The prominent group of tech giants once dubbed the “Magnificent Seven” has recently experienced significant declines, leading some investors to metaphorically call them the “Dreadful Seven.” This shift highlights a crucial investing lesson: no stock is immune to downturns.
Since reaching their peak in mid-May, these tech stocks have collectively fallen over 13%, as noted by 22V Research strategist Jeff Jacobson. In comparison, the Invesco QQQ Trust and the S&P 500 have only seen marginal declines of about 2% during the same period.
A closer look at their performance against their 52-week highs reveals the stark contrasts:
– Amazon (AMZN) is down 11%
– Apple (AAPL) has dropped 11.7%
– Alphabet (GOOG, GOOGL) is off by 12.3%
– Meta (META) has seen a 14.4% decline
– Nvidia (NVDA) is down 18.5%
– Tesla (TSLA) has plummeted 32.6%
– Microsoft (MSFT) leads with a 32.9% drop
The underlying cause of this downturn can be traced to increasing frustrations on Wall Street regarding the massive capital expenditures that Big Tech is committing to artificial intelligence initiatives. Projections suggest that spending could soar by 70%, surpassing $700 billion this year alone. Such intense investing in infrastructure, particularly in data centers and high-performance GPUs, is significantly impacting the companies’ ability to generate cash flow.
Analysts expect the collective forward free cash flow of the Magnificent Seven to diminish sharply from its peak in 2024 due to this expenditure. Concerns over a potential Federal Reserve rate hike later in the year, which could escalate financing costs for AI-related projects, add another layer of uncertainty. This combination of factors has resulted in these tech stocks losing traction on the stock charts.
Dan Ives, a tech analyst at Wedbush, notes that the next few weeks will serve as a critical “gut check” for the tech sector as investors gear up for a pivotal second-quarter earnings season in July. “In the meantime, jitters will continue as worries around the costs of this once-in-a-generation tech buildout hit their next gear of growth,” Ives commented.
Currently, the stocks are being scrutinized more than ever, as investors seek tangible proof of profitability from their hefty investments in AI infrastructure. Unfortunately, such evidence may not surface in this upcoming earnings season, leaving many investors in a state of uncertainty regarding the future of these tech giants.
