Magnificent Seven Valuations Fall Under 25×; Nebius Raises $4.34B After $17.3B Microsoft Deal
Magnificent Seven valuations, including Microsoft, have reset below 25× estimated earnings from nearly 33× in October, while AI infrastructure spending will pressure free cash flow at hyperscalers this year. European AI infrastructure firm Nebius closed $4.34 billion of convertible debt at 2.63% due 2033 after its $17.3 billion Microsoft supply deal.
1. Valuation Reset and Market Divergence
The correlation between the Magnificent Seven and the equal-weighted S&P 500 turned negative on Feb. 23 as the group’s index declined 7.3% from late October through February while the equal-weighted S&P 500 rose 8.9%. Microsoft’s valuation, alongside peers, has fallen below 25× estimated earnings, down from nearly 33× in October.
2. AI Infrastructure Spending Pressure
Heavy AI infrastructure investments by hyperscalers such as Microsoft are set to weigh on free cash flow this year, with combined spending for the Magnificent Seven projected to drop sharply compared with prior periods. Microsoft’s increased capital allocation for AI servers and data center expansion will elevate hardware and operational costs.
3. Nebius Funding and Microsoft Supply Deal
European AI infrastructure firm Nebius raised $4.34 billion in convertible notes due 2033 at a 2.63% coupon, bolstering its 2026 capital plan of $16–20 billion. This follows a $17.3 billion data center capacity agreement with Microsoft, securing AI cloud infrastructure support through 2026.