By Angela Palumbo

Big Tech's performance in the first three months of 2025 was an about-face from last year, when investors bought up shares of companies with high exposure to generative artificial intelligence. Much has changed just within recent weeks. The S&P 500 has declined 5.6% and the tech-heavy Nasdaq Composite has dropped 12% this year.

Although President Donald Trump's tariff policies don't directly impact some of the Magnificent 7, the shift in investor sentiment has come mostly from the economic uncertainty that those policies generate. Investors have taken a less-risky approach to their portfolios, pulling back from highly valued tech stocks.

There are also concerns that the strong earnings growth between 2023 and 2024 will slow as large tech companies spend more on AI. For example, Microsoft said in a blog post on Jan. 3 that it's on track to invest approximately $80 billion in AI in 2025. Analysts surveyed by FactSet expects Microsoft earnings to grow 12% in 2025 from 2024, which is down from the 20% growth in the previous year.

"Mega Tech is not overly exposed to tariffs, nor recessions, it's more about valuation/growth rates, and the fact that they dominate the index weights and are vulnerable to broad-based selling," Navellier & Associates founder Louis Navellier wrote on Monday.

All of the Mag 7 stocks are down for the year at the end of the first quarter. Meta has slumped the least, declining 3.9% in the last three months, its worst quarter since the fourth quarter of 2022, according to Dow Jones Market Data.

One reason for Meta's better performance is investor confidence in the return on artificial-intelligence investments. The company offers its advertisers AI to help them learn about customers and personalize their offerings, a service that is expected to boost revenue growth.

However, a weak economic environment could be a problem for Meta if advertisers choose to pull back their spending. Meta also faces a trial in April after the Federal Trade Commission sued Facebook, alleging that it is illegally maintaining a personal social networking monopoly.

On the opposite end of the spectrum, Tesla turned in the weakest first-quarter results of the Mag 7 after falling 39%, setting it up for its worst first-quarter performance on record.

Tesla investors are concerned that CEO Elon Musk's involvement in the government could be pushing away potential car buyers. Wall Street is waiting for first-quarter delivery data, set to come on Wednesday, to get a clearer picture of where the company stands.

As for the remaining Mag 7 members, Apple was the second best performer in the quarter after dropping 13%, followed by Microsoft, which is down 13%, Amazon.com, which is off 15%, Alphabet, which has fallen 20%, and Nvidia, which has dropped 22%.

There is a possibility for these stocks to bounce back in the coming weeks, though.

"Next Friday is the start of earnings season, which is exactly the kind of catalyst this market needs to move past this correction, and we expect earnings to be much better than expected, especially since the bar has been lowered across the board due to this market correction," James Demmert, chief investment officer of Main Street Research, wrote on Monday.

Earnings will have to blow expectations out of the water to get investors back on board, though, as economic uncertainty continues to put a shadow of doubt over the market.

Write to Angela Palumbo at angela.palumbo@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 31, 2025 14:57 ET (18:57 GMT)

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