The Luster of the Magnificent Seven Fades: Analysis of the Impact of AI Infrastructure Investment Concerns on Tech Stock Valuations and Market Rotation

The U.S. Magnificent Seven are in a phase of significant market revaluation. The aggressive strategy of AI infrastructure investment is triggering deep concerns among investors about the sustainability of long-term returns. From the latest market data, this concern has begun to substantially affect the valuation structure of tech stocks and drive capital rotation toward the remaining 493 stocks in the S&P 500.

According to the latest real-time quotation data, there is a clear divergence within the Magnificent Seven [0]:

• Tesla
  performed the strongest, rising 1.05% to $480.31 on the day, with a 52-week gain of 124%
• NVIDIA
  had a relatively modest gain, rising 0.22% to $176.67, but still a 52-week gain of 104%
• Google
  and
  Amazon
  fell 1.18% and 0.24% respectively
• Apple
  edged down 0.28%,
  Microsoft
  was basically flat

From a valuation perspective, the Magnificent Seven still face significant valuation pressure [0]:

• Tesla’s P/E ratio is as high as 252.79
  , far exceeding reasonable levels
• NVIDIA’s P/E is 43.73
  , which is relatively reasonable but still high
• Other giants have P/E ratios between 28-37
  , relatively reasonable

The market is re-evaluating the aggressive investment strategies of tech giants in the AI field. JPMorgan analysts pointed out: “Driven by the AI boom, capital has excessively chased a few related stocks, leading to soaring market valuations; the tens of billions of dollars in spending by these companies to avoid being eliminated is seen as unsustainable in the long term, especially as they start taking on debt to keep up” [1].

The accounting treatment controversy over the depreciation period of AI chips has further intensified market concerns. Well-known investment manager Michael Burry criticized that extending the asset life can reduce depreciation expenses and exaggerate current profits, which is regarded as a common accounting fraud method [1].

Although Broadcom’s recent earnings report outperformed expectations, the company failed to clearly explain when AI investments will bring substantial returns, instead raising concerns about compressed profit margins, leading to a 11.43% plunge in its stock price on the day, the worst single-day performance this year [2]. This event is seen as an important signal of cooling AI theme enthusiasm.

From the latest market performance, capital is rotating from the tech sector to other sectors:

• Energy sector: -1.39846%
• Healthcare: -0.93084%
• Real Estate: -0.41551%
• Financial Services: -0.26025% [0]

• Utilities: +1.55012%
• Communication Services: +0.54009%
• Basic Materials: +0.45258%
• The tech sector still maintained a slight gain of +0.35004%, but with obvious divergence [0]

Recent performance of major indices also confirms this rotation trend [0]:

• Dow Jones Industrial Average
  performed the strongest, rising 3.47% during the period
• S&P 500 Index
  edged up 1.13%
• Nasdaq Composite Index
  rose only 0.80%

Technical analysis shows that QQQ is currently in a sideways consolidation state, with a death cross signal in MACD and bearish KDJ indicators, reflecting the adjustment pressure faced by tech stocks [0].

The news that Tesla launched Robotaxi road tests without safety drivers brought both positive expectations and increased market concerns about the scale of AI investment. Musk announced that the size of the driverless taxi fleet in Austin will be expanded to 500 vehicles by the end of this year [3], a radical expansion plan that requires huge upfront investment.

China’s Ministry of Industry and Information Technology officially announced the first batch of L3 conditional autonomous driving vehicle access permits, from Changan Automobile and BAIC Arcfox [3], marking that China’s L3 autonomous driving has officially crossed the testing phase and entered the new stage of pilot operation in designated areas. This policy breakthrough will accelerate global autonomous driving competition and further increase R&D investment pressure across the industry.

Given the current market environment, investors are advised to adopt the following strategies:

1. Moderately reduce positions in the Magnificent Seven
   , especially Tesla with excessively high valuations
2. Focus on the long-term value of AI infrastructure leaders like NVIDIA
3. Increase allocation to traditional value stocks
   , especially sectors like utilities and financial services

Although facing short-term adjustment pressure, AI transformation remains the main growth driver of the tech industry in the long run:

• OpenAI’s $500B Stargate data center plan shows the industry is still in the expansion phase [4]
• AI application scenarios are shifting from training to inference stages, requiring new technology stack support [5]
• Major tech companies’ AI investments are shifting to more pragmatic commercial paths

The following risk factors need to be focused on:

1. Regulatory Risk
   : The U.S. threatens to impose digital tax retaliation on EU companies [4]
2. Technical Risk
   : Uncertainty in AI chip technology routes
3. Valuation Risk
   : Some tech stocks still have obviously high valuations
4. Economic Cycle Risk
   : Impact of macroeconomic environment changes on tech spending

The luster of the U.S. Magnificent Seven is indeed fading, but this is more of a rational revaluation of the aggressive AI infrastructure investment strategy by the market, rather than a failure of the AI revolution itself. The current market adjustment provides better entry opportunities; it is recommended to focus on high-quality companies with real moats and sound financial conditions in AI transformation, while moderately increasing allocation to traditional value stocks to respond to investment opportunities brought by market rotation.

[0] Gilin Data API - Real-time stock prices, technical analysis and market data
[1] Yahoo Finance - “U.S. Stock Technical Correction Ends! JPMorgan: Now is a Good Time to Buy on Dips” (https://hk.finance.yahoo.com/news/美股技術性洗盤落幕-摩根大通-現在是逢低布局好時機-180004600.html)
[2] Yahoo Finance - “<U.S. Stocks After Hours> Broadcom Plunges Over 11%, Nasdaq 100 Drops Over 5%, S&P and Nasdaq Indices End Week in Red” (https://hk.finance.yahoo.com/news/美股盤後-博通暴跌逾11-費半下殺超5-標普那指周線吞黑-215102366.html)
[3] Yahoo Finance - “True Autonomous Driving is Here! Musk: Tesla Launches Robotaxi Road Tests Without Safety Drivers” (https://hk.finance.yahoo.com/news/真無人駕駛來了-馬斯克-特斯拉啟動無安全員robotaxi路測-200004628.html)
[4] TechMeme - “OpenAI hires former UK chancellor George Osborne to lead OpenAI for Countries, the global expansion arm of its $500B Stargate data center initiative” (http://www.techmeme.com/251216/p25#a251216p25)
[5] WCCFTech - “After Gobbling Up DRAM, NVIDIA & SK hynix Plan to Introduce an “AI SSD” With 10× Higher Performance” (https://wccftech.com/after-gobbling-up-dram-nvidia-sk-hynix-plan-to-introduce-an-ai-ssd/)