Magnificent no longer.
Written by Julian Wheeler – Partner and US Equity Specialist
For the last three years in particular, the US investment world has focused ever closer on the largest handful of technology companies driven by the ‘new wave of computing’ (which frankly covers anything currently described as “AI”). These terms come and go like clothes in fashion. Remember SRI? That’s now ESG, at least for a bit longer. How about Blockchain? What was that anyway, just another database? Only a matter of time before A.I. will give way to a new buzzword. Robotics?
The spectacular success of Nvidia and all the others basking in its glory and growth justified this performance, but it was also helped by the insidious trend to passive investing which continues to concentrate investment capital into fewer hands. Perhaps if fund managers as a whole had done better in the decades prior to this, history might have been different; but this rising tide has submerged many Canutes who try to stand against it.
Yet, after just half a month into 2026, we might be seeing something different. My only pick of the year from this group, Google, has started very well and Amazon is slightly ahead of the market too but as for the rest of ‘The Magnificent Seven’: Nvidia is woeful compared to its semiconductor peers and Microsoft, Meta and Apple are more than 5% lower since New Year’s Eve, while the S&P 500 is almost 1.5% higher. This more than 6% divergence from the Index in just two weeks from the two venerable giants is notable for both its scale and speed compared to anything seen for many years. (Tesla is down almost twice as much by the way, but, as I wrote last year, it is an outlier where price has nothing to do with current fundamentals and should be ignored).
So now we are about to enter earnings season and perhaps the ‘Mag 7’ will do enough with their outlooks so they can all get back on track and this underperformance will reverse. “As you were” “nothing to see here” and the status quo is restored. After all, TSMC gave a very upbeat forecast on both their revenue and capex (and increasing Capex numbers has been driving this demand bus for 3 years). However, I wouldn’t bet on that given the market reaction the following day, which was to send the much smaller companies in the supply chain higher while the largest ones still declined.
Microsoft and Apple are defending huge amounts of existing revenue on which they are supposed to grow even further. This isn’t new of course and they have done it before, but not from this level of market value gap between them and everyone else. Their problem is being compounded by shortages in components from suppliers who have learned from past mistakes and are now keeping capacity in check allowing prices to rocket higher.
As for Nvidia, I mean, whatever Jensen says or does, how can he deliver another ‘Ta Dah’ drop the Mic moment that isn’t already forecast by most of Wall St? And who is left to buy if they have not already done so? How much easier is it going to be for much smaller Sandisk or even the larger Micron to be ‘this year’s Nvidia’ from much lower levels of both sales and market cap.
I have a presentation from a fund who include a slide congratulating themselves for not having owned Intel for many years but naturally have Nvidia as one of their biggest holdings. The slide is dated from last July and almost to the day it marked a turning point, since when Intel has more than doubled while Nvidia has had a pedestrian 9% gain, that is just behind the market’s return. Consider this: even after that move, you could still take 5% of Nvidia’s worth today and buy the whole of Intel! What was that phrase about ‘past performance’?
Is it about to become more exciting for the other 493 companies where not all major funds are holders of substantial amounts of these stocks? For the hordes of institutions, dealing with overweight positions in stocks that are also owned by everyone else, it could soon become as awkward a decision as it is for the football manager – for how long do you leave your star striker on the pitch when he isn’t scoring?
For more background on our U.S. market views, visit the Over the Pond archive.
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