'Magnificent Seven' tech stocks lose steam as AI hype fades

The so-called "Magnificent Seven" tech stocks — Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), Tesla (TSLA), Alphabet (GOOG, GOOGL), Meta (META), and Amazon (AMZN) — were once the main drivers propelling the S&P 500's gains. However, as investors question whether the market is entering an AI-fueled bubble, cracks are emerging in these mega-cap names. Stocks like Apple and Tesla are facing headwinds as demand deteriorates in the critical Chinese market.

Yahoo Finance's Seana Smith and Brad Smith provide insights into the specific pressures affecting the performance of these technology giants.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

BRAD SMITH: Getting to our top story of the day, cracks forming in the Magnificent Seven. The seven largest tech stocks by market cap have accounted for about half of S&P 500 gains so far this year. But we're seeing some weakness in the rally, as investors question whether or not markets are in an AI-fueled bubble.

This morning, we're seeing shares of Apple and Tesla pull back on weakness out of China a report from counterpoint research reveals Apple sales in China fell 24% in the first six weeks of the year.

And Tesla shares extending Monday's losses this morning on disappointing vehicle shipment numbers out of its Giga Shanghai factory. Of course, as we're watching where there is concentration, even among those Mag Seven, we've heard some new terms tossed around in the Fantastic Four, but it's really just kind of a realignment in terms of the concentration, even now within the Mag Seven that we're seeing earlier this year.

SEANA SMITH: It certainly is. And, Brad, we're going to be speaking with BTIG's Jon Krinsky here later on in the show. And he's focused on the divergence that we're seeing the performance of the QQQ, which tracks the NASDAQ 100 and a lot of those larger cap tech names, and then some of the Magnificent Seven stocks that are underperforming, specifically, Apple and what we have seen from that company year-to-date compared to the broader move to the upside that we've seen in the NASDAQ 100.

So this divergence has really become the narrative on the street, as Wall Street is out there analysts debating whether or not the recent rally that we have seen in tech stocks, whether or not they have room to run. There are some common issues here. When you, at least, look at the two underperformers since the start of the year with Tesla and Apple, both of those stocks under pressure once again this morning, and for the same reason that has been plaguing these two stocks over the last several months. And that is weakness out of China.

Yes, we had the China sales number drag on Tesla. Yesterday was one of the worst performers within the S&P yesterday. And then we had the news out today, the latest numbers out or the latest reports of numbers out on the iPhone sales. That is dragging Apple stock lower here in the premarket.

So year-to-date, you're looking at that underperformance with Apple off just about 9%. Then taking a look at the one year performance, a bit of a different picture. So a lot of the focus here on this debate is what we have seen since the start of the year, and whether or not that outperformance within Apple and Tesla, that we got accustomed to in 2023, is now in the rear view mirror.

BRAD SMITH: Yeah. One of the huge things we're going to be tracking over the course of this week, as well, is-- and especially within that China type of thread that we're tracking here is the quarterly results, I think, coming out of Broadcom too.

That's going to be amazingly important. And here's why. That's one of the companies, if you look up S&P 500 companies that actually have the largest exposure on a revenue basis to China, Broadcom sits at the very top of that list, followed by Intel. You've got Applied Material and Lam Research as well.

So all of these things considered in what we're seeing with China, and it could be a differing as well here in terms of the consumer environment in China and what they're buying into. You mentioned handsets. You mentioned vehicles even. And both of those impacting Apple and Tesla versus some of the B2B sales on the chip side. And that's where we're going to get a little bit more of on the semiconductor space a little bit more of a read throughout of what those purchase agreements are looking like out of the Asia-Pacific region with Broadcom too this week.