'Mag 7' Stocks Aren't So Magnificent Now. Can They Return to Their Former Glory?

For years, shareholders have grown accustomed to the Magnificent Seven delivering market-beating gains. In doing so, those companies have attracted inflows resulting in record-setting valuations. At $21.5 trillion, their collective market capitalizations now exceed the gross domestic product of every country on Earth besides the United States.

But last year, five of those seven companies — Amazon, Apple, Meta, Microsoft and Tesla — uncharacteristically trailed the S&P 500. And as the tech sector continues to weigh on the market, the Magnificent Seven's underperformance has carried over into 2026.

While their weightings continue to dominate the major indices despite failing to deliver the gains of recent years, the Magnificent Seven have left many investors wondering if the leaders of the AI revolution have moved past their peak earnings potential.

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AI investments and declining cash flows have slowed Magnificent Seven returns

Much of these companies' recent underperformances can be attributed to a notable slowdown in cash flow alongside elevated capital expenditures, or CapEx.

"When you look at the Mag Seven as a group, cash flow actually peaks all the way back in 2024," says Gina Martin Adams, chief market strategist at HB Wealth. "Sort of across the board, everything... started to deteriorate in 2025."

Cash flow is a critical measure of financial well-being. When expenses and investments accumulate to the degree that they have for these tech giants, cash flow and profitability erode.

"We're also now talking about spending priorities still accelerating in the aftermath of that peak cash flow," Adams says. "And I think that's an important combination that is only going to continue."

AI spending has been a focal point for the Magnificent Seven. Together, those firms poured an estimated $320 billion into their AI ambitions last year, from semiconductor purchasing agreements and the acquisition of AI startups to data center buildouts and critical infrastructure spending.

That has factored into these stocks failing to meet investors' heightened expectations. Amazon, for instance, posted a pedestrian gain of 4% in 2025 — 13% less than the S&P 500 returned and the worst performance among the Magnificent Seven.

During Amazon's latest earnings call, CFO Brian Olsavsky said that the company's CapEx through the first three quarters of 2025 was $89.9 billion as it continued to "invest to support demand for AI and core services."

But until AI's applications materialize broadly, investors' patience is wearing thin. The tech sell-off that began in late October has carried into 2026 as the market continues to rotate into less volatile sectors. Over the past month, tech has been the second-worst performer among the S&P 500's 11 sectors, with a 0.31% loss. Over the same period, the energy sector has led the market with an 11.36% gain, followed closely by the materials sector's gain of 8.50%.

The Magnificent Seven's rebound could hinge on AI adoption

The Magnificent Seven's performance this year could be determined by whether their AI investments result in widespread adoption beyond the tech sector.

"Not just [companies]  trying out AI," Adams says. "But adopting it to the point where it's a critical component of process — an absolute must have that is contributing to operating margin expansion and productivity growth."

For now, companies have balked at full-scale AI adoption as concerns about return on investment, challenges with integrating the technology into legacy systems and skilled labor shortages persist.

In November, Forbes noted that slow rates of AI adoption boil down to how "AI forces decisions that stretch across engineering, legal, security, compliance and finance," adding that AI moves quickly, and enterprises must try to keep pace without exposing themselves to unnecessary risk.

"When that [AI adoption] happens — if it does happen — it should drive much, much stronger top-line growth for these companies," Adams says. "That will help improve cash flow prospects, even with the high spending priorities."

But bridging the gap between development and deployment will take time, no matter how captivated investors are by AI. In the meantime, the remaining 493 companies in the S&P 500 could continue to offer brighter growth prospects.

"Up until the point of peak cash flow for [the Magnificent Seven], investors thought of the group as a... safe haven," Adams says. " And over the course of the last year, we found out, these are actually extremely high beta stocks" compared to the overall market's volatility.

Runaway valuations are pushing investors into other sectors

As a result, investors have turned to defensive stocks in sectors known for less dramatic price swings. Health care stocks, for instance, have seen an influx of buying that has made the sector the S&P 500's top-performer over the past six months.

For the Magnificent Seven, that could mean re-establishing their worth to an increasingly skeptical investor base.

"What's really clear is their valuations are no longer driving this group's performance," Adams says." "It's become much more about [their] earnings dependence and fundamental prospects, which is a very healthy condition, frankly."

Those valuations had grown to levels divorced from underlying financials, resulting in metrics like price-to-earnings (P/E) ratios climbing higher. A P/E multiple indicates how much investors are willing to pay for $1 of the company's earnings. Lower P/E ratios can suggest that stocks are undervalued, whereas higher P/E ratios can point to overvalued stocks.

For context, the S&P 500's historical median P/E multiple is 18. At the time of writing, Tesla's P/E multiple stands at 309.70, meaning that investors are paying nearly $310 for every $1 the Elon Musk-led tech firm generates.

Until the Magnificent Seven can demonstrate significant AI adoption in other sectors, investors are likely to continue looking outside of tech for opportunities, especially if it helps them get ahead of broad AI deployment.

"Health care innovation and financial market innovation have not captivated attention to the degree that AI has," Adams says, stating that other corners of the market could garner more interest as AI applications increase. "This is just the non-exciting stage of the cycle. We're now deploying this technology. It's not a new discovery anymore.  And what really drives optimism in the equity market is these new discoveries [in other sectors using AI] that are big game changers."

As for the Magnificent Seven, Adams won't write them off entirely. " I wouldn't call them un-investible," she says. "But the days in which this one single-handed theme kind of drove everything are in our past. There are other things that probably start to capture [investors'] attention."

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