Magnificent Seven's valuation premium over the S&P 500 shrinks to a decade low, Morgan Stanley says

The premium that investors have long paid for the largest US technology stocks over the rest of the market has shrunk to its narrowest in more than a decade, according to research from Morgan Stanley. The bank found that the group known as the Magnificent Seven — Nvidia, Microsoft, Alphabet, Amazon, Meta Platforms, Apple and Tesla — now trades at a premium of only around 10% to the S&P 500, down from more than 30% previously.

The compression reflects a striking bout of underperformance. Six of the seven companies have lagged the S&P 500 so far in 2026, with Alphabet the sole outperformer, up about 14.5% year to date against the benchmark's roughly 8.8% gain. Data compiled by Bloomberg show the group's forward price-to-earnings multiple has fallen to about 23.9 from roughly 32.6 late last year, leaving its valuation premium over the broader index near the lowest on record.

The main driver, analysts say, is mounting investor unease over the scale of artificial-intelligence spending. Capital expenditure across the group is projected to rise about 70% this year to more than $700 billion, weighing on free cash flow as the companies build data centers and buy high-end chips. Deutsche Bank strategist Jim Reid pointed to growing apprehension about the capital outlays of the largest hyperscalers, and markets remain uncertain about how quickly those investments will generate returns.

At the individual level, the repricing has been pronounced. Nvidia has traded at roughly 18 to 22 times forward earnings, well below its multiyear average of around 34 to 36 times, while Meta has been the cheapest in the group at under 20 times forward earnings. In June, the seven companies collectively shed on the order of $2.2 trillion in market value, one of the sharpest drawdowns since the AI-driven rally began.

The weakness has coincided with a rotation into semiconductor stocks, which have surged on continued demand for AI hardware even as the megacap spenders have stalled. Wall Street is divided on what comes next: Morgan Stanley and Goldman Sachs have argued that the underperformance has gone too far and that investors should consider rotating back toward the group, while JPMorgan strategists have cautioned about parallels to the dot-com era. Those are analysts' views rather than FXMARE recommendations, and the valuation figures reflect the periods cited by the respective research notes.