AI big players overnight reshuffle: Micron and SanDisk surge, "Magnificent Seven" face valuation scrutiny

The AI investment wave is entering a new phase. Since 2026, the "Magnificent Seven" tech giants that long dominated U.S. stock market trends have gradually faded, with market funds shifting from large tech platforms to the AI infrastructure chain, particularly in memory and storage chips. As AI computing power demand continues to expand, investors are reassessing who will be the most direct beneficiaries in this AI cycle.

So far this year, the Nasdaq 100 index has risen nearly 18%, and the S&P 500 index has risen about 10%, but the index tracking the "Magnificent Seven" has only gained 1.1%. Meanwhile, the Philadelphia Semiconductor Index has surged 82%, on track for its best annual performance since 1999. Among them, storage chip companies like Micron Technology and SanDisk have become new market favorites, while the "Magnificent Seven," which previously led the AI rally, have gradually stepped back.

Fund flows are confirming this shift. According to Bloomberg-compiled data, in June, investors withdrew $786 million from the Roundhill Magnificent Seven ETF, the largest single-month outflow since the ETF's inception; at the same time, the Roundhill Memory ETF attracted $930 million in inflows.

The "Magnificent Seven" are decoupling from the broader market, and AI trade logic is changing

In the past few years, the "Magnificent Seven" were almost synonymous with the AI rally in U.S. stocks. But so far this year, this tight linkage is loosening. In April, the 40-day correlation coefficient between the "Magnificent Seven" and the Nasdaq 100 exceeded 0.95, near full synchronization; recently, that indicator has fallen below 0.7, the lowest level since 2017.

DataTrek Research co-founder Jessica Rabe said in a client report on June 30 that the correlation between large-cap tech stocks and the S&P 500 has dropped to levels seen in 2015. At that time, these companies' index weights were only about 10% to 11%.

However, the market influence of the "Magnificent Seven" is still undeniable. Currently, these companies still account for about 37% of the Nasdaq 100 index weight and contribute nearly one-third of the S&P 500's market cap. Brian Barbetta, co-head of the Wellington Management tech team, said, In the past few years, the "Magnificent Seven" were among the few companies that could consistently deliver above-expectation earnings growth, but now investors are starting to pay more attention to the risks and challenges they face.

Rising AI capex pressure, valuation logic for giants challenged

The core of the market sentiment shift lies in investors beginning to question whether the massive AI investments of large tech companies can yield proportional returns. Microsoft, Amazon, Alphabet, and Meta are all accelerating AI infrastructure construction, with massive capital expenditures compressing free cash flow, and uncertainty remains over when these investments will translate into revenue and profits.

Microsoft's stock price has fallen about 20% this year, and June recorded one of its worst monthly performances since 2000, as the market worries that it needs to continuously invest in AI infrastructure while also facing the potential disruption of its traditional software business by AI technology.

Meanwhile, Meta faces similar pressure. According to reports, CEO Mark Zuckerberg has acknowledged that the company's development of AI agents has not met expectations. Meta is even considering building a cloud infrastructure business to absorb potentially excess computing capacity.

Brian Barbetta pointed out, The market is currently revisiting a key question: whether cloud computing giants will face declining returns on capital and pressure on profit margins in the future.

AI value chain re-pricing, storage chips become biggest winners

In contrast, storage chip companies in the AI infrastructure chain are seeing significant upward revisions in earnings expectations.

Bloomberg Intelligence data shows that the expected net profit growth rate for the "Magnificent Seven" next year is currently 18.9%, down from 21.4% three months ago; while the expected future earnings growth rate for chip manufacturers has surged from 34.3% three months ago to 48.5%. The market is shifting from "AI application stories" to "AI infrastructure realization."

Mark Lehmann, vice chairman of Citizens Commercial Banking, said, In the past, investors were highly certain about the growth prospects of the "Magnificent Seven," so they were willing to give higher valuations; but now the market is reassessing their earnings quality, while the earnings expectations for companies like Micron and SanDisk are still rapidly improving.

Whether the AI rally is rotating remains a point of divergence on Wall Street

However, not all investors believe that chip stocks will continue to lead.

Nikolaos Panigirtzoglou, global market strategist at JPMorgan, said in a report on July 1 that as cloud computing giants, AI model companies, and AI application companies gradually improve their commercialization capabilities, the performance gap between large-cap tech companies and chip companies may narrow, and AI value will ultimately reconcentrate toward platform companies.

Mike Wilson, head of U.S. equity strategy at Morgan Stanley, believes that the upward momentum of chip stocks is weakening, and the market is beginning to look for previously lagging investment opportunities, including AI cloud computing giants. "This divergence cannot persist," Wilson said. He expects that hyperscale cloud computing companies will stabilize, while semiconductor stocks may face correction pressure.

But in the short term, the market's focus remains on earnings delivery capabilities. As long as the AI investment returns for large-cap tech companies have not fully materialized, and while earnings expectations for storage chip companies continue to be revised upward, the dominance of AI trades may still remain in the hardware infrastructure sector.

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