Nvidia and Microsoft Losing Favor? Retail Investors Abandon 'Magnificent Seven,' Seeking Next AI Star

As the AI boom continues to influence global stock markets, retail investors' strategies are quietly shifting. Unlike the past few years when they chased the 'Magnificent Seven' tech giants, more investors are now turning to semiconductor, memory, and data center companies—core components of AI infrastructure—in hopes of positioning themselves early for the next wave of AI winners. Alex Cardona, a manager at a U.S. software company, exemplifies this trend. He has redirected his investment focus toward AI infrastructure firms like data center operator Equinix and chip designer Marvell Technology, rather than heavily increasing positions in large-cap tech stocks such as Microsoft, Apple, and Nvidia. He explained that compared to the already massive market valuations of tech giants, he prefers investing in companies with limited market attention but strong potential to benefit from the AI infrastructure wave. Marvell's stock has surged over 120% this year, becoming the top performer in Cardona’s portfolio. He aims to hold 'the infrastructure that powers AI,' not just the well-known star companies. Buying interest in the Magnificent Seven has clearly cooled. Market fund flows confirm this trend. According to Vanda Research, a fund flow analytics firm, retail investors have significantly reduced purchases of the Magnificent Seven—Microsoft, Apple, Amazon, Meta, Alphabet, Tesla, and Nvidia—while actively investing in memory and semiconductor firms like SK Hynix and ETFs focused on the memory sector. This shift reflects a broader change in AI investment themes. The Magnificent Seven, which drove much of the U.S. stock market rally in recent years, have underperformed this year, with five lagging behind the broader market. Microsoft has declined 19% year-to-date, making it the weakest performer, while Apple has risen 23%, leading the group. Retail investors are now 'picking their own winners.' Vanda analysts note that retail investors are not exiting AI investments but are instead selecting their own high-growth, high-conviction AI beneficiaries rather than blindly buying the Magnificent Seven. July’s fund flows highlight this shift. While retail investors still net bought $52 million in Microsoft shares, they poured $194 million into Intel and $56 million into AI cloud firm IREN, signaling that AI supply chain companies are becoming new focal points. Market observers believe investor attention is shifting from large platform companies investing billions in AI to firms that actually supply the chips, memory, cooling systems, and power infrastructure needed for AI. Kenwell, U.S. investment analyst at eToro, noted that while the Magnificent Seven were market darlings in recent years, retail investors are now 'following the money' to find the next beneficiaries. However, chasing new AI themes comes with higher volatility risks. Recent news of Chinese AI firm Moonshot AI launching a new model triggered market concerns, causing a broad tech sell-off, with AI infrastructure stocks hit particularly hard. The Philadelphia Semiconductor Index has fallen over 20% from its previous peak, entering a technical bear market. Despite this, retail trading activity remains high. Scott Rubner, Citadel Securities’ strategy head, noted that U.S. retail stock trading volumes in May and June hit record highs, averaging more than double the 2024 daily average, indicating investors remain highly engaged, albeit with shifting capital flows. The next market focus will be on upcoming corporate earnings, as investors seek evidence that AI investments are translating into revenue growth and productivity gains. Jonathan Cofsky, portfolio manager at Janus Henderson, stated that the market needs to see AI investment benefits spreading across the broader economy to justify the massive capital expenditures. Some younger investors are already adjusting strategies. Davis Cantrell, a 19-year-old student, recently reduced his Microsoft holdings and fully exited Nvidia, redirecting funds to emerging fields like space technology and quantum computing. He believes large-cap tech stocks remain solid long-term investments, but their most explosive growth phase may be over. For higher returns, he argues, investors must seek the next star companies riding the AI wave.