Magnificent Seven Struggle with Excessive AI Spending

The 'Magnificent Seven', Apple, Alphabet (Google), Nvidia, Microsoft, Amazon, Meta Platforms, and Tesla, have traditionally been Wall Street's top performers. However, in 2026, they've struggled to keep up with the benchmark S&P 500 index, with only Apple outperforming it so far.

These companies are investing heavily in artificial intelligence (AI) infrastructure, with massive capital expenditures (capex). Alphabet is budgeting $195 billion to $205 billion for 2026 capex, while Amazon and Meta Platforms are planning to spend $220 billion and $130 billion to $145 billion respectively.

This excessive spending has led to negative free cash flow (FCF) projections for these companies. Negative FCF can result in no share buybacks and a depletion of their substantial cash reserves. Meanwhile, the other three 'Magnificent Seven', Apple, Microsoft, and Tesla, are keeping their capex at historically normal levels, resulting in positive FCF.

The trade-off is that the long-term growth prospects for these latter three companies are less attractive. For example, Apple's valuation is an eyesore at over 34 times forward-year earnings per share (EPS), while Tesla is trading at 139 times Wall Street's consensus EPS for 2027.