Quick Read
Nvidia (NVDA) down 3% YTD, up 70% past year; Alphabet (GOOGL) down 2% YTD, up 85% past year; Microsoft (MSFT) 25.6x P/E; Meta (META) 27.6x P/E; Block 40% staff cuts. Tech giants face investor pressure over heavy AI CapEx with unclear returns, sparking debate about following Block with AI-driven workforce reductions.
The Magnificent Seven, the Lag-nificent Seven, the Terrific or Terrible Two, whatever you want to call them, they’re no longer the darlings of this market. With President Trump recently saying things like the Iran war will be over “pretty quickly,” though, perhaps there is room for hope and a potential comeback in the freshly corrected group of seven tech giants that certainly have what it takes to regain their leadership edge again.
With a good round of earnings season and a mediocre (or even awful) round of post-quarter reactions in the books for some of the mega-cap tech heroes, questions linger as to whether the names are still worth touching.
The contracted valuations are certainly tempting, but then again, they’re spending so much on AI-related CapEx with no guarantee that it’ll pay off.
Could a return spike follow the CapEx surge?
With such spending fatigue already priced in and industry leaders, like Jack Dorsey, warning that a “majority of companies” are “late” to the AI-driven structural transition, questions linger as to whether mega-cap tech might follow in the footsteps of Dorsey and Block with its steep 40% staff cuts. Of course, all of these new “intelligence tools” are changing a wide range of jobs, including the ones that go beyond coding and financial analysis.
That said, I’m just not sure of what to make of Dorsey’s statements when it comes to the Mag Seven, which have been the heaviest spenders of all. Certainly, all of the CapEx spending might be quickly forgiven if margins rise sometime soon. And perhaps there’s no quicker way to spark margins and a swift rally than such massive layoffs as Block did.
Will the rest of tech really follow Jack Dorsey’s lead?
Either way, it’s easier for a smaller, more agile firm to cut 40% of the workforce because of AI than a multi-trillion-dollar titan, which risks a lot by cutting too deeply. While I do think that Dorsey might be right and other firms follow with similar cuts of their own, I wouldn’t bet on a similar magnitude of such cuts all in one go.
Then again, if the market rewards such and morale can be preserved, as Dorsey suggested, by ripping the band-aid off in one go, I suppose anything is possible. In any case, I wouldn’t bet against the Magnificent Seven here, especially since they’re well-positioned to live up to the magnificent descriptor again as AI evolves through what could be its most critical year.
Spending is off the charts, and investors don’t seem as willing to risk as much until the return on investment proves more than just an optimistic illusion. As always, time will tell. Personally, I think the bigger gains lie not just in AI-driven layoffs, but in “killer” agent apps. What am I most excited about for 2026? The Mag Seven’s take on OpenClaw.
Nvidia and Alphabet are leading the way, but don’t forget about Meta and Microsoft
Nvidia (NASDAQ:NVDA) and Alphabet (NASDAQ:GOOGL) might have been a bit more turbulent, but the shares haven’t rolled over as viciously, now down around 3% and 2%, respectively, year to date. In the past year, Nvidia and Alphabet shares have been crushing the market, still up more than 70% and 85%, respectively.
While Nvidia and Alphabet have been leading the charge in AI of late, I wouldn’t forget about the other five names in the Mag Seven. Most notably, Microsoft (NASDAQ:MSFT) and Meta Platforms (NASDAQ:META) seem to be the biggest bargains of the batch after their bearish plunges at 25.6 times trailing price-to-earnings (P/E) and 27.6 times P/E, respectively.
Microsoft arguably had one of the most underwhelming quarters of the seven names, but it has all the makings of an enterprise AI leader. The recent launch of Copilot Cowork might be just a taste of what’s to come as agentic AI forever changes the world of work.
As for Meta, it’s already moving along the AI return curve, at least in my view. The latest quarter saw quantifiable improvements tied to AI: smarter ad targeting and more engagement. Add the edge AI potential as smart glasses become the next big gadget, and I find it tough not to be more excited about Zuckerberg’s empire’s weakness.
