Magnificent Seven’s sharp losses test US stock market’s strength

“From Magnificent to Maleficent, it’s just become a massive challenge,” said Matt Orton, head of market strategy at Raymond James Investment Management, referencing the fairy-tale villain from Sleeping Beauty. “Some of the shine has been lost with respect to the story. It was only a matter of time.”

Earnings season brings high-stakes updates

Investors are closely watching earnings results due this week from Meta, Microsoft, Apple, and Amazon, with Nvidia’s report expected in late May. After dominating market returns, the group’s recent struggles have highlighted a long-standing fear: that the US stock market had become too reliant on a handful of giant tech firms. At their peak in December, the Magnificent Seven made up about 36% of the S&P 500’s total market value.

Their downturn has had an outsized impact. The S&P 500’s total return, including dividends, is down 5.7% so far this year. Without the Magnificent Seven, it would be down just 1.2%, according to S&P Dow Jones Indices. The tech-heavy Nasdaq Composite is officially in a bear market, down more than 20% from its recent high and still off 10% this year.

“When the generals fall, people tend to get nervous,” said Katie Stockton, founder and managing partner at Fairlead Strategies, describing the market’s growing anxiety.

Growth slowdown looms for tech giants

Adding to the concern, earnings growth for the Magnificent Seven is forecast to slow significantly. Analysts polled by FactSet predict a 16% rise in profits for the group in 2025, down from about 37% last year. Meanwhile, earnings for the rest of the S&P 500 are expected to climb 7.8%, up from 5% in 2024.

Each company is facing its own hurdles. Tesla reported a 71% drop in net income in the first quarter, grappling with declining car sales and mounting competition, while facing political controversy over CEO Elon Musk’s role in the Trump administration. Nvidia’s shares slumped after it warned of a $5.5 billion hit due to new US export curbs on China. Apple is battling weaker iPhone sales and delays in AI feature rollouts. Alphabet is bracing for pressure on Google’s ad business following changes to tariff rules.

Valuations remain stretched despite declines

Despite their declines, some analysts argue that the Magnificent Seven’s valuations remain lofty. Nvidia, for instance, is trading at 23 times projected earnings over the next year, down from 31 times at the beginning of 2025 but still well above broader market levels. Meta trades at a multiple of 21, compared to the S&P 500’s overall 20.

This situation echoes 2022, when tech stocks, then known collectively as FAANG (Facebook, Amazon, Apple, Netflix, and Google), cratered after the Federal Reserve began raising interest rates. After a brief comeback in 2023, Bank of America’s Michael Hartnett coined the “Magnificent Seven” nickname to reflect the tech sector’s reshaped leadership.

Analysts remain cautiously optimistic

Hartnett, who watched the 1960 film The Magnificent Seven every Christmas as a child, has since joked that the group should now be called “Lagnificent.” Nonetheless, he remains confident that their dominance will eventually reassert itself.

“At the end of the day, nobody wants to own bonds,” Hartnett said. “There’s only so much gold and European equities or emerging markets. And so it’s almost by default, you go back to the US equity market.”

As the Magnificent Seven stumble, the stakes for the broader market—and for investors counting on a tech-led recovery—have rarely been higher.