The Stock Market’s Magnificent Seven Is Now the Fab Four
It is a bullish signal that the market is rallying without the likes of Apple and Tesla, some investors say
4 min
The Magnificent Seven trade is beginning to fizzle—and yet, the stock market is still heading higher.
The S&P 500 climbed 10% in the first quarter, its best start to a year since 2019 , even though two of its biggest constituents suffered double-digit declines. Apple shares fell 11% in the first three months of the year, while Tesla dropped almost 30%. Alphabet shares sputtered for much of the period before making a run in the past three weeks and ending up 8%.
The other four big tech stocks in the group known as the Magnificent Seven— Nvidia , Meta Platforms , Microsoft , Amazon.com —continued their meteoric run and outpaced the broader market. Some market strategists have dubbed them the new Fab Four.
Some investors say it is a bullish signal that the market is still rallying without the likes of Apple and Tesla because it means other groups are taking part . All of the S&P 500’s sectors, except real estate, logged gains in the first quarter. Small caps, industrial and financial-services stocks are among those that jumped, fueling bets that the broader market might have more room to run.
Much of the enthusiasm is tied to hopes that the economy has escaped a deep recession and that the Federal Reserve will soon pivot to cutting interest rates , even if not at the pace some investors had previously hoped. A frenzy over the future of artificial intelligence has added to the zeal.
“If you’d have told me eight weeks ago that Apple and Tesla would be down as much as they are, oh and by the way, you’re punting when you’re going to do the rate cuts and you’re getting less rate cuts, I would have assumed the market would be down,” said Ryan Detrick , chief market strategist at Carson Group.
To be sure, some investors worry the divergence in the big tech stocks is a sign of exhaustion in the rally and question whether future gains will be harder to achieve from here. The S&P 500’s market value has swelled more than $9 trillion since late October, and the index has set 22 record closes in 2024.
In the coming days, investors trying to gauge the trajectory of the market and economy will parse the release of U.S. manufacturing data Monday and the monthly jobs report Friday.
Nvidia continues to be a stock-market star. The graphics-chip maker has indicated demand for the computing power that underlies AI remains astronomical . Its shares have jumped more than 80% to start the year, after more than tripling in 2023.
By some metrics, Nvidia has displaced Tesla as the most popular stock among individual investors . It is currently the biggest average holding in individual investors’ portfolios, at about 9%, VandaTrack data show.
Meta shares, meanwhile, have soared partly thanks to Meta’s investments in artificial intelligence that have made targeted ads smarter. The social-media company recently said it would pay its first shareholder dividend. Microsoft stole the crown of biggest U.S. company from Apple earlier this year, with a valuation that topped $3 trillion, and Amazon has sharply improved its profitability.
Despite their recent gains, some of the stocks look less pricey than they did last year. Nvidia is trading at 35 times its projected earnings over the next 12 months, below its peak of 62 in May of last year. Amazon’s multiple is 40, down from 2023’s high of 62. The S&P 500 is trading at 21 times future earnings, slightly up from last year’s highs of 19.
The Fab Four are responsible for nearly half of the S&P 500’s first-quarter advance, according to Howard Silverblatt , senior index analyst at S&P Dow Jones Indices.
Joseph Ferrara , investment strategist at Gateway Investment Advisers, said he expects investors to rotate out of big tech stocks and funnel into other sectors as the year progresses. That is largely because the earnings of the other 493 companies in the index are expected to outperform those of the Magnificent Seven by the fourth quarter.
“The fact that the market is still holding these levels and trading up without that full force of the Magnificent Seven is actually a really positive thing,” he said.
Jonathan Golub , a strategist at UBS, said one reason Magnificent Seven’s earnings dominance could end is because it will be hard to top the explosive growth they posted at the end of last year. Those results looked like blockbuster beats when compared with 2022’s weaker numbers, he said in a recent research note.
Last year, any hint of weakness in the Magnificent Seven would have sent the broader market tumbling. In fact, for much of the year, those seven stocks were responsible for all of the S&P 500’s advance.
This year is a different story. Tesla is struggling on numerous fronts. The electric-vehicle maker is facing pressure from Chinese competitors, which have rapidly expanded their presence around the globe in recent years. It has also warned of notably slower growth in 2024, and its profit margins have taken a hit.
Apple’s woes have been mounting, too . The Justice Department recently sued the company, accusing it of monopolistic behaviour. European authorities are cracking down on its app store. Plus, it is facing another weak iPhone demand cycle, and investors are worried that Apple is behind in the current wave of excitement around AI.
Bespoke Investment Group data show Apple shares underperformed the S&P 500 over the 200 days through Tuesday by the widest margin since October 2013.
Copyright 2020, Dow Jones & Company, Inc. All Rights Reserved Worldwide. LEARN MORE
From making unpopular decisions to learning when to listen, leaders from five businesses reveal what nobody prepared them for — and how running a company has challenged their expectations.
Technology and semiconductor shares fell sharply as investors questioned the debt financing the AI infrastructure boom and confronted higher rates and Chinese competition.
Technology and semiconductor shares fell sharply as investors questioned the debt financing the AI infrastructure boom and confronted higher rates and Chinese competition.
4 minA sharp technology sell-off has exposed a new anxiety on global markets: whether the enormous borrowing behind the artificial-intelligence infrastructure boom can generate sufficient returns as interest rates rise and Chinese competition intensifies.
The artificial-intelligence investment boom has powered technology shares, semiconductor manufacturers and data-centre operators to extraordinary heights. Last week, investors were given a reminder that much of this expansion is being built with borrowed money.
The technology-heavy Nasdaq Composite fell 4.5 per cent over the week ended October 16, its weakest performance since late June. Semiconductor shares suffered an even deeper correction, with the Philadelphia Semiconductor Index losing about 11.4 per cent.
The selling spread quickly through global markets. Micron Technology fell 14.6 per cent over the week, while South Korea’s Samsung Electronics and SK Hynix dropped approximately 18 per cent and 24 per cent respectively.
This was more than a routine bout of profit-taking. Investors were reassessing three interconnected risks: higher interest rates, the rapidly expanding debt burden attached to AI infrastructure and the prospect of stronger competition from Chinese memory-chip manufacturers.
The debt behind the AI build-out
Artificial intelligence requires a physical infrastructure network of enormous scale. Data centres must be built, advanced processors purchased, power supplies secured and cooling systems installed before customers begin generating meaningful revenue from them.
Technology companies are increasingly supplementing their own cash with corporate bonds, syndicated loans, equipment leases, private credit and project-level financing.
JPMorgan describes the emerging funding model as a combination of conventional corporate borrowing and project finance tied to individual data-centre assets. In Australia, the Reserve Bank estimates that syndicated loans accounted for approximately three-quarters of data-centre financing during 2025 and 2026 to date.
The numbers are becoming large enough to affect broader credit markets. The Federal Reserve Bank of Dallas has cited Wall Street estimates suggesting AI-related investment-grade bond issuance could approach US$300 billion in 2026 alone.
That borrowing is not automatically problematic. Debt can be an efficient way to finance long-lived infrastructure when future revenue is sufficiently predictable. The concern is that AI technology, customer demand and computing economics are changing much faster than the repayment schedules attached to the assets.
A data centre financed today may carry debt for years. Investors must therefore make assumptions about future utilisation rates, electricity prices, chip performance, customer concentration and the amount businesses will ultimately pay for AI computing.
When interest rates rise, those assumptions become less forgiving.
Inflation changes the calculation
September’s US inflation data intensified the pressure. Consumer prices increased 3.7 per cent over the year, ahead of market expectations and up from 3.4 per cent in August.
The hotter reading reduced confidence that interest rates would fall quickly and pushed bond yields higher. That matters particularly for companies whose valuations depend on profits expected well into the future, as well as highly leveraged infrastructure operators that may need to refinance.
CoreWeave has emerged as a closely watched test case. The specialist cloud-computing company has accumulated substantial debt and lease obligations to build AI capacity, while relying on a concentrated group of large technology customers.
Its shares fell sharply during the sell-off, while the cost of insuring its debt against default climbed. CoreWeave has argued that its contracted backlog more than covers its obligations and that financial markets do not always understand its business model. Nevertheless, its securities have become a proxy for investor confidence in debt-funded AI infrastructure.
Oracle, another major investor in AI computing capacity, fell 8.8 per cent in Friday trading, while CoreWeave dropped 15.5 per cent.
The question is shifting from how much AI infrastructure can be built to how profitably it can be operated.
China adds another source of pressure
Interest rates were not the only catalyst. Reports of advances by Chinese memory-chip producer ChangXin Memory Technologies raised concerns that lower-cost Chinese products could increase competition across the global semiconductor industry.
Memory chips are essential to AI systems, but the industry is historically cyclical. Periods of tight supply and high pricing can encourage rapid investment, eventually producing oversupply and falling margins.
The prospect of a well-funded Chinese competitor expanding its technological capabilities unsettled investors in Samsung, SK Hynix and Micron. It also demonstrated that AI-related demand does not insulate chipmakers from conventional competitive pressures.
That combination—slower rate cuts, more expensive financing and potentially cheaper supply—challenged the assumption that every company exposed to AI would enjoy continually expanding margins.
A reset rather than the end of the boom
The sell-off does not establish that the AI boom is ending. Demand for computing power remains strong, the largest technology companies continue to generate formidable cash flows and many infrastructure projects are backed by long-term customer contracts.
What has changed is the market’s willingness to overlook the price and financing structure of that growth.
The most resilient companies are likely to be those able to fund investment from operating cash flow, secure long-duration customers and demonstrate that new capacity will earn returns comfortably above its financing costs.
More speculative operators may face greater scrutiny, particularly where debt is expensive, customers are concentrated or expected revenue depends on demand that has not yet materialised.
For Australian investors, the lesson extends beyond US technology shares. Local data-centre operators, infrastructure funds, electricity suppliers and property groups are increasingly exposed to the same investment cycle.
Artificial intelligence may remain one of the defining growth themes of the decade. But last week’s correction showed that enthusiasm for the technology does not eliminate financial discipline.
The next stage of the AI boom will be judged not only by computing power, model performance or demand for chips, but by something more traditional: whether the assets being financed can generate enough cash to repay the money borrowed to build them.
Fact box
Nasdaq Composite: Down 4.5 per cent for the week ended October 16, 2026
Philadelphia Semiconductor Index: Down approximately 11.4 per cent
Micron Technology: Down approximately 14.6 per cent
Samsung Electronics: Down approximately 18 per cent
SK Hynix: Down approximately 24 per cent
US September inflation: 3.7 per cent annually
Estimated 2026 AI-related investment-grade issuance: Approximately US$300 billion
Australian shares finished higher on Tuesday, September 22, as a technology rally and lower oil prices outweighed weakness in energy companies and continued anxiety about domestic interest rates. The S&P/ASX 200 closed 25.9 points, or 0.30 per cent, higher at 8,757.8. The All Ordinaries gained 0.36 per cent to 8,951.0, while the All Technology index …
Continue reading “ASX Wrap: Technology lifts the ASX as falling oil relieves inflation pressure”
The grand harbourside residence combines sweeping Sydney Heads views, resort-style entertaining and refined designer finishes with a reported $36 million price guide.
