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How the Mag 7's 2025 Laggards Could Turn Into 2026 Winners
Author: Jordan Chussler. Date Posted: 12/31/2025.
Article Highlights
- While the broad tech sector once again outperformed the S&P 500 in 2025, a handful of the Magnificent Seven stocks failed to live up to their hype.
- NVIDIA, Apple, Meta Platforms, and Microsoft all trailed the benchmark index’s 17% gain last year.
- While those firms’ enormous AI CapEx is likely to increase, there are plenty of reasons to believe those four stocks will once again outperform in the year ahead.
Tech stocks had another strong showing in 2025, finishing second among the S&P 500's 11 sectors for the second consecutive year.
But for investors who piled into the mega-cap Magnificent Seven, it was a mixed bag. Apple (NASDAQ: AAPL), for example, finished the year with a gain of less than 12%, trailing the S&P 500's 2025 return of 17.49%.
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Shareholders of Microsoft (NASDAQ: MSFT), Meta Platforms (NASDAQ: META), and Amazon (NASDAQ: AMZN) saw more modest gains of just over 16%, about 10%, and under 5%, respectively.
Those aren't the returns investors expect when paying up for record valuations concentrated in a handful of companies. Still, looking toward 2026, there are several reasons to believe those four laggards could once again outperform the S&P 500.
AI CapEx Hindered the Magnificent 7's Growth Last Year
That underperformance wasn't uniform. Three of the Magnificent Seven outpaced the S&P 500 in 2025: Tesla (NASDAQ: TSLA), NVIDIA (NASDAQ: NVDA), and Alphabet (NASDAQ: GOOGL) produced index-beating returns of nearly 21%, 36%, and 66%, respectively.
For the other four, performance diverged notably. Much of that reflected record-high valuations and concerns about market concentration and an AI bubble.
More specifically, AI— and the elevated capital expenditures (CapEx) those ambitions required—was the primary drag.
Amazon's underperformance can be partially attributed to its AI infrastructure spending, which was a large portion of the $400 billion Big Tech invested in chips, data centers, and storage services in 2025.
For the Jeff Bezos–founded firm, that figure amounted to about $125 billion last year, including roughly $11 billion for a 1,200‑acre data center in Indiana and $10 billion for a 20‑building project in North Carolina's Research Triangle to support Amazon Web Services (AWS).
That spending eroded the company's free cash flow, which fell from $3.6 billion in Q4 2024 to -$12.4 billion and -$8.4 billion in the first two quarters of 2025.
And while Apple has faced criticism for underspending on AI, it plans to ramp up AI CapEx in the year ahead—helping it catch up to Microsoft and Meta, both of which committed large sums to Azure, Copilot, and Meta AI and saw pressure on their near-term profitability.
Amazon's Business Diversification and Robotics
Since hitting its all-time high on Nov. 3, 2025, AMZN is down nearly 9%. The company is, however, deploying other strategies to offset heavy AI-related spending.
Amazon is positioning itself to be a grocery disruptor and plans to expand its robotics program, an initiative that could replace as many as 600,000 roles and materially reduce payroll costs over time.
At the same time, AWS remains the world's largest cloud provider with about 31% global market share. From Q3 2021 to Q3 2025, AWS revenue grew from $16.11 billion to $33.01 billion—a nearly 105% increase.
The company hasn't missed earnings expectations since Q4 2022, extending a run of 11 consecutive beats. Analysts are bullish on AMZN for 2026: 58 of 61 covering analysts assign it a Buy rating, and the average 12‑month price target implies roughly 27.4% upside.
Apple's Stock Buybacks Signal Positive Expectations
Apple hasn't committed as much to AI CapEx—yet—but it plans to scale spending to stay competitive. Meanwhile, the iPhone maker repurchased $185.65 billion of stock in 2025, which reduces float and boosts earnings per share (EPS), directly supporting shareholder value.
While retail traders experienced heightened volatility over the past 12 months, institutional investors poured roughly $316 billion into AAPL, compared with about $174 billion in outflows from other investor segments.
The company has beat earnings expectations every quarter since Q1 2023, and quarterly net income rose more than 86% between Q4 2024 and Q4 2025, from $14.7 billion to $27.4 billion.
Another headwind for Apple in 2025 was tariff uncertainty, which weighed on its China and India businesses. With greater clarity around trade policy, those risks should be reduced going forward.
Meta Has Wall Street on Its Side
Meta's AI spending led to a sharp decline in net income, which fell about 87% between Q4 2024 and Q3 2025 (from $20.8 billion to $2.7 billion). Yet Wall Street remains largely supportive.
Of 50 analysts covering META, 43 assign it a Buy rating. Their average 12‑month target implies more than 23% upside, and institutional ownership sits near 80%.
Analysts expect Meta's AI investments to pay off through improved ad efficiency from tools like Advantage+, expanded monetization of WhatsApp and Threads, and new AI models (for example, Avocado). Those catalysts could drive sales and impressions despite near‑term margin pressure.
Microsoft Is Seeing More Copilot Adoption
Microsoft's Azure trails only AWS in cloud services, commanding about 20%–22% of the global market—a key driver of top-line growth. Azure helped produce a 40% revenue increase in Q1 2026.
But Microsoft's primary tailwind for 2026 may be broader Copilot adoption. The AI assistant, integrated across Windows and Microsoft 365, is now used by more than 90% of Fortune 500 companies.
Analysts estimate AI cloud adoption could add up to $25 billion to Microsoft's revenue by the end of FY 2026. Reflecting that potential, 39 of 43 analysts covering MSFT assign it a Buy rating, and the average 12‑month price target implies more than 29% upside.
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