Tech Funds Shift from Big Tech to Semiconductors, Shaking Up Wall Street's Tech Landscape

This month, the combined market capitalization of the Magnificent 7 (M7) has decreased by over $2 trillion. Analysts say the movement of capital is being driven by expectations of beneficiaries from investments in artificial intelligence (AI) infrastructure.

Reuters Yonhap News Agency

According to the Financial Times (FT) on June 29 (local time), the M7—comprising Nvidia, Meta, Apple, Microsoft, Alphabet, Amazon, and Tesla—has fallen by 10% so far this month. In terms of market value, this means over $2.3 trillion has been wiped out. If this trend continues, it will mark the worst monthly performance in more than a year.

Investors are increasingly skeptical about whether the massive AI investment plans of so-called major hyperscalers like Meta, Amazon, Microsoft, and Alphabet will translate into sufficient profits. Additionally, rising component costs—including memory chips and power equipment—are putting pressure on the profitability of these companies.

In contrast, the Philadelphia Semiconductor Index, which tracks U.S. semiconductor companies, surged 93% in the first half of this year. The relentless hardware demand from hyperscalers, coupled with limited supply, has driven a significant profit boost for semiconductor firms. The index is now likely to post its strongest annual performance since the peak of the dot-com bubble in 1999.

Simone Ragazzi, global equity portfolio manager at Algebris Investments, said, "Apart from some exposure to Nvidia, we are not investing in the M7," adding, "The market is questioning whether massive investments will actually lead to faster revenue growth, and if so, when that will happen."

He also noted, "We have a substantial allocation to companies benefiting from AI investment spending. The share prices of these companies are literally soaring. This trend may not last forever, but it's difficult to ignore these stocks right now."

Chip and memory-related stocks have delivered the strongest performances in the S&P 500 this year. With memory shortages expected to continue through 2028, SanDisk has soared by about 760%. Micron, Intel, Western Digital, and Seagate Technology have each more than tripled in value.

The Magnificent 7 have dominated U.S. and global stock market returns over the past few years. Their combined market capitalization increased by $15 trillion from early 2023 to the start of this year. Last year, they accounted for more than a third of the total market capitalization of the S&P 500 Index.

Vincenzo Beda, Chief Investment Officer (CIO) at DWS, described this as a shift in market leadership from the software- and internet-focused M7 to semiconductor companies, a trend that has been developing over several years.

This content was produced with the assistance of AI translation services.