Mag 7 is a thing of the past! Citi: Bet on the 'growth cluster,' which covers over half of the S&P's market value.

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“Mag 7” was once the core label for measuring the performance of US growth stocks, but as the AI investment logic undergoes structural changes, this framework is losing its explanatory power.

Citigroup strategist Scott Chronert’s team stated in their latest research report that “Mag 7 as a framework for assessing the dynamics of large-cap growth is dead.” The team believes that investors should shift their focus from a few tech giants to a broader ‘growth cluster’, covering large tech companies and most firms benefiting from AI infrastructure investments.

Behind this shift, there is a clear divergence within “Mag 7”. Microsoft and Meta face pressure as the market reassesses the return cycle of massive AI capital expenditures, while Apple, due to its restrained approach to data center investments, has become favored by funds and has risen 23% this year. Meanwhile, the Bloomberg “Mag 7” index has underperformed the broader market this year, signaling that the traditional grouping logic is loosening.

Mag 7 is becoming more divided, the era of grouping is ending

Amazon, Nvidia, Meta, Apple, Microsoft, Tesla, and Alphabet make up the "Mag 7", which has been a key force driving the S&P 500’s rise over the past few years.

But now, the fundamentals and stock performance of these seven companies are diverging. Some companies are under pressure due to continued investments in AI infrastructure, resulting in a lengthening capital return cycle; others are being repriced by the market due to their unique AI strategies.

Chronert pointed out that simply grouping the seven companies into one investment portfolio is no longer able to reflect real market changes. He cited the evolution of the former FAANG concept and said, market labels often have lifecycles “When was the last time you thought about FAANG? Now it’s time to move attention away from the term ‘Mag 7’.”

Citigroup proposes ‘growth cluster’, covering a broader scope of the AI industry chain

Compared to the narrow “Mag 7” label, the “growth cluster” proposed by Citigroup covers a broader scope, including large tech companies and a variety of AI infrastructure-related firms. According to strategist Chronert, this cluster now accounts for over half of the S&P 500’s market capitalization and contributes around 48% of its earnings, and therefore can more comprehensively reflect the current fundamentals of the US growth stock segment.

In terms of valuation, Citigroup believes this growth cluster has not entered extremely overvalued territory. Its forward 12-month P/E ratio is at the 66th percentile of the last 30 years’ historical distribution. Supported by earnings growth expectations, the valuation level is likely to be sustained until 2027. In other words, the current expansion in valuation is not baseless, but built upon relatively solid performance prospects, providing the growth sector with a temporary margin of safety.

However, the market structure is undergoing subtle changes. In the first half of this year, the semiconductor sector was a main beneficiary of AI trades, but recently related stocks have begun to underperform the broader market, and concerns about high valuations and capital expenditure returns are rising. Meanwhile, Societe Generale strategist Manish Kabra and others warned that it is still too early to bet on the ultimate winners of large-scale AI investment—meaning the infrastructure layer, which led earlier gains, is facing a correction in expectations.

In fact, Chronert predicted as early as last December that the logic of AI trading in 2026 would shift from “AI infrastructure providers” to “AI technology adopters”, and current sector rotation is gradually validating this forecast. Funds are moving from pure hardware suppliers to application-level companies that can use AI to improve efficiency and products. This structural change is more meaningful than simple sector rotation.

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