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The "Magnificent Seven" group (MAGS), made up of Nvidia (NVDA), Alphabet (GOOG, GOOGL), Tesla (TSLA), Microsoft (MSFT), Amazon (AMZN), Meta (META), and Apple (AAPL), has lagged so far in 2025.
NewEdge Wealth chief investment officer Cameron Dawson tells Morning Brief co-hosts Seana Smith and Brad Smith this lag is due in part to investors' waning patience with Big Tech's massive spending on artificial intelligence (AI) without seeing a payoff from the investments.
Dawson says the new DeepSeek model has sparked questions about Big Tech's spending. There's "a question about the efficacy of CapEx growth within the US tech complex. One of the things is that we've seen huge CapEx spending by the Mag Seven, which, of course, has benefited other Mag Seven names. Are we starting to get to the point where investors are losing patience with this degree of CapEx spending?"
The Mag Seven "has lagged as we've gone into 2025, and we think it's because investors are starting to ask the question: What is the return on invested capital for all of this spending that they're doing? We're seeing a lot more competition within AI, which is very much in contrast with these near-monopoly businesses that [are] the core bread and butter of the Mag Seven."
Cameron, uh, our viewers know very well by now that I love a good brunch. And it seems like all people want to talk about at brunch is deep seek and any type of impact that deep seek and these other tariff adjacent conversations where there are technologies that could be leveraged as negotiating pawns essentially, get ratcheted into the the market psyche. How are you kind of analyzing and running calculus around those risks in adjacency with tariff talks?
Well, I thought at brunch, we would talk about the very high egg prices. But certainly with Deep Seek being a question about the efficacy of CAPEX growth within the US tech complex. One of the things is that we've seen huge CAPEX spending by the mag 7, which of course has benefited other mag 7 names. And are we starting to get to the point where investors are losing patience with this degree of CAPEX spending? And we do think that that is one of the reasons why we've seen some deterioration in mag 7 relative performance over the course of the last month or so. It has lagged as we've gone into 2025. And we think it's because investors are starting to ask the question, what is the return on invested capital for all of this spending that they're doing, where we're seeing a lot more competition within AI, which is very much in contrast with these near monopoly businesses that is the core bread and butter of the mag 7. So we do think that this raises the question of those ROYCs and is likely why we're starting to see that mag 7 lag.
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This post was written by Naomi Buchanan.