By Martin Baccardax

The so-called Magnificent Seven megacap tech stocks are starting to separate in terms of performance this year, based in part on how investors see their position in the global race to dominate artificial intelligence technologies.

AI has been the undisputed investment theme of the tech sector, and in large part the broader global economy, for much of the past year. Total spending in 2024 was pegged at around $235 billion, according to International Data Corporation figures, and is likely to rise past $630 billion by 2028.

Spending on agentic AI, which is focused on task automation, is likely to hit $155 billion by 2030, according to Bank of America. Bloomberg Intelligence estimates, meanwhile, see the broader global market for generative AI, the consumer-facing portion of the technology, rising to $1.3 trillion by 2033.

With so much at stake, and with the so-called hyperscalers spending billions on data centers and training models to win and hold a portion of that overall market, investors are starting to pick who they see as winners in the space. And that is fragmenting performance in the Magnificent Seven stocks.

The broader group is down around 0.6% so far this year, trailing the 3.6% gain for the S&P 500 and the 3.4% advance for the Nasdaq Composite.

But that is largely because investors are separating the AI "winners" from the rest of the pack. Nvidia shares are up 15% for the year, and have surged 65% since their early April lows. The global leader in AI chip making touched a record high in early Thursday trading and is now the market's most valuable stock with a market capitalization of $3.8 trillion.

Microsoft, which ceded its top ranking in market capitalization to Nvidia, is up 17% so far this year. Meta Platforms has gained 21%.

On the other side of the ledger, Amazon.com, Alphabet, Apple, and Tesla have all notched year-to-date declines.

The implication from that score card is clear. The companies that are commanding the AI space, and moving quickest to cash in from it, are gaining.

Those that are either struggling to establish a strong AI product, such as Apple, or are bogged down by slowing legacy businesses, like Tesla and Alphabet, are getting left behind.

"We think AI will continue to be the top theme for the second half of the year, as companies are racing to integrate AI features to products and developing Agentic tools," Bank of America analyst Kemunto Ongera said in a client note this week.

On Thursday, UBS analyst Stephen Ju lifted the bank's stock-price target on Meta Platforms by $129, taking it to $812. Ju cited Meta's ability to cash in on its AI strategy, which includes capital spending of around $72 billion this year alone, with revenue from its advertising and its newly launched Meta AI app.

Wedbush analyst Dan Ives, meanwhile, boosted his Microsoft price target by $85, taking it to $600 a share. In a research note this week, he cited a "massive adoption wave of Copilot and Azure monetization now on the doorstep."

Nvidia's performance and size, however, might make it the market's most important component. Figures cited by Josh Brown of Ritholtz Wealth Management on his Compound and Friends podcasts suggest Nvidia will comprise around 17% of S&P 500 earnings growth this year alone.

LSEG data pegs this year's collective S&P 500 earnings rising by 8.4% to $263.42 a share. Wall Street forecasts have Nvidia's earnings for the fiscal year ending in January 2026 rising 39% to $4.16 a share.

Analysts also see Nvidia earnings soaring by 45% from a year ago to 99 cents a share over the second quarter. That is more than 2 1/2 times the 17% advance expected for the S&P 500's Information Technology sector and nearly 10 times the 5.7% earnings growth forecast for the entire benchmark.

"Nvidia's valuation is back to being elevated, after a brief reprieve in early April, and while that does raise the stakes for the company since expectations are high, the AI story is alive and well and we believe that theme will continue to help Nvidia and other adjacent companies," said Brian Vendig, chief investment officer at MJP Wealth Advisors in Westport, Conn.

Write to Martin Baccardax at martin.baccardax@barrons.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.

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June 26, 2025 09:55 ET (13:55 GMT)

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