Volatility across the Magnificent 7

The Magnificent Seven stocks comprising Alphabet, Amazon, Apple, Meta Platforms. Microsoft, Nvidia and Tesla have been among the best performing investments over recent years. They contributed to a major part of the very strong double-digit returns of the S&P 500 index over the past few years as they made up 35 per cent of this important index until some months ago.

However, until the ceasefire rally that took place last week, all 7 equities had suffered double-digit percentage declines over recent months. Collectively, these seven companies shed in excess of USD2 trillion in market capitalisation from their peak valuations.

Microsoft ranks as the worst performer across the Magnificent 7, with a downturn of over 30 per cent from its July 2025 peak of USD555.45 as a result of a re-rating of the growth trajectory of Azure, the company’s aggressive capital commitments and the slower-than-expected monetisation of Copilot enterprise. Microsoft invested heavily in OpenAI which powers its Copilot AI tools but other large language models (most especially Anthropic) have surged in popularity in recent months.

The share price of Meta Platforms is also in ‘correction’ territory with a decline of 20.3 per cent from its 52-week high of just below USD800. Apart from the concerns on the huge increase in investments in AI, the company also suffered from a number of damaging legal setbacks which added additional pressure on the share price apart from continued layoffs from multiple business units.

AI spending

One of the most significant factors weighing on a number of components of the Magnificent 7 are the huge investments taking place in semiconductors, data centres, cloud platforms and network capacity. Alphabet, Amazon, Meta and Microsoft are collectively expecting to invest nearly USD700 billion in 2026, representing an increase of almost 60 per cent from the capital expenditure levels of 2025. Investors are increasingly questioning the return on investment from this huge capital expenditure being committed by these various companies. Amazon announced that it would spend USD200 billion on AI infrastructure this year while Meta’s guidance was of between USD115 to USD135 billion in capex for FY2026. Microsoft committed over USD80 billion to AI infrastructure in its current financial year. The deteriorating free cash flow of some of these companies continued to concern investors. For the first time in several years, Microsoft is expecting short-term downward pressure on its free cash flow due to increasing capital expenditures aimed at scaling its AI infrastructure. Moreover, Amazon recorded a decline of USD11.2 billion in free cash flow during the fourth quarter of 2025.

Impact of Iran war

The US-Israeli military operation against Iran, which commenced in late February 2026, resulted in an energy supply shock to the global economy with direct consequences on the technology sector and on broader investor sentiment.

The higher energy prices result in higher costs for data centre operators and leads to increased inflationary pressures in the US and in other parts of the world. Although there was political pressure on the Federal Reserve to continue to resume interest rate cuts, the central bank has now signalled that the federal funds rate will remain at current levels throughout the year.

The investment case of a number of the companies within the Magnificent 7 has always rested substantially on the present value of future earnings from AI monetisation and from autonomous vehicles for example. An increase in the discount rate due to higher yields leads to a decline in the present value of future cash flows with a direct impact on the share prices of ‘growth stocks’, most especially the Magnificent 7 components.

Company	52-Wk High (USD)	Date of 52-week high	Price of 13 April (USD)	Drawdown
Microsoft	555.45	31st Jul 2025	384.37	-30.8 per cent
Tesla	498.83	22nd Dec 2025	352.42	-29.4 per cent
Meta Platforms	796.25	15th Aug 2025	634.53	-20.3 per cent
NVIDIA	212.19	29th Oct 2025	189.31	-10.8 per cent
Apple	288.61	3rd Dec 2025	259.20	-10.2 per cent
Alphabet	350.15	3rd Feb 2026	319.21	-8.8 per cent
Amazon	258.60	3rd Nov 2025	239.89	-7.2 per cent

The ceasefire rally

Last week’s announcement of a two-week ceasefire between the US and Iran which was brokered through diplomatic intervention by Pakistan and agreed barely two hours before President Trump’s threatened deadline to obliterate what he described as a “whole civilisation”, triggered one of the strongest daily market rallies in more than a year with the S&P 500 index gaining over 2.5 per cent and the tech-heavy Nasdaq Composite surging by more than 2.8 per cent. During the course of last week, the Nasdaq Composite surged 4.7 per cent, its best performance since late 2024, as the threat of an immediate regional escalation subsided.

Amazon and Meta Platforms emerged as the top performers across the Magnificent 7 last week. Apart from the broader relief rally from the geopolitical developments, the share price of Meta responded very positively to its strategic AI announcements after it unveiled its new proprietary large language model called Muse Spark.

In the next reporting periods, it will become more evident if the recent downturn across the constituents of the Magnificent 7 is part of a structural reassessment of some of the names that generated the exceptional returns over the past few years, or whether some or all of these companies are fundamentally cheap and could regain their all-time highs in the near term.

The future direction of the Magnificent 7 stocks will not only be dependent on the developments across the Middle East and its impact on global monetary policy decisions, but mainly also on evidence whether the huge capital spending on AI by Alphabet, Amazon, Meta and Microsoft are starting to generate the excepted returns.

Despite the inevitable volatility that has always characterised equity markets over the years, investors need to continue to focus on a long-term view and try to avoid market timing since it is incredibly difficult as seen in the sharp upturn across most share prices since last week. As I highlighted in one of my recent articles in which I portrayed Warren Buffett’s investment philosophy especially during periods of heightened uncertainty and a war, the current geopolitical turbulence will eventually be resolved. The S&P 500 has historically always recovered from market downturns brought about by recession fears and geopolitical tension.

In fact, it is worth a reminder that an investment of USD10,000 in the S&P 500 in 2006 would have delivered a return of over 650 per cent over the past 20 years (10.8 per cent per year) which essentially implies that such an investment would be worth over USD75,000 nowadays despite the many periods of uncertainty during the Global Financial Crisis, the European Sovereign Debt Crisis, the COVID pandemic, the Russia-Ukraine war, and the current Middle East conflict.

Investors who generally retain equity investments over the long-term and resist acting on short-term anxiety are handsomely rewarded. After all, company earnings and fundamentals matter more than geopolitics.

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