Magnificent Seven Stocks Down 13% Since May as AI Capex Tops $700 Billion
Since mid-May, the Magnificent Seven have fallen over 13% versus a roughly 2% decline in both the QQQ and S&P 500. Alphabet shares sit 12.3% below their 52-week high as AI capital spending jumps 70% to more than $700 billion, weighing on free cash flow.
1. Market Performance Decline
Since peaking in mid-May, the seven largest tech stocks have collectively lost more than 13%, while both the Invesco QQQ Trust and the S&P 500 are down only about 2% over the same period. Alphabet shares are off 12.3% from their 52-week high, trailing peers such as Amazon and Apple.
2. AI Capital Expenditure Surge
These companies are projecting a 70% increase in AI infrastructure spending this year, pushing total outlays past $700 billion. The massive investment in data centers and GPUs is expected to erode free cash flow, which analysts forecast will drop sharply from 2024 levels.
3. Investor Outlook and Earnings Expectations
Concerns over a potential Federal Reserve rate hike later this year are adding pressure by raising financing costs for AI projects. Tech investors are treating the upcoming second-quarter earnings season as a ‘show me’ event to validate when these heavy AI investments will translate into profitability.
