Profit advantage narrows, can the seven major U.S. stocks still be blindly bought in 2026?

As time enters 2026, the strategy of simply buying the Magnificent 7 US stocks and easily outperforming the market in recent years is no longer effective. Looking back at 2025, although the Magnificent 7 index rose by 25% overall, this was mainly due to the huge contributions from Nvidia and Alphabet, while most of the other giants underperformed the S&P 500 index. Wall Street analysts point out that as AI capital expenditures surge but profit growth slows down, investors are no longer satisfied with AI’s vision promises and are instead demanding tangible investment returns. Current market data shows that the profit gap between the Magnificent 7 and other stocks is narrowing, indicating that stock selection will be far more important in 2026 than in the past. This article summarizes insights from Bloomberg analysts to help you understand the divergence trend among the Magnificent 7 and the investment outlook for this year.

Market Structural Shift: The End of the Era of Simultaneous Gains and Converging Profits

Jack Janasiewicz, strategist at Natixis Investment Managers, emphasizes that the US stock market is no longer a “one strategy fits all” market. If investors continue to blindly buy the entire Magnificent 7, underperforming stocks may offset the gains of winners. Although the bull market that started in October 2022 was led by tech giants, as the profits of the remaining 493 components of the S&P 500 recover, market breadth is significantly expanding.

According to Bloomberg Intelligence data, the profit growth expectation for the Magnificent 7 in 2026 is about 18%, which is not only the slowest growth pace since 2022 but also less dominant compared to the 13% expected growth of the other S&P 500 components. UBS Global Wealth Management also notes that profit growth is spreading out, “Tech stocks are no longer the only game in town,” which will force capital reallocation.

Capital Expenditure Stress Test: AI Monetization Capability as a Key Focus

Entering 2026, market focus shifts from “who is investing in AI” to “who can profit from AI.” Companies like Microsoft and Meta are facing significant capital expenditure scrutiny. Microsoft expects its capital expenditure for the next fiscal year to reach $116 billion. Although cloud business is rebounding due to data center construction, investors are more concerned about whether its AI services in software products can be successfully monetized. Similarly, Meta has raised its capital expenditure forecast to over $72 billion, causing its stock price to retreat from recent highs.

Conversely, Apple was seen as a safe haven last year due to its lack of aggressive AI spending, but this year it relies on an expected 9% revenue growth to support its high P/E ratio of 31. Currently, the Magnificent 7 index’s forward P/E ratio is about 29, lower than the previous high of 40, but amid slowing profit growth, investors are paying more attention to the quality of cash flow management and the tangible benefits of AI investments.

Divergence in Magnificent 7 Stock Outlook: Nvidia’s Continued Strength and Tesla’s Valuation Challenge

In 2026, the stock performance within the Magnificent 7 is expected to diverge significantly, making stock picking crucial. Nvidia, despite facing competition from AMD and in-house chips from customers, remains highly optimistic due to demand for chips still far exceeding supply. Wall Street analysts maintain a high outlook, with an average target price implying about 39% potential upside. Amazon, on the other hand, is seen as a potential leader this year due to accelerated growth in AWS cloud services and improved warehouse automation, which could help it break away from last year’s lag.

In contrast, Tesla’s CEO Elon Musk has shifted focus to autonomous vehicles and robots, expecting revenue to recover 12% after a year of contraction by 2026. However, its sky-high P/E ratio of 200 makes the market hesitant. Analysts generally hold a pessimistic view of its stock, expecting about a 9.1% correction this year. As for Alphabet, its newly launched Gemini AI model has received positive reviews. While it remains a leader in AI and is relatively reasonably valued, it has already risen over 65% last year, and analysts believe its upside potential is limited.

This article: Profit advantage narrows, can the US stock Magnificent 7 still be bought blindly in 2026? Originally published on Chain News ABMedia.