Big Tech stocks haven't been this cheap in months. These investors say it's time to buy.

By Christine Ji and Joseph Adinolfi

The 'Magnificent Seven' have become the 'Lag-nificent Seven', one analyst joked

The "Magnificent Seven" have struggled since October, but better days could be coming, one portfolio manager said.

The so-called "Magnificent Seven" have gone from stock-market leaders to stock-market laggards. But amid the most persistent bout of underperformance for those Big Tech names since the start of the bull market more than three years ago, some see an opportunity to buy.

Over the past few months, investors have been rotating out of the biggest megacap names and into, well, pretty much everything else: Small caps, cyclicals, value stocks and international equities have all fared well. Within the information-technology sector, performance has become even more divided. Semiconductor names have thrived, while software stocks have struggled.

Consequently, the Roundhill Magnificent Seven ETF MAGS has fallen by more than 7% since Halloween, FactSet data showed, while the S&P 500 SPX has fallen by 0.6% during the same period.

The shift away from those erstwhile high-flyers culminated in a fresh milestone on Wednesday, when the price ratio between the Roundhill Magnificent Seven ETF MAGS, which offers investors exposure to the cohort on an equal-weighted basis, and the SPDR S&P 500 Trust SPY, which tracks the S&P 500, touched its lowest level since Sept. 2.

As a result, the "Magnificent Seven" haven't been this cheap in months, according to one closely followed metric. The forward price-to-earnings ratio for the Mag 7 ETF, which compares its price with the expected earnings of these companies, was at its lowest level since Sept. 12 on Wednesday. Members of the group include Nvidia Corp. (NVDA), Apple Inc. (AAPL), Alphabet Inc. (GOOG) (GOOGL), Meta Platforms Inc. (META), Tesla Inc. (TSLA), Amazon.com Inc. (AMZN) and Microsoft Corp. (MSFT).

J.C. Parets, a market technician and founder of TrendLabs, joked that the "Magnificent Seven" have become the "Lag-nificent Seven." He said positioning in those stocks became extremely crowded last year. Now, some of that has unwound. While Parets said he doesn't expect investors to pile back into those names to such an aggressive degree, the latest bout of weakness could be a buying opportunity.

Whether or not those stocks retake the lead could depend on what happens with the U.S. dollar, he added.

"If the dollar starts to rally, you'll probably see outperformance of the 'Magnificent Seven' again. But if the dollar rolls over, you'll see more weakness," Parets told MarketWatch in an interview.

The ICE U.S. Dollar Index DXY had been creeping higher since Christmas Eve, until Tuesday's selloff sent it sharply lower.

Read: Big Tech stocks are quickly falling out of favor. Here's the market's new momentum trade.

Thinning of the herd

The performance of the "Magnificent Seven" over the past three years has hinted at this trend. While all seven members outperformed the S&P 500 in 2023, that leadership began to narrow in 2024, with only four beating the index. By 2025, Alphabet and Nvidia were the only two members of the group that outperformed the broader S&P 500 index.

The recent outperformance in small caps has been driven by the potential for further rate cuts and tax breaks under the One Big Beautiful Bill Act - developments that would directly benefit smaller companies' earnings profiles, according to David Wagner, head of equity and portfolio manger at Aptus Capital Advisors.

Through Wednesday, the small-cap Russell 2000 RUT has outperformed the S&P 500 for 13 straight sessions, tying the longest streak since 2008.

However, it might not be time to abandon the "Magnificent Seven" just yet. Megacap companies still hold an advantage thanks to their operating leverage, or their ability to grow profits with economies of scale, according to Wagner.

He told MarketWatch on Wednesday that he's adding to his positions in Amazon, Microsoft and Meta, which have all seen declines in the past three months.

In addition to recent geopolitical risks, those names have sold off on fears that excessive spending on AI projects will hurt margins and cash flow. Investors are expecting the return on AI investments "to come sooner rather than later because we're used to living in a world of instant gratification," Wagner said, but transformative technological cycles can play out over longer timeframes.

Wagner believes the upcoming earnings season could be the next "positive buoy" to stocks as expectations remain conservative.

"I don't think that 'Mag 7' earnings growth and strong positive small-cap growth [are] mutually exclusive," Wagner added.

With most of the "Magnificent Seven" due to report corporate earnings in the coming weeks, those stocks could be due for a pop, said Mark Hackett, chief market strategist at Nationwide.

"The buy-the-dip instinct remains broadly intact," Hackett said, referring to investors' tendency to buy stocks after bouts of weakness. However, he cautioned that the balance of risks still likely favors the rest of the market.

"Given the volatility around earnings, it's not inconceivable that there is a period of relative strength for technology," Hackett said.

See more: Why Amazon and Meta could be standout stocks in the 'Magnificent Seven' this year

-Christine Ji -Joseph Adinolfi

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01-21-26 1740ET