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Even before the stock market strapped into the tariff roller coaster, Big Tech was on a bumpy ride. The start of the year coincided with an unwinding of the AI trade.
Trillion-dollar tickers composing the Magnificent Seven devolved from Wall Street’s jet fuel into dead weight. Some forecasters lowered their S&P 500 year-end levels, weighed down by the leaden baggage of the “Maleficent Seven,” including the massive costs of AI development, Deepseek’s surprise success, and what (at the time) was the looming threat of new levies.
But as the AI trade cooled, the Magnificent Seven still tracked the growth trajectory of the market, even accounting for their concentration in the S&P 500. It wasn’t (and still isn’t) a controversial thing to say that many of the valuations of the largest companies were inflated by a combination of AI mania, FOMO trading, and the animal spirits wafting around talk of a soft landing.
Fast-forward a few weeks and several panicked trading sessions later, and the Magnificent Seven has been cut down to size. But the relief that arrived this week, though fleetingly measured in hours on Tuesday, highlighted just how important these stocks remain, even in their diminished state.
While last week’s announcement probably squashed any hope that these stocks are simply too big to fail, taking the market down with them, a better read might just be that they remain big, powerful, lucrative, and are well-positioned for a market of attrition.
These stocks have a history of playing a defensive role. As Citi’s Scott Chronert wrote in December during a similar Magnificent resurgence, they have the potential to take up that mantle “when you get concerned about other things at work in the market and the economy.”
Schwab’s senior investment strategist Kevin Gordon also noted at the time that the Magnificent Seven can handle higher rates with the cash on their balance sheets — and coming in every quarter.
Rather than only being seen as the S&P’s vanguard, accounting for roughly one-third of its weighted market cap, the mega tickers are like a big tree that investors sometimes scramble to get under.
But what this means during an international trade incident isn’t clear. Nvidia, Apple, Microsoft, and their peers aren’t defensive stocks in the traditional sense of the term — and certainly not insulated from tariff shocks due to their global supply chains and international operations. Optimism over a dovish White House saw Magnificent Seven stocks rise on Tuesday before those hopes were dashed when news broke that tariffs on China would, in fact, rise to 104%.
