The myth of the "Magnificent Seven" stocks is faltering, says BofA’s Hartnett: The next round of winners must reshape their business through AI.

The coalition of the “Magnificent Seven” that once jointly drove the US stock market is disintegrating. This tech giant combination, once regarded as a singular asset class, is no longer seen that way by investors. As the market’s view of the artificial intelligence boom becomes more rational and cautious, the fate of these trillion-dollar giants has diverged significantly over the past year.

In the just-concluded 2025, only Alphabet and Nvidia outperformed the S&P 500 Index. As we enter the new year, this divergence trend continues, with five of the “Magnificent Seven” now underperforming the benchmark. The AI-driven trading strategy that once dominated the market is changing, with capital no longer blindly flooding the entire sector but instead making more selective bets.

This breakdown in correlation is reshaping the market landscape. Investment managers point out that the “Magnificent Seven”—Microsoft, Meta, Apple, Amazon, Tesla, Alphabet, and Nvidia—are no longer synonymous with sustained stock market gains. As the AI arms race intensifies, these companies show varying strategic investments and core business growth, causing their stock prices to move independently.

David Bahnsen, Chief Investment Officer of Bahnsen Group, said bluntly: “The correlation between them has collapsed. Nowadays, their only common trait is that each has a trillion-dollar market valuation.”

AI Trading: Divergence and Restructuring

As the bull market progresses, the logic around artificial intelligence trading has evolved. Some investors expect the AI dividend to flow into sectors like healthcare, while others continue to increase bets on chipmakers or energy companies. Under these circumstances, the previously tight “Magnificent Seven” formation is being redefined by the market—perhaps shrinking to a “Magnificent Five,” or even “Magnificent Four.”

BofA strategist Michael Hartnett coined this term in 2023, borrowing from the classic Western film “The Magnificent Seven.” He pointed out that the market is now broadening, and “the next ‘Magnificent Seven’ will be those giant enterprises able to prove AI applications are reshaping their vast businesses.”

Hartnett also reminded investors to recall the film's ending:

“Don’t forget, in that film, only a few survived.”

Winners and Losers Among the Giants

Currently, these tech giants are at different stages of development. Amazon, Alphabet, Microsoft, and Meta have transformed into “hyperscalers,” spending hundreds of billions of dollars to train new AI models, build data centers, and expand cloud computing capabilities. Meanwhile, Nvidia continues to dominate the chip market needed to run the most advanced AI models.

In contrast, other members seem to be falling behind. Apple stock underperformed the S&P 500 last year, facing criticism for its relatively low investment in AI and lagging competitors. Tesla, once a market darling, also underperformed peers, mainly due to a slowdown in electric vehicle sales.

Michael Arone, Chief Investment Strategist at State Street Investment Management, said:

“They’re all at different stages. It used to be a rising tide lifts all boats—now we’re going to see winners and losers.”

Retail Investors Retreat & History Repeats

Beyond shifts among institutions, retail investor enthusiasm is also cooling. According to Vanda Research, retail investors’ share of total trading volume in “Magnificent Seven” stocks fell significantly compared to 2023 and 2024. Tesla, long favored by retail investors, saw the steepest drop in retail trading activity. In 2025, Tesla’s average daily retail turnover rate fell 43% from its peak two years earlier.

Despite the divergent performance, these seven companies still exert a huge impact on the market. According to Dow Jones Market Data, they still account for about 36% of the total market capitalization of the S&P 500 Index.

Wall Street history is filled with investment group nicknames that were once popular but eventually became obsolete, from the Nifty Fifty in the 1960s to the retailer group WATCH and tech combinations like FANG and FAANG.

Arone believes that while the “Magnificent Seven” may have lost the common thread that initially tied them together in investors’ minds, there is not yet another group of stocks to replace them. “There isn’t an appropriate replacement now,” he said, “but I think there could be one.”

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