The outbreak of conflict in the Middle East over the weekend has pushed every other topic into the background. But until now, the dominant theme in markets has been AI. A theme that has driven stock indices higher since the release of ChatGPT in late 2022 - and which, so far this year, has become a catalyst for declines. Many sectors are now viewed as AI losers. And the punishment has been brutal, as AI start-ups announce new features.
The tide has shifted for the Magnificent Seven as well. Investors loved the Capex announcements for several quarters, but are now questioning the profitability of these investments. And while waiting to find out whether suh investments were the right choices, the market has reached one certainty: these companies' business models are changing. They will now have assets to finance and will no longer be able to return as much cash to shareholders.
All of this is translating into clear underperformance for these stocks in 2026. The Roundhill Mag7 ETF is down 7% since January 1, while the S&P 500 is down just 1% in comparison. More broadly, it is tech that is suffering, as investors rotate toward more traditional parts of the economy: energy, utilities, basic resources. The Nasdaq has fallen 2% since January 1, versus a 1% gain for the Dow Jones.
And yet results from the tech heavyweights remain excellent. That is what we saw again with the January/February quarterly releases. Analysts' forecasts are also very strong. FactSet's analysts expect EPS growth for the Magnificent Seven to be twice that of the other 493 S&P 500 stocks in 2026.
Source : FactSet
But none of this is enough to rekindle investor enthusiasm. Last week, Nvidia posted record results, once again beating expectations. However, the stock fell 5.5% on Thursday and 4% on Friday.
More broadly, the combination of excellent results on the one hand and the sell-off in shares on the other is translating into a sharp decline in valuations. Microsoft now trades at 23.5x earnings, Amazon at 27x and Nvidia at 22x. The three stocks have never been this cheap over the past ten years (relative to their average P/E over the past 10 years).
