MW Big Tech stocks haven't been this cheap in months. These investors say it's time to buy.

By Christine Ji and Joseph Adinolfi

Big Tech falls out of favor as market leadership shifts

The once-dominant “Magnificent Seven” have gone from market leaders to laggards, prompting one analyst to jokingly rename them the “Lag-nificent Seven.” Since October, these Big Tech stocks have struggled amid a broader rotation away from megacaps and into small caps, cyclicals, value stocks and international equities.

Within the technology sector, performance has diverged sharply. Semiconductor stocks have continued to outperform, while software names have lagged, adding to the pressure on large-cap tech leaders.

Underperformance drives valuations to multi-month lows

As a result of this rotation, the Roundhill Magnificent Seven ETF (MAGS), which equally weights the group, has fallen more than 7% since Halloween, compared with a 0.6% decline in the S&P 500 over the same period. The price ratio between MAGS and the SPDR S&P 500 ETF (SPY) has dropped to its lowest level since early September.

Valuations have followed suit. The forward price-to-earnings ratio of the Magnificent Seven ETF recently hit its lowest level since mid-September, based on expected earnings. The group includes Nvidia, Apple, Alphabet, Meta Platforms, Tesla, Amazon and Microsoft.

Positioning unwind and the role of the U.S. dollar

J.C. Parets, founder of TrendLabs, said positioning in the Magnificent Seven became extremely crowded last year and is now unwinding. While he does not expect investors to rush back into these stocks aggressively, he believes the recent weakness could present a buying opportunity.

Parets added that future performance may depend heavily on the direction of the U.S. dollar. A renewed dollar rally could favor a return to outperformance by Big Tech, while further dollar weakness could prolong their underperformance. The ICE U.S. Dollar Index had been trending higher since late December before pulling back sharply earlier this week.

Narrowing leadership and small-cap outperformance

The group’s dominance has been thinning over time. While all seven stocks outperformed the S&P 500 in 2023, only four did so in 2024. By 2025, Alphabet and Nvidia were the only members still beating the broader index.

According to David Wagner, head of equity and portfolio manager at Aptus Capital Advisors, small-cap stocks have benefited from expectations of further rate cuts and potential tax breaks, which would disproportionately support smaller companies’ earnings. The Russell 2000 has now outperformed the S&P 500 for 13 consecutive sessions, matching its longest streak since 2008.

Earnings season may offer near-term support

Despite the recent rotation, Wagner believes megacap stocks still enjoy advantages from operating leverage and economies of scale. He has been adding to positions in Amazon, Microsoft and Meta, all of which have declined over the past three months amid concerns about heavy AI spending pressuring margins and cash flow.

Wagner argues that investor expectations for AI returns may be overly short-term and that earnings growth from Big Tech and small-cap stocks does not have to be mutually exclusive. With most of the Magnificent Seven set to report earnings in the coming weeks, Mark Hackett, chief market strategist at Nationwide, said the group could see a near-term rebound.

While the broader market may still offer better risk-reward, Hackett noted that the “buy-the-dip” mentality remains intact and that a period of relative strength for technology stocks is not out of the question amid earnings volatility.