Investors Reassess AI Bets After Magnificent Seven Drop

A one-day selloff erased $797bn from the combined market value of the ‘Magnificent Seven’ on Thursday after the group fell 4.8%. The decline pushed the S&P 500 down 1.2% and the Nasdaq 100 down 1.9%.

The drop followed quarterly updates that highlighted large capital spending plans. Alphabet expects capital expenditure of as much as $205 billion this year and recorded $45 billion in spending in the second quarter, a pace that moved its cash flow into negative territory for the first time since the company listed. Tesla’s chief executive, Elon Musk, described 2026 as ‘a year of substantial investment’ and urged acceleration of capital spending while avoiding wasteful projects.

Shares of Tesla fell 15% and Alphabet dropped 7.1%. Other large technology companies also declined: Amazon fell 4.6%, Meta Platforms dropped 3.4% and Microsoft lost 2.2%. Apple recorded the smallest decline among the group; its shares have risen 11% this month and 18% year-to-date. The group’s index is about 11% below its late-May peak, erasing roughly $2 trillion in market value since that high.

Hedge funds and other institutional investors are reassessing the sustainability of recent AI-related spending. Market participants are focusing on higher near-term capital requirements, uncertain paths to monetisation for AI products and services, and the potential need for more borrowing to fund data centres, chips and related assets.

Rising oil prices and renewed conflict involving Iran have heightened concerns about inflation and global growth, adding pressure to stocks seen as sensitive to interest rates and economic momentum.

Amazon, Meta Platforms and Microsoft are scheduled to report earnings next week, offering additional data on planned investment levels for generative AI and cloud infrastructure.