The Magnificent Seven Tech Stocks Show Signs of Rebound Amid Market Concerns
The “Magnificent Seven” group—comprising Tesla (TSLA), NVIDIA (NVDA), Alphabet (GOOGL), Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), and Meta (META)—has recently shown signs of recovery, evidenced by a 3.3% gain on March 24, 2025. This rebound comes after a tough month during which the MAGS ETF dropped 5.5% (as of March 24, 2025).
Despite President Trump’s announcement of 25% tariffs on foreign-made vehicles, which raised concerns in the investment community on March 26, 2025, the underlying momentum for tech remains robust. Tech stocks, while facing challenges from tariff issues, may be positioned to gain traction once these uncertainties are addressed.
Investor sentiment suggests that once clarity emerges regarding trade tensions and Federal Reserve policy, U.S. tech stocks are poised to rebound. The strong competitive advantage and unique value proposition of these companies play crucial roles in this potential resurgence.
Factors Behind Recent Declines
The recent downturn of the “Magnificent Seven” largely stems from competitive pressures surrounding DeepSeek-style artificial intelligence advancements. In late January, DeepSeek, a Chinese startup, disclosed that training its R1 model cost only $5.6 million, significantly less than the $100 million necessary for OpenAI’s GPT-4.
Similarly, Alibaba (BABA) unveiled the QwQ-32B model, an AI solution that competes with DeepSeek while requiring far less data. These advancements have raised questions regarding the substantial investments made by U.S. tech firms in developing AI technologies, leading to underperformance of the MAGS ETF.
Could a Recovery Be Ahead for the Magnificent Seven?
Despite the challenges posed by DeepSeek and tariffs, tech stock valuations have decreased this year, presenting potential opportunities for investors. Any major breakthrough in AI technology is likely to benefit the Magnificent Seven sooner rather than later.
Analysts from Rosenblatt highlight potential recovery for tech giants like Meta, Apple, and Amazon, even in light of the emerging competition from DeepSeek. For instance, Meta may integrate DeepSeek advancements into its Llama platform, while Apple could leverage developments in China to enhance localized features.
In a notable move, Amazon announced a substantial $100 billion investment in AI infrastructure for 2025, with 25% earmarked for its e-commerce operations. This announcement comes as Amazon continues to expand its data center infrastructure even while pursuing cost-cutting measures.
Impact of Declining Treasury Bond Yields
The Trump Administration has been pushing for lower interest rates for months. While the Federal Reserve acts independently, the introduction of tariffs could lead to an economic slowdown, potentially influencing the Fed to maintain lower rates.
Does DeepSeek Signal a New Era in AI?
Some analysts argue that the market’s reaction against major U.S. tech firms has been somewhat overstated. Bernstein’s analyst, Stacy Rasgon, dismissed the fears surrounding DeepSeek earlier and suggested that innovations like its AI model could actually enhance computing capacity, subsequently fueling growth in AI infrastructure, as reported by Yahoo Finance.
Daniel Newman, chief strategist at Futurum, supports this view, noting that increased efficiency—often termed the Jevons Paradox—may lead to greater consumption of AI resources. Microsoft’s CEO, Satya Nadella, echoed this sentiment, tweeting that improved AI efficiency would likely result in a surge in usage, benefiting the broader AI sphere.
Earnings Expectations for the Tech Sector
For the first quarter, tech sector earnings are projected to rise by 12.7% compared to the same period last year, alongside a 10.0% increase in revenues. This marks the seventh consecutive quarter of double-digit earnings growth. The Magnificent Seven’s earnings for Q1 are expected to increase by 13.9% year-over-year on 11.9% higher revenues.
Key ETFs to Watch
In this context, several exchange-traded funds (ETFs) focused on the Magnificent Seven are worth monitoring. These include MAGS, MicroSectors FANG+ ETN (FNGS), Vanguard Mega Cap Growth ETF (MGK), Invesco S&P 500 Top 50 ETF (XLG), and iShares S&P 100 ETF (OEF).
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Amazon.com, Inc. (AMZN): Free Stock Analysis report
Apple Inc. (AAPL): Free Stock Analysis report
Microsoft Corporation (MSFT): Free Stock Analysis report
NVIDIA Corporation (NVDA): Free Stock Analysis report
Tesla, Inc. (TSLA): Free Stock Analysis report
Alphabet Inc. (GOOGL): Free Stock Analysis report
Alibaba Group Holding Limited (BABA): Free Stock Analysis report
Invesco S&P 500 Top 50 ETF (XLG): ETF Research Reports
Vanguard Mega Cap Growth ETF (MGK): ETF Research Reports
iShares S&P 100 ETF (OEF): ETF Research Reports
MicroSectors FANG+ ETN (FNGS): ETF Research Reports
Meta Platforms, Inc. (META): Free Stock Analysis report
This article originally published on Zacks Investment Research (zacks.com).
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
