Citi: 'Magnificent Seven' Label Is Outdated, Advises Shift to Broader AI 'Growth Cluster'

Citi strategists say the widely followed 'Magnificent Seven' label has become outdated and is no longer appropriate for evaluating artificial intelligence (AI) investment opportunities in U.S. equities.

Led by Scott Chronert, the strategy team advises investors to shift their focus from these seven companies to a broader 'Growth Cluster' to capture earnings growth and price momentum in the S&P 500 index.

In its latest report, Citi states that the 'Magnificent Seven' framework for assessing broad market growth momentum is 'dead.' This view stems from a notable rotation in the U.S. stock market in 2026: the stock price correlations among the seven large-cap stocks that had driven the S&P 500 index to record highs in recent years—Amazon (AMZN-US), NVIDIA (NVDA-US), Meta (META-US), Apple (AAPL-US), Microsoft (MSFT-US), Tesla (TSLA-US), and Alphabet (GOOGL-US)—have significantly weakened.

Market skepticism over returns from massive AI capital expenditures has pressured Microsoft and Meta's stock prices. Meanwhile, Apple, having decided not to participate in the data center arms race, saw its stock rise 23%. Additionally, the semiconductor sector, which led gains in the first half of 2026, has recently weakened due to stretched valuations.

Citi's proposed 'Growth Cluster' concept includes not only traditional large tech stocks but also the majority of companies involved in building AI infrastructure.

Data shows this group now accounts for more than half of the S&P 500 index's total market capitalization and contributes nearly 48% of the index's earnings. Chronert believes this new cluster better represents the S&P 500's fundamentals and price performance compared to the traditional binary split between the 'Magnificent Seven' and the rest of the index.

Despite market concerns over high valuations, Citi notes that the 'Growth Cluster' remains historically attractive. The group's 12-month forward price-to-earnings ratio is currently at the 66th percentile over the past 30 years, supported by strong earnings growth expectations through 2027.

Chronert accurately predicted in December last year that the focus of AI trading in 2026 would shift from 'enablers' to 'adopters'.

Citi emphasizes that just as the 'FAANG' label eventually faded, it is now time to downplay the term 'Magnificent Seven' and refocus on the new market structure.