Wall Street Is Getting Worried! The Magnificent Seven Stall – Can the S&P 500 Keep Rising?

U.S. stocks continue to hit new highs this year, but the 'Magnificent Seven'—the group of tech giants that powered the market's rally over the past four years—have surprisingly been absent from this latest upswing. As AI investment fervor lifts semiconductor stocks, capital is shifting from large-cap tech firms toward the AI chip supply chain, prompting Wall Street to worry: if the Magnificent Seven remain weak, can the S&P 500 still reach its year-end consensus target?

According to Bloomberg data, the Magnificent Seven index—comprising Nvidia (NVDA-US), Alphabet (GOOGL-US), Amazon (AMZN-US), Apple (AAPL-US), Microsoft (MSFT-US), Meta (META-US), and Tesla (TSLA-US)—has risen just 0.5% year-to-date. In contrast, the Philadelphia Semiconductor Index has surged 78% over the same period. The performance of the Magnificent Seven even trails around 300 non-tech components within the S&P 500, including companies like Dollar Tree (DLTR-US) and Hubbell (HUBB-US).

Since the Magnificent Seven collectively account for about one-third of the S&P 500’s market weight, their sluggish performance poses a challenge for Wall Street strategists. The current market consensus forecasts the S&P 500 to reach 7,824.09 by year-end, implying roughly 5% upside from current levels. If the tech seven continue to lack momentum, the remaining 493 constituents—already up 13% this year—would need to gain an additional 6.8% to push the index to its target.

AI Capital Shifts to Chipmakers, Dimming the Seven’s Luster

Market observers note that this year’s AI investment boom has redirected capital flows within the tech sector. The Magnificent Seven, once dominant market leaders, are no longer the top choice for AI-themed trades. Instead, investors are favoring semiconductor infrastructure plays—memory, chip manufacturing, and semiconductor equipment firms.

Alonso Munoz, Chief Investment Officer at Hamilton Capital Partners, warns that sustaining the S&P 500’s upward trajectory without the Magnificent Seven will be increasingly difficult, especially as sectors like energy—which have already surged—may face pullback pressure. He emphasizes that the seven tech giants still hold significant sway over the index’s direction.

However, an increasing number of Wall Street firms now argue that market sentiment toward the Magnificent Seven has become overly pessimistic. Over the past two weeks, Morgan Stanley (MS-US), Goldman Sachs (GS-US), and JPMorgan Chase (JPM-US) have all pointed out that the performance gap between the Magnificent Seven and semiconductor stocks has widened excessively.

Wall Street Calls for Rebalancing—Valuation Appeal Rises

Lisa Shalett, Chief Investment Officer at Morgan Stanley Wealth Management, suggests now is the time to reassess investment opportunities in the Magnificent Seven, as semiconductor stocks show signs of being 'clearly overbought.' While rapid order accumulation and pricing power among chip and memory suppliers are impressive, she cautions they may not be sustainable long-term. Investors, she advises, should diversify their AI beneficiary exposure to include hyperscalers—large cloud service providers.

Bloomberg data shows the Magnificent Seven index fell 1.9% in the first half of the year, compared to the S&P 500’s 9.3% gain—a 11-percentage-point gap, the second-worst such divergence on record. However, the pullback has made valuations more attractive. The group’s price-to-earnings (P/E) ratio has declined from 32.6x in October last year to 23.9x, narrowing its premium over the S&P 500 to historical lows.

While some believe other large-cap stocks could still propel the S&P 500 to new highs even if the Magnificent Seven lag, analysts warn that pushing the index higher will ultimately be difficult without the group’s participation, given their outsized weight.

Rich Privorotsky, Partner at Goldman Sachs, remains highly optimistic about AI’s long-term potential but argues that the current market focus on certain parts of the value chain may be misplaced. As AI hardware supply catches up, he believes true competitive advantage will lie with large cloud providers that control platforms and ecosystems—not just hardware suppliers. He likens these tech giants to 'owners of toll roads, not just car manufacturers.'