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<\/p>\n(Bloomberg) — For most of the past decade, investors have had to pay exorbitant prices to own a piece of the world\u2019s biggest technology companies. But that\u2019s changing as AI euphoria gives way to skepticism. <\/p>\n
Big Tech stocks have been underperforming for months due to concerns about ballooning spending on artificial intelligence and a rotation into sectors that tend to do well in an expanding economy. An index of the so-called Magnificent Seven giants is down 6% since the end of October while the S&P 500 Index is basically flat. That\u2019s a reversal from 2023 and 2024, when the Mag Seven tripled or quadrupled the S&P 500\u2019s return.<\/p>\n
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After the recent downturn, many of those tech behemoths are now trading at valuations rarely seen. Nvidia Corp. is priced at a little more than 21 times forward earnings, which is basically the same as the S&P 500 and down from its 10-year average of 35 times. Amazon.com Inc. shares are priced at 23 times forward earnings, half their average multiple over the past decade of 46. Excluding long-time outlier Tesla Inc., the group \u2014 which also includes Alphabet Inc., Apple Inc., Meta Platforms Inc. and Microsoft Corp. \u2014 trades for 23 times estimated profits, the cheapest since the tariff tantrum in April.<\/p>\n
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The shift has taken many investors by surprise following years in which the stocks traded at a significant premium to the S&P 500 thanks to rapid revenue growth, booming profits and dominant market positions. To some, however it\u2019s a natural outgrowth of companies like Amazjsut on pumping ever-greater piles of cash into computing infrastructure to develop AI.<\/p>\n
\u201cIt\u2019s amazing the transformation we\u2019ve seen in markets,\u201d said Brett Ewing, chief market strategist at First Franklin Financial Services. \u201cThere\u2019s been a complete repricing of the Mag 7 because they underwent a transformation from asset-light companies with massive cash flows, to companies that have been forced to move at an accelerated pace into becoming asset-heavy.\u201d<\/p>\n
Many of the characteristics that made the stocks so attractive, like profit growth, remain intact. Magnificent Seven earnings are expected to rise 19% in 2026, compared with 12% for the other 493 companies in the S&P 500, according to data compiled by Bloomberg Intelligence. But the group\u2019s earnings expansion is slowing, in part because the hundreds of billions of dollars they\u2019re spending on AI has saddled the companies\u2019 balance sheets with loads of depreciating assets while sapping free cash flows.<\/p>\n
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The biggest spenders \u2014 Amazon, Microsoft, Alphabet and Meta \u2014 are projected to plow $618 billion combined into capital expenditures in 2026, up from $376 billion in 2025. As a result, their collective free cash flow is expected to shrink to $94 billion this year, compared with $205 billion in 2025 and $230 billion in 2024.<\/p>\n
\u201cThese companies look a lot different than they did just a few years ago. Capex levels matter, maintenance matters, the ratio of physical assets to soft assets matters,\u201d Ewing said. \u201cThey deserve different multiples and different expectations.\u201d<\/p>\n
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That change in sentiment is most evident in Amazon\u2019s stock price. For years, it commanded one of the highest valuations among megacaps as revenue growth outpaced peers and the company invested aggressively in new markets. But now it\u2019s trading near the lowest on record. Microsoft is also notable, with its shares priced at 22 times forward earnings, the lowest since 2022.<\/p>\n
On the flip side, there\u2019s Apple, which is trading for 29 times estimated profits, well above its 10-year average of 22.<\/p>\n
The iPhone maker isn\u2019t spending gobs of cash in the race to expand AI computing capacity, instead partnering with Google to power artificial intelligence features. While that approach put Apple shares in the doghouse just seven months ago, investors have warmed to its strategy amid improving revenue growth. Its capital expenditures are projected to be just $13.4 billion in its current fiscal year, less than 7% of what Amazon is expected to spend.<\/p>\n
While the selloff in some of these stocks has probably gone too far, it\u2019s also a sign of just how skeptical investors are about AI spending continuing at the current pace, according to Lisa Shalett, chief investment officer of Morgan Stanley\u2019s wealth management arm.<\/p>\n
\u201cIt has become really clear that the market is starting to discriminate between the companies seen as having sustainable earnings growth, and those that are starting to exhibit earnings that could be at peak levels,\u201d Shalett said.<\/p>\n
She points to Nvidia as a prime example. The chipmaker\u2019s valuation has collapsed over the past four months, and even a banner earnings report last week wasn\u2019t enough to lift the stock out of a slump that\u2019s left it down 11% from an Oct. 29 peak.<\/p>\n
Still, even though some of the Magnificent Seven\u2019s luster has faded, the stocks remain attractive in the long run, according to First Franklin\u2019s Ewing.<\/p>\n
\u201cI don\u2019t think the age of Big Tech is over,\u201d he said. \u201cThey continue to have amazing size and scale, and what they\u2019re able to do is amazing. I\u2019m positive about the companies over the long term, but in the short term, just thinking as an investor, I\u2019m not adding money.\u201d<\/p>\n
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Oracle Corp. is planning to ax thousands of jobs, among its moves to handle a cash crunch from a massive AI data center expansion effort.<\/p>\n
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Nvidia has long been the world\u2019s AI kingmaker. Now, the Trump administration is considering taking a formal role in the industry that would include similarly sweeping powers.<\/p>\n
Anthropic PBC vowed to legally contest a Pentagon decision to declare the company a threat to the US supply chain under an authority normally reserved for foreign adversaries, escalating a showdown with the Trump administration over artificial intelligence safeguards.<\/p>\n
SoftBank Group Corp. is seeking a loan of as much as $40 billion to mostly help finance its investment in US tech giant OpenAI, according to people familiar with the matter, in what would be its largest-ever borrowing denominated solely in dollars.<\/p>\n
Rohm Co. shares surged 18%, the most in 26 years, after the Japanese chip parts maker said it had received an acquisition proposal from Denso Corp.<\/p>\n
–With assistance from Brody Ford and David Watkins.<\/p>\n
Most Read from Bloomberg Businessweek<\/p>\n
\u00a92026 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"(Bloomberg) — For most of the past decade, investors have had to pay exorbitant prices to own a…\n","protected":false},"author":2,"featured_media":332081,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[220,1671,218,219,971,153022,69048,61,60,1672,1673,8816,18413,80,61181],"class_list":{"0":"post-332080","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-artificial-intelligence","8":"tag-ai","9":"tag-amazon-com-inc","10":"tag-artificial-intelligence","11":"tag-artificialintelligence","12":"tag-bloomberg","13":"tag-brett-ewing","14":"tag-forward-earnings","15":"tag-ie","16":"tag-ireland","17":"tag-microsoft-corp","18":"tag-nvidia-corp","19":"tag-revenue-growth","20":"tag-tech-stocks","21":"tag-technology","22":"tag-technology-companies"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/332080","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=332080"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/332080\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/332081"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=332080"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=332080"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=332080"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}