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Key Takeaways
- 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 stocks, it was more of a mixed bag. Apple (NASDAQ: AAPL), for example, finished the year with a less than 12% gain, trailing the S&P 500’s 2025 gain of 17.49%.
Shareholders of Microsoft (NASDAQ: MSFT), Meta Platforms (NASDAQ: META), and Amazon (NASDAQ: AMZN) similarly saw modest gains of just over 16%, 10%, and less than 5%, respectively.
Those aren’t the returns investors are looking for when paying for the record valuations of a handful of companies that dominate indices’ weightings. However, looking forward to 2026, there are plenty of reasons to believe that those four laggards will be able to again outperform the S&P 500.
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AI CapEx Hindered the Magnificent 7’s Growth Last Year
That underperformance wasn’t uniform, of course. Three of the Magnificent Seven stocks were able to outpace the S&P 500 last year. Tesla (NASDAQ: TSLA), NVIDIA (NASDAQ: NVDA), and Alphabet (NASDAQ: GOOGL) put together index-beating performances of nearly 21%, 36%, 66%, respectively.
For the other four stocks in that cohort, their performances notably diverged. Much of that was due to record-high valuations and worrisome market concentrations alongside ongoing concerns about an AI bubble.
However, AI—and more specifically, the elevated capital expenditures (CapEx) earmarked for those firms’ AI ambitions—was the primary culprit.
Amazon’s underperformance can be at least partially attributed to its AI infrastructure spending, which was a large part of the $400 billion Big Tech shelled out for chips, data centers, and storage solution services in 2025.
For the Jeff Bezos-founded firm, that figure stood at $125 billion last year, including $11 billion allocated to a 1,200-acre data center in Indiana and a 20-building project in North Carolina’s Research Triangle that will service Amazon Web Services (AWS) at a cost of $10 billion.
That 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 been criticized for underspending on AI, the company plans on ramping up AI CapEx in the year ahead, helping it catch up to Microsoft and Meta, which have shelled out enormous sums of cash for Azure, Copilot, and Meta AI, impacting their bottom lines as well.
Amazon’s Business Diversification and Robotics
Since hitting its all-time high on Nov. 3, 2025, AMZN is down nearly 9%. But the company is getting inventive in order to offset its enormous AI CapEx.
Amazon is on the verge of becoming a grocery disruptor, and it intends to expand its robotics program in an effort that could replace up to 600,000 Amazon jobs, significantly reducing the company’s payroll.
At the same time, AWS remains the world’s largest cloud services provider with approximately 31% of global market share. From Q3 2021 to Q3 2025, AWS revenue has grown from $16.11 billion to $33.01 billion—a nearly 105% increase.
The company hasn’t missed earnings expectations since Q4 2022, putting together a run of 11 consecutive beats. Analysts are bullish on AMZN in 2026, with 58 of 61 analysts covering the stock assigning it a Buy rating, with an average 12-month price target implying 27.43% potential upside.
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Apple’s Stock Buybacks Signal Positive Expectations
While Apple hasn’t committed nearly as much in AI CapEx, the company is planning on scaling up that spending to remain competitive. Meanwhile, the iPhone-maker’s $185.65 billion in stock buybacks in 2025 are fundamentally increasing shareholder value by reducing the float while increasing earnings per share (EPS).
While retail traders dealt with heightened volatility over the past 12 months, institutional investors were pouring money into AAPL to the tune of $316 billion versus $174 billion in outflows.
The company has beaten earnings expectations every quarter since Q1 2023, and quarterly net income grew more than 86% between Q4 2024 and Q4 2025 from $14.7 billion to $27.4 billion.
Another notable factor in Apple’s underperformance in 2025 was tariff uncertainty, which hit the company’s China and India businesses particularly hard. With more clarity in place, the Trump administration's trade policies should have a reduced impact on APPL going forward.
Meta Has Wall Street on Its Side
The results of its AI spending spree saw net income fall 87% between Q4 2024 to Q3 2025 from $20.8 billion to $2.7 billion. But the company hasn’t lost the faith of Wall Street.
Of the 50 analysts covering META, 43 assign it a Buy rating. Their average 12-month price target suggests more than 23% potential upside, and institutional ownership is above average at nearly 80%.
That can be attributed to analysts’ expectations of Meta’s AI investment paying off. Specifically, continued adoption of its AI tools, including Advantage+, will improve ad efficiency and lead to growth in sales and impressions.
Additionally, expanded monetization of WhatsApp and Threads as well as new AI models (e.g., Avocado) should serve as catalysts despite short-term margin concerns.
Microsoft Is Seeing More Copilot Adoption
Microsoft’s Azure trails only Amazon’s AWS in cloud services, commanding between 20% and 22% of the global market, which will continue to drive top-line growth. Azure is the company’s primary growth driver, which resulted in a 40% revenue increase in Q1 2026.
But for the Bill Gates-founded firm, 2026’s primary tailwind would be growing adoption of Copilot. The AI-powered assistant, which is integrated across Windows and the Microsoft 365 suite, is now used by more than 90% of Fortune 500 companies.
Analysts estimate that AI cloud adoption could add up to $25 billion to Microsoft’s revenue by the end of its FY 2026. In turn, 39 of the 43 analysts covering MSFT assign it a Buy rating alongside an average 12-month price target that suggests more than 29% potential upside.
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