next 12 months.
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