As 'Magnificent Seven' stocks experience a downturn amid concerns over escalating investments in data centers and high earnings growth expectations, analysts see a shift into "cyclical areas" of the market.
AI Rally Broadens Beyond Mega Caps
Stephanie Link, chief investment strategist at Hightower Advisors, told CNBC that the AI rally is broadening and that investors don't have to own just those mega-cap stocks because other companies are also poised to benefit and "will win."
Besides Link, Melius Research analyst Ben Reitzes noted that the slide in Big Tech comes as the group's AI investments have benefited a range of downstream AI players, like data center builders, power-generating companies, and energy infrastructure names.
Reitzes said he would not be surprised if Broadcom Inc.
Glen Smith of GDS Wealth Management said the Mag 7 stocks are struggling in 2026 simply because they are "exhausted." While he emphasized they remain "incredible" companies and stocks, he added that at some point, "a breather is needed."
'Great Valuation Rotation'
A similar report from Futurum Equities earlier this month noted that the AI economy is increasingly being reshaped by companies beyond the Mag 7, signaling a broader shift. These companies are redefining the AI economy across various layers, including control of computing, data, deployment, and security.
Futurum Equities called Broadcom the "Uncle Sam" of AI and named Taiwan Semiconductor Manufacturing
Nearly all of the S&P 500, 493 out of 500 stocks, are outperforming the Magnificent Seven in 2026. The divergence is reflected in ETFs with the Roundhill Magnificent Seven ETF
Veteran investor Ed Yardeni of Yardeni Research said markets may already be in the midst of a "Great Valuation Rotation of the Roaring 2020s." In a client note, he said the global rebalancing trade that began late last year could continue through 2026.
