'Magnificent 7' stocks are having a dreadful year

Key Points:

• The "Magnificent Seven" tech stocks have collectively declined over 13% since mid-May, significantly underperforming the broader market indices like the Invesco QQQ Trust and the S&P 500, which are down only about 2%.
• Individual declines from their 52-week highs include Microsoft (-32.9%), Tesla (-32.6%), Nvidia (-18.5%), Meta (-14.4%), Alphabet (-12.3%), Apple (-11.7%), and Amazon (-11%).
• The downturn is attributed to investor concerns over the tech giants' massive capital expenditures on artificial intelligence infrastructure, expected to exceed $700 billion this year, which is heavily reducing their free cash flow.
• Additional worries stem from potential Federal Reserve interest rate hikes, which could raise financing costs for AI projects, leading to increased market jitters ahead of the critical second-quarter earnings season.
• Analysts suggest these stocks are now "show me" investments, requiring proof of profitability from AI infrastructure spending, a milestone unlikely to be achieved in the upcoming earnings reports.