Independence Day: Is it time for investors to look beyond the Magnificent Seven?
By Boring Money
13 July, 1970
As the US celebrates Independence Day, investors are asking where the next opportunities lie beyond the AI boom. With the Magnificent Seven losing momentum, overlooked areas such as small caps, consumer companies and industrials could offer compelling long-term value.
A pioneering spirit has super-charged the growth of America since the first Independence Day, 250 years ago. US entrepreneurs have demonstrated the ability to turn imagination into reality. This has had some significant upsides for investors, fuelling waves of innovation, including the personal computer, the internet and now artificial intelligence. It has created vast wealth along the way.
Yet, that pioneering spirit also has its downsides. It can mean investors prefer a good story to a good business and may become narrowly focused on a single area of growth. It can also leave investors believing CEOs can make wine out of water and overpay for their elaborate vision. Investors can be so sold on the innovation story that they overlook the value elsewhere. All of these factors appear to be gripping US markets today.
Why are investors rethinking the Magnificent Seven?
The Magnificent Seven (Apple, Alphabet, Amazon, Nvidia, Meta, Tesla and Microsoft) have led US markets for most of the past decade but are starting to be re-evaluated. The CNBC Mag7 index is down 2.6% for the year to date. That puts it 12% behind the S&P 500
(source; MarketWatch to 30 June 2026). The reasons for this weakness aren’t complicated. These businesses have gone from being capital light and cashflow generative, to spending vast sums on AI infrastructure (around $725bn for 2026) and raising debt on the bond markets. Investors have adjusted their view.A new generation of winners has emerged. Those companies providing the picks and shovels of the AI revolution had led the way, with semiconductors particularly strong. Companies such as Broadcom and Micron have been catapulted into the top 10 of the S&P 500. Micron has seen share price growth of over 1,000% in the past year alone.
Are semiconductor stocks still a good long-term investment?
There are reasons to be cautious on these companies.
Since the war started, all the growth in the index has come from semiconductors, particularly companies such as Intel, and Advanced Micro Devices. We had no exposure to these companies. Why? They have been seen as highly cyclical, quite poor quality, that you didn’t want to hold over the long-term… semiconductors have gone from 4% of the world index to 14%. Semiconductor cycles have historically only been one to two years.
He has exposure to Nvidia, ASML and TSMC.
We have a market weighting in chip makers, but only those companies that we think are long term winners on the AI trade. Some of these others are short term winners because there is a supply blockage in chips and the market is getting over excited.
Are AI IPOs and SpaceX becoming too speculative for investors?
The upcoming AI IPOs
, such as ChatGPT and Anthropic, plus Elon Musk’s SpaceX are likely to be the other major force in US markets.There is a question over how much to pay for a business that recorded $18.7bn of revenues in 2025 and has an income stream that is growing rapidly, but which as a group, generated a loss of nearly $5bn. It has big cash outflows as it invests at a rate of $40bn a year in AI technology, whose financial returns are speculative.
The recent fund-raising covers just two years’ cash burn.
It is, in short, a bet on Elon Musk’s mercurial genius. Or possibly a bet that other people will believe in Musk’s mercurial genius. The fact that SpaceX has sought to raise money on the bond markets so soon after an IPO is worrying some investors. ChatGPT and Anthropic may be less speculative but are also a significant bet on the widespread adoption of AI.
This could prompt investors to question their allocation to US markets. The Mag7 are starting to feel like yesterday’s news and are losing some of the qualities that made them special. The new wave of potential winners also has its problems. The pioneering spirit is all well and good, but investors are paying a lot of money for relatively speculative companies on high valuations.
However, that still leaves a lot of the US market unexplored: its vibrant small and mid-cap
market, its smart industrial businesses and its global consumer brands, for example. These areas have been significantly overlooked in the rush to all things AI. They may not promise to put a man on Mars, but they are still great businesses.What could drive the next wave of growth in the US stock market?
There are reasons why these areas might start to command more attention over the next few months. The first is the end to the war in Iran. Oil and gas prices have started to drop, lowering gasoline prices for US consumers. This should boost household spending. At the very least, it removes a significant source of uncertainty and should mean that inflationary pressures are contained for the time being. It should also moderate expectations of future rate rises, which is good news for consumers and businesses.
Then there is the fiscal stimulus from the One Big Beautiful Bill
. Tax refunds are currently making their way into the bank accounts of US citizens. For a while this looked like it might be neutralised by higher gasoline prices, but it may now find its way into consumer spending.Consumer companies have faced significant challenges, and they are the worst performing sector within our portfolio.
He says that the consumer product cycle was stalled by Covid, leaving products seeming old and stale, at the same time as consumers were squeezed, but he believes this is now turning.
“Tariffs were inflationary, the immigration measures have been inflationary. Mortgage rates have been at highs. Now’s the time to be contrarian.”
FmHe’s been buying companies such as Nike, which has been accelerating its product innovation and advertising spend and replacing its management team.
Small and mid-caps are another potential area of growth. Overshadowed by large caps for much of the past decade, they took another hit from the war in Iran but are now poised for a recovery. They should be among the beneficiaries from an improvement in household budgets and domestic spending.
Rebate-led private consumption and artificial intelligence-led business investment have helped sustain robust economic activity despite energy headwinds. Increasing expectations of supply chain normalisation and the Strait of Hormuz re-opening also favour a risk-on market rotation, extending support to the small-cap segment.
He says fundamentals are also encouraging.
Consensus estimates are for headline earnings-per-share to grow 50.7% in 2026 and 37.9% in 2027 for small-caps, well above the 24.0% and 15.8% expected for large caps, respectively.
Following years of underperformance, US small caps compare well to their large cap peers. Wong says it is an area that suits active management with a significant dispersion in the performance of different companies.
The case for looking beyond AI in US markets
The US’s pioneering spirit can lead investors awry at certain points in the market cycle. The US mega-caps are starting to look like a huge and expensive bet on the success or otherwise of AI. Nevertheless, there are plenty of opportunities for those willing to look deeper into US markets.
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