Apple and Nvidia Shine as Magnificent Seven Struggle with AI Spending

The 'Magnificent Seven' is a group of megacap tech stocks that have returned capital to shareholders through share repurchases and dividends. These companies, led by Bank of America analyst Michael Hartnett in 2023, have proven profitable with spectacular free cash flow. They are investing heavily in artificial intelligence (AI), with a total of over $1 trillion planned for AI data center infrastructure between 2025 and 2026.

However, this intense capex has crimped the free cash flows of several companies, reducing their capital distributions. Apple and Nvidia stand out as they have chosen not to build massive AI data centers, instead focusing on bringing AI to consumers through their hardware. Apple recently increased its quarterly dividend by 4% and announced an additional $100 billion stock repurchase authorization.

Nvidia returned a record $26 billion in capital to shareholders in the most recent quarter, with plans to return at least 50% of free cash flow going forward. For the rest of the 'Magnificent Seven', continued heavy investment in AI infrastructure is expected.