AI heavyweights reshuffled overnight: Micron and SanDisk surged, while the "Seven Giants" face valuation scrutiny

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The wave of AI investment is entering a new phase. Since 2026, the aura of the “Seven Tech Giants” that long dominated the US stock market has gradually faded, and market capital has started shifting from large tech platforms to the AI infrastructure chain, especially in the field of memory and storage chips. As the demand for AI computing power continues to expand, investors are reassessing who are the direct beneficiaries of this round of the AI cycle.

Since the beginning of this year, the Nasdaq 100 Index has risen nearly 18%, and the S&P 500 by about 10%, but the index tracking the “Seven Giants” has only risen 1.1%. Meanwhile, the Philadelphia Semiconductor Index has surged 82%, poised to achieve its best annual performance since 1999. Among them, memory chip companies such as Micron Technology and Sandisk have become new market favorites, while the previously leading “Seven Giants” in the AI rally are gradually stepping out of the spotlight.

The flow of funds is confirming this shift. According to Bloomberg data, in June, investors pulled out $786 million from the Roundhill Magnificent Seven ETF, the largest single-month outflow since the ETF’s inception; meanwhile, the Roundhill Memory ETF attracted $930 million in inflows.

The “Seven Giants” decouple from the broader market, the logic of AI trading is changing

In the past few years, the “Seven Giants” were almost synonymous with the US stock AI rally. But this high degree of linkage is loosening this year. In April this year, the 40-day correlation coefficient between the “Seven Giants” and the Nasdaq 100 Index once topped 0.95, nearly completely synchronized; recently, this indicator has dropped below 0.7, reaching its lowest level since 2017.

DataTrek Research co-founder Jessica Rabe said in a client report on June 30 that the linkage between large-cap tech stocks and the S&P 500 Index has returned to 2015 levels. At that time, the index weight of these companies was only about 10% to 11%.

However, the market influence of the “Seven Giants” remains significant. Currently, these companies still account for about 37% of the Nasdaq 100 Index’s weight and contribute nearly one-third of the market capitalization in the S&P 500 Index. Brian Barbetta, co-head of Wellington Management’s technology team, said, in recent years, the “Seven Giants” were among the few companies able to continuously deliver higher-than-expected earnings growth, but now investors are paying more attention to the risks and challenges they face.

Rising AI capex pressure, the valuation logic of giants faces challenges

The key to the market attitude shift lies in investors beginning to question whether the massive AI investments by large tech companies can deliver commensurate returns. Microsoft, Amazon, Alphabet, and Meta are all accelerating the construction of AI infrastructure, with large-scale capital expenditures compressing free cash flow, while it remains uncertain when these investments will convert into revenue and profits.

Since the beginning of this year, Microsoft’s stock price has declined by about 20%, with June being one of its worst months since 2000. The market is concerned that, on the one hand, it needs to continue investing in AI infrastructure, while on the other, it faces the potential impact of AI technologies on its traditional software businesses.

Meanwhile, Meta faces similar pressures. Reports say CEO Zuckerberg admitted that the company’s progress in developing AI agents has not met expectations. Meta is even considering building a cloud infrastructure business to absorb potentially surplus computing resources.

Brian Barbetta pointed out, the market is currently revisiting a key question: whether cloud computing giants will face declining capital returns and profit margins in the future.

AI value chain repricing, memory chips become the biggest winners

By contrast, memory chip companies in the AI infrastructure chain are seeing sharp upward revisions to profit expectations.

Bloomberg Industry Research data shows that the expected net profit growth rate for the “Seven Giants” next year is now 18.9%, down from 21.4% three months ago; whereas chip manufacturers' expected earnings growth rate has surged from 34.3% three months ago to 48.5%. The market is moving from the “AI application story” to “AI infrastructure realization.”

Mark Lehmann, Vice Chairman of Citizens Bank, said, investors previously had high certainty about the growth prospects of the “Seven Giants” and were willing to give higher valuations; but now, the market is reassessing the quality of their earnings, while companies such as Micron and Sandisk continue to see rapid improvements in profit expectations.

Is the AI market in transition? Wall Street remains divided

However, not all investors think chip stocks will continue to lead.

JPMorgan global market strategist Nikolaos Panigirtzoglou pointed out in a report on July 1 that as cloud computing giants, AI model companies, and AI application companies gradually improve their commercialization, the performance gap between large tech companies and chip makers may narrow, with AI value eventually concentrating again in platform companies.

Mike Wilson, head of US equity strategy at Morgan Stanley, believes that the momentum behind chip stocks is waning and the market is starting to seek investment opportunities among previous laggards, including the AI cloud giants. “This divergence can’t last,” Wilson said. He expects mega-scale cloud companies to stabilize, while semiconductor stocks may face correction pressure.

But in the short term, the market’s focus still lies on the ability to deliver profits. As long as the returns on AI investment by large tech companies have yet to fully materialize and earnings expectations for memory chip companies continue to be revised upward, the dominant power in AI trading may remain on the hardware infrastructure side.

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