Big Tech’s AI bill turns the Mag Seven into a market drag
Robert Ross says investors are punishing former tech leaders for AI spending, even as new winners emerge inside and outside the boom.
By Sal Moretti · Money Reporter
3 min read
The stock market’s favorite tech club is starting to look less like a single trade and more like a split-screen headache.
Robert Ross, founder of TikStocks, argued in a MarketWatch opinion column that the “Magnificent Seven” label has outlived its usefulness as the biggest technology names stop moving together. In his view, the pressure on the group is no longer that only a handful of stocks have carried the market. The trouble now is that some of those former leaders are weighing on indexes because investors are bracing for the price of the artificial-intelligence buildout.
Ross pointed to a looming spending wave from the companies building the backbone of AI. Microsoft, Amazon, Alphabet, Meta Platforms and Oracle are expected to spend close to $1 trillion on capital expenditures in 2027, according to Goldman Sachs as cited by Ross.
That money is going into chips, networks, power and data centers, Ross wrote. He argued the spending may prove justified over time and could help drive stronger earnings and cash flow beginning in 2028. For now, he said, Wall Street is focused on the near-term hit to cash flow and the risk that companies may use stock issuance to help fund the buildout.
Alphabet becomes the caution sign
Ross cited Alphabet as an example of how investors are reacting. According to his column, Alphabet issued equity for the first time since its 2004 IPO to help pay for its AI expansion. Ross said that move coincided with a near-term peak for both Alphabet shares and the wider market.
He wrote that the Magnificent Seven’s valuation premium over the rest of the S&P 500, often called the S&P 493, has fallen to its lowest level in 10 years. Ross also said valuations have been squeezed even as earnings growth has reached records, which he presented as evidence against the view that AI stocks are in a classic bubble.
Ross’s argument is that the market is reacting faster to lower free cash flow today than to the possible earnings stream from AI over the next few years. He compared the setup with Amazon’s earlier decision to absorb years of spending to build Amazon Web Services.
AI revenue is starting to show
Ross said recent earnings reports already show early signs of AI turning into revenue. He noted that Amazon posted its fastest AWS growth in four years, which he attributed to AI demand. He also said Microsoft’s AI business more than doubled and had reached a $37 billion run rate.
At Alphabet, Ross cited CEO Sundar Pichai’s statement that enterprise AI was the main driver of momentum and backlog growth in the company’s cloud business.
The bigger message from Ross: Big Tech may still lead, but the old basket trade is cracking. He said Alphabet and Amazon look better placed because their AI revenue is more visible. He was less upbeat on other megacaps, citing Tesla as having less direct AI exposure and Apple as being driven by growth forces beyond AI.
New leaders outside the old club
Ross also identified other possible winners from the market’s shift. In AI infrastructure, he named Micron Technology and ASML Holding as companies tied closely to the buildout. Beyond AI, he said leadership may broaden into healthcare, payments and financials, citing Eli Lilly, Visa and JPMorgan Chase.
Ross disclosed that he owns shares of Microsoft, Alphabet, Amazon, Micron Technology, ASML and Eli Lilly.
His bottom line: the Magnificent Seven may no longer work as a tidy investing bucket. The AI boom, in his view, is forcing investors to separate companies that are already converting spending into growth from those whose stories are less directly tied to the payoff.
This story draws on original reporting from MarketWatch.