Magnificent Seven stocks lose $2.3tn as investors shift to chipmakers

In short: Investors have been selling shares in the “Magnificent Seven” tech giants and buying chipmaker stocks tied to rising AI spending.

What's going on

The Financial Times reports that the so called Magnificent Seven stocks have lost a combined $2.3tn in market value during a recent shift in Wall Street trading. The “Magnificent Seven” is a nickname for seven of the biggest US technology companies, and their shares have often moved together.

At the same time, investors have been putting more money into chipmakers. Chips are the physical parts inside computers that do the work (like the engine in a car). This shift is linked to growing spending on AI by “hyperscalers”, meaning the biggest cloud computing companies that run huge data centers (warehouse sized buildings full of computers).

The basic idea is that as large firms spend more on AI, they need more powerful chips to run it. That can boost chip companies’ sales expectations, even while some investors decide that the biggest tech stocks have risen too far, too fast, and want to spread their bets.

What to watch

Watch whether AI spending by the largest cloud firms keeps rising, because that demand often flows first to the companies that supply the computing hardware. Also watch whether the sell off in mega cap tech continues or stabilizes, since many retirement accounts and index funds are heavily exposed to these large stocks.

Source: Financial Times