The Magnificent Seven tech giants collectively lost momentum this month, with single-week declines of 3% to 8%. The Nasdaq Index fell approximately 4% during the same period, marking its worst performance since July 2024. Accounting for over 30% of the S&P 500’s market capitalization, the Magnificent Seven’s more than 5% weekly drop prevented the broader market from rising. Despite a flurry of positive macroeconomic data, the downturn could not be reversed, primarily due to the unwinding of crowded trades—over the past three years, long positions in the Magnificent Seven were the most crowded trade. Currently, upstream AI infrastructure players, particularly chipmakers and computing power suppliers, are emerging strongly and replacing the Magnificent Seven as the market’s new favorites. Each company faces distinct pressures: Amazon, Meta, Microsoft, and Alphabet are making massive investments in AI infrastructure; NVIDIA is under pressure from chip competition; and Apple is being weighed down by rising memory prices. Historical parallels show that after the “Nifty Fifty” of the 1970s significantly underperformed, it took 25 years to recover its losses. Current market volatility resembles a stress test, far removed from the high-growth environment of 2023.Article author and source: Wall Street Journal
The once most crowded long trade is now becoming a heavy burden dragging down the U.S. stock market.
The Mag 7 collectively lost momentum this month, with each of the seven stocks declining between 3% and 8% for the week, while the Nasdaq Index fell approximately 4%. Meanwhile, both the Dow Jones Index and the Russell 2000 Small-Cap Index outperformed. This was the worst week for the Nasdaq Index relative to small caps since July 2024.
The logic behind this divergence is straightforward: the Mag 7 account for over 30% of the total market capitalization of the S&P 500. When more than 30% of the index’s market cap declines by over 5% in a single week, the remaining components simply cannot offset the loss. That’s why, even though eight of the eleven major sector indices rose that week, the broader market index still declined.
This month, the combined market value of the Mag 7 declined by approximately $3 trillion. The Roundhill Magnificent Seven ETF, which tracks these seven stocks, fell 13% in June, according to Dow Jones Market Data—marking its worst monthly performance since its inception in April 2023. In contrast, the Defiance Large Cap ex-Mag 7 ETF, which tracks the remaining S&P 500 components, rose 2.6% over the same period.
Macro tailwinds "fail"—why are the Mag 7 specifically falling?
This week's macro data should, in theory, boost risk assets.
Goldman Sachs strategist Chris Hussey analyzed that at least five positive factors emerged this week: the reopening of the Strait of Hormuz, with oil prices falling approximately 10% for the week; May core PCE inflation rose 0.32% month-over-month, in line with expectations; Micron Technology released strong earnings and its stock rose over 4% despite market conditions; the 10-year U.S. Treasury yield declined more than 10 basis points to 4.37%, traditionally supporting stock valuations; and Goldman Sachs chief economist Jan Hatzius reaffirmed the view that the Fed will not cut rates this year.
However, the VIX remained around 20 for the week, while the Mag 7 continued to face pressure.
The reason is that this is not a macro issue, but a structural one.
The backlash of crowded trades: leaders become laggards
The predicament of the Magnificent Seven is essentially the result of a crowded trade unwinding.
Over the past three years, "going long the Mag 7" has been the most crowded trade in the market. Bank of America analyst Michael Hartnett coined the term "Mag 7" in 2023, when these seven stocks led investors out of the 2022 bear market and continued to outperform the S&P 500 through 2025.
But in 2026, the market's favorite changed hands.
Chip and hardware suppliers in the upstream AI industry have emerged as powerful players. According to data from financial software company Hazeltree, memory chip manufacturer Micron Technology’s market capitalization has approached that of Meta following its strong earnings report; chip equipment maker Applied Materials and semiconductor giant Broadcom ranked second and third, respectively, among hedge funds’ most crowded long positions last month.
Marta Norton, Chief Investment Strategist at Empower, told Barron’s, “Amid the historic surge in chip stocks and the continued slump in software stocks, the stock market seems to have completely forgotten about the Mag 7.”
A clear divergence is emerging within the AI ecosystem—“AI payers” (i.e., hyperscale cloud providers) and “AI receivers” (i.e., chip and computing power suppliers) are moving in opposite directions, while non-AI sectors rose 2.2% for the week.
Every company has its own "troubles".
The decline of the Mag 7 is not uniform; each company faces its own pressures.
According to Barron’s, Amazon, Meta, Microsoft, and Alphabet are pouring significant funds into AI infrastructure; NVIDIA faces new competition in the chip market; Apple is under pressure from rising memory prices; and Tesla continues to experience extreme volatility.
In Musk’s business empire, Tesla is no longer even his most valuable publicly traded company. SpaceX’s record-breaking IPO two weeks ago has also diverted market attention.
Kimberly Forrest, Chief Investment Officer at Bokeh Capital Partners, said the Mag 7 remain giant companies that can still generate "huge cash flows," but "now they also have 'big problems.'"
Behind the valuation discount: It’s no longer 2023.
The relative discount of the Mag 7 has a fundamental rationale.
The forward valuation multiples of some Mag 7 stocks are now only slightly above those of the S&P 500. However, this does not mean they are cheap—measured by price-to-sales ratio, these companies are currently valued at 11 times historical sales, far exceeding the level corresponding to the approximately 47x P/E ratio seen during the peak of the "Nifty Fifty" in the 1970s.
Wall Street Journal columnist Spencer Jakab drew a historical analogy: the "Nifty Fifty" of the 1970s were similarly the most crowded "one-click" stocks of their time; in 2023 and 2024, the Mag 7 accounted for more than half of the S&P 500's gains. But after significantly underperforming the market in the mid-1970s, the Nifty Fifty did not fully recover until 1997—整整25年.
Jakab wrote, "Sentiment overwhelms valuation in the short term." He cited Cisco as an example: Cisco became the world’s most valuable company in 2000, boasting an excellent CEO, market dominance, and consistent sales growth, yet its stock price only returned to its peak last year—a full quarter-century after its high point.
His conclusion was: "There is no such thing as a 'one-click decision' stock."
Volatility anomaly: QQQ is only 5% below its high, yet market behavior resembles a "stress test."
From a technical perspective, the current volatility signal is quite unusual.
According to SpotGamma’s analysis, QQQ (Invesco Nasdaq-100 ETF) is only about 5% away from its all-time high, yet implied volatility levels are approaching those seen in March this year during the initial escalation of the Iran conflict. This surge in volatility has not been triggered by a market crash, but rather by multiple sharp reversals in June following a rapid price rally from May to June.
A significant divergence has emerged between Nasdaq's "VIX" and the S&P 500's "VIX," with the former substantially higher than the latter.
According to Bloomberg analyst Michael Ball, options and leveraged ETFs are turning the S&P 500 into a "bidirectional volatility machine"—hedging and rebalancing capital flows are accelerating, rather than dampening, directional market movements.
The current sell-off resembles a "congested position unwinding" rather than a broad macro risk-off. Selling pressure in AI-leading stocks is flowing into value and quality stocks, as well as previously lagging mega-cap cloud computing and software companies.
The Magnificent Seven turned positive in the bond market, but stock investors may not want to follow suit.
Interestingly, the Mag 7 have fallen out of favor in the stock market but are gaining popularity in the bond market.
AI cloud giants such as Google, Microsoft, Meta, and Amazon have begun issuing hundreds of billions of dollars in bonds to purchase chips and build data centers. Marta Norton said that the Mag 7 have become the "new darling" of the fixed-income market.
But this does not mean stock investors should switch to corporate bonds. Barron’s notes that the forward valuations of some Mag 7 stocks are approaching the overall level of the S&P 500, making them somewhat attractive.
The core issue is that this is no longer 2023, when these companies were growing rapidly with little doubt about capital spending or competition. According to Goldman Sachs analyst Ben Snider, investors need to balance "stronger-than-expected AI capital spending" against "the risk of potential spending slowdown" and "uncertainty over whether recent profitability can be sustained."