This rare, widening gap between Big Tech and semiconductor stocks is flashing a warning for the broader market

By Isabel Wang

The plummeting correlation between chip stocks and the elite group of megacap tech stocks signals an unsustainable divide in the AI trade

Semiconductor stocks are on fire in 2026. The "Magnificent Seven" group of megacap tech names, meanwhile, has struggled.

Semiconductor stocks have surged this year, riding a wave of artificial-intelligence demand from the "Magnificent Seven," an elite cohort of tech stocks that includes companies like Alphabet (GOOGL) (GOOG) and Meta Platforms (META).

The Magnificent Seven themselves, however, haven't been so lucky. The group put up dazzling gains between 2023 and 2025, but it has struggled since the beginning of 2026. Taken together, the seven names - which in addition to Alphabet and Meta include Amazon (AMZN), Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) - have fallen 3.7% since the start of the year, according to FactSet data. The Roundhill Magnificent Seven ETF MAGS, an exchange-traded fund that tracks the group on an equal-weighted basis, last week officially slumped into correction territory, defined as a drop of at least 10% from a recent peak.

The PHLX Semiconductor Index SOX is a widely followed benchmark tracking the performance of global chip stocks. It has gained nearly 94% so far in 2026, putting it on pace for its best year since the dot-com bubble in 1999.

This growing divergence between the two groups is starting to look like a real problem for the broader market, according to strategists at Ned Davis Research.

The numbers tell a stark story. As Pat Tschosik and Philippe Mouls, analysts at Ned Davis Research, pointed out in a Monday client note, the rolling 26-week correlation between SOX and the Magnificent Seven has plummeted to the lowest level since late 2021.

Last time this correlation broke down, it coincided with a major stock-market top: In early 2022, the S&P 500 entered a lengthy bear market that ultimately saw the index tally its worst calendar-year performance since 2008.

"We keep this on our radar because the reversal of the correlation served as a warning in 2021," the analysts said.

"Following the SOX-Mag 7 correlation bottom in September 2021, the Mag 7 cap-weighted index peaked in November 2021 and the SOX index in December 2021," they wrote (see chart above).

As of mid-June, the SOX had outperformed the Bloomberg Magnificent Seven Index by over 100 percentage points on a 26-week basis. The last similar period was in 2021, although the gap was much smaller. Last time correlation was this low, semiconductor stocks and the "Magnificent Seven" peaked soon afterward.

While 2021 offers the closest historical analogue, there are many notable differences between now and then - perhaps the biggest being that millions of investors in the U.S. are no longer stuck at home because of the COVID-19 pandemic. Investors should be cautious and consider a wide range of factors before drawing direct parallels between the two time periods.

The outperformance of semiconductor stocks back in 2021 was driven largely by a cyclical recovery that followed the outbreak of the pandemic, as consumer demand for electronics soared. Today, chip leadership is heavily tied to demand related to the AI buildout. High-bandwidth memory names and companies involved with data-center infrastructure have performed particularly well recently.

Whatever happens next, the team at Ned Davis Research says the divergence between chip stocks and the Magnificent Seven is unlikely to last. The fortunes of these two groups are too tightly intertwined.

"Given the Mag 7 is funding much of the semiconductor demand, this divergence looks unsustainable," the Ned Davis analysts wrote.

Semiconductor companies are booking record revenues and seeing strong gains precisely because hyperscalers are pouring hundreds of billions of dollars into AI. Yet this immense spending has started to siphon off most of these companies' free cash flow, spooking investors who are worried about the return on investment.

U.S. stocks finished higher on Monday as technology names bounced back from last week's selloff. The S&P 500 SPX was up 1.2%, while the Nasdaq composite COMP popped 2.1% and the Dow Jones Industrial Average DJIA rose 0.6%, according to FactSet data.

Ken Jimenez contributed.

-Isabel Wang

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06-29-26 1608ET