The article highlights that the Magnificent Seven's capital spending grew by 40% year-on-year in 2024, compared to just 3.5% for the rest of the S&P 500. Alphabet's cloud unit, a key indicator of the AI boom, missed expectations, and the company anticipates higher-than-expected capital expenditures in 2025. Meanwhile, the rest of the S&P 500 shows improving profit growth trajectories, suggesting that exposure to the Magnificent Seven may not be as crucial for fund managers moving forward. The article also notes the impact of trade tensions, geopolitical concerns, and the emergence of DeepSeek as additional pressures on these companies.
Key takeaways:
- The Magnificent Seven have driven the S&P 500’s earnings expansion and equity returns, comprising about one-third of the benchmark’s weight.
- Year-over-year earnings growth for the biggest companies peaked in late 2023 and is expected to slow for a fifth consecutive quarter.
- The largest seven companies grew capital spending by 40% year-on-year in 2024, compared to growth of just 3.5% for the rest of the S&P 500.
- Year-over-year earnings growth is declining for Magnificent Seven stocks while the trajectory improves for the rest of the S&P 500.