Is the Era of the 'Tech Seven' Over? Citigroup Points to New AI Investment Leaders, Half of S&P 500 Profits Come from 'This Group'

Citigroup (C-US) latest report indicates that the 'Tech Seven' is no longer a suitable core indicator for assessing large growth stocks, and proposes a 'Growth Group' covering six major industries as a replacement. The report believes that approximately 55% of the S&P 500 components are directly affected by the AI trend, and the demand for semiconductors and hardware is still supported by AI capital expenditure, with related stocks' valuations not yet fully reflecting their long-term growth potential.

According to a report by Business Insider, the long-standing market dominance by the 'Tech Seven' in the U.S. stock market seems to be crumbling. Citigroup's latest report points out that since the rise of the AI wave at the end of 2022, the 'Tech Seven' that once dominated the market is no longer in its prime, with overall performance clearly lagging behind the broader market.

The U.S. Tech Seven ETF (MAGS-US), which tracks the performance of the seven giants, has only risen by 1% so far this year, far behind the S&P 500 index's 9% gain over the same period.

Investors' attitudes towards the 'Tech Seven' have become divided, with some stocks experiencing more severe selling than others. Reasons include market concerns over high valuations, worries about massive capital expenditures, and the uncertain future of the software industry as AI tools rapidly become mainstream.

Among them, Microsoft (MSFT-US) is the worst-performing member of the Mag 7 this year, with a cumulative decline of 17% so far in 2026. The recent weakness in its stock price is mainly due to market concerns about its massive AI-related capital expenditures.

In their latest report released to clients, Citigroup strategists noted: 'In our view, the 'Tech Seven' is no longer suitable as a framework for assessing the momentum of large growth stocks, and this situation has actually been ongoing for some time.'

However, Citigroup also proposed an alternative observation indicator to replace the 'Tech Seven,' which is the 'Growth Group' they defined, a basket of growth companies that have contributed the most to the earnings of S&P 500 index companies in recent quarters.

The concept of Citigroup's 'Growth Group' was actually proposed several years ago and has recently been further adjusted and optimized in its selection method.

Currently, these companies account for approximately half of the total market value of the S&P 500 index, covering six different industries, and their overall performance this year has been significantly better than the S&P 500 index.

The growth stocks tracked by Citigroup in the second quarter rose by a cumulative 25%, and by 12% so far this year; in comparison, the S&P 500 index rose by 15% in the second quarter and has a cumulative gain of 10% so far this year.

Return on Investment S&P 500 Growth Group

Q1 -4.6% -9.4%

Q2 14.9% 24.7%

YTD 10.1% 11.8%

Citigroup pointed out that the performance of its 'Growth Group' also outperformed the 'Cyclical Group' and 'Defensive Group' it tracks.

Analysts believe that there are several main reasons why this group continues to outperform the market.

First, corporate earnings growth has gradually spread to companies beyond large-cap tech stocks.

Citigroup stated that the force driving the performance of the S&P 500 index this year is no longer just the 'Tech Seven.' If investors had instead held a weighted index composed of the 25 stocks that have contributed the most to the S&P 500's returns so far this year, they could expect to achieve approximately a 7% return by the end of this year, higher than the Tech Seven's approximately 2% gain over the same period.

Citigroup strategists stated: 'Even if the observation scope is expanded to the 'Tech Ten' (the seven giants plus Broadcom (AVGO-US), Palantir (PLTR), and AMD (AMD-US)), many important contributors to earnings will still be missed.'

The firm specifically named Intel (INTC-US), Applied Materials (AMAT-US), and Lam Research (LRCX-US), all of which have recently delivered impressive earnings performances.

Additionally, the actual earnings of growth companies continue to outperform market expectations, further boosting the overall performance of the group. Citigroup pointed out that the 'Growth Group' is expected to contribute approximately 48% of the total earnings of S&P 500 companies over the next 12 months.

Next, the recent weakness in the stock prices of the Tech Seven is mainly due to investors taking profits and shifting funds to relatively cheaper investment targets.

Citigroup pointed out that, based on the price-to-earnings-growth ratio, the valuation of the Growth Group has fallen to the lowest level in 15 years, making it more attractive compared to the Tech Seven.

Citigroup added that the current market's expectations for future growth mainly reflect two forces:

One is that AI capital expenditures continue to boost the growth momentum of the semiconductor and hardware industries;

The other is that, under the current supply bottlenecks, some standard semiconductor demand has experienced a temporary rapid growth.

Therefore, the current valuations of these stocks seem not to have fully reflected their long-term structural growth opportunities.

Citigroup also pointed out that since 2026, there has been continuous rotation in the trading of AI concept stocks, and market performance has been inconsistent.

Among them, the semiconductor and memory groups have been the most affected. In the past month, the SOXX-US semiconductor ETF has plummeted by 18%, and the Roundhill Memory ETF (DRAM-US) has dropped by 32%.

Citigroup stated: 'We do not believe there is a perfect method to precisely measure how much of the S&P 500 components are affected by AI trading.'

However, Citigroup believes that using the 'Growth Group' as an analytical framework is the most intuitive and closest to reality method for assessing the impact of AI on the S&P 500.

Citigroup stated that according to this analysis, approximately 55% of the S&P 500 components are directly affected by bullish or bearish factors related to AI, and nearly half of the index's corporate earnings come from this growth group.