Investors shredded the biggest U.S. technology stocks in June. The reason: fear that the companies are spending way too much on artificial intelligence without seeing profits yet. But while the Magnificent 7 stumbled, the chipmakers that supply them kept climbing.
Four of the seven stocks fell sharply in June. The CNBC Magnificent 7 Index fell 10% for the month.
The massive investments in chips, data centers, and AI infrastructure - often financed through debt - are now under scrutiny from investors. Fundstrat Global Advisors' research head Tom Lee explained the shift. "The market is trying to understand sort of the new narrative around the Mag 7 because they went from asset-light companies that produced a lot of free cash flow, now to ones that are more balance sheet intensive."
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While the big tech names fell, the companies that build the chips and memory for AI kept rising.
Wedbush Securities managing director Dan Ives described the sell-off as a temporary rough patch ahead of a crucial test. "We are going through another 'gut check' few weeks ahead for the tech trade as tech investors await a very important 2Q earnings season in July to further validate the AI Revolution buildout."
In a Monday research note, HSBC multi‑asset strategist Duncan Toms highlighted Micron's exceptional earnings, calling them "showing hard evidence for an AI backdrop that is alive and healthy." On Tuesday, UBS analysts echoed that sentiment, noting that the constraints within the AI supply chain remain persistent. The bank also forecasts that cloud revenue will see a boost across leading platforms for the remainder of the year. UBS added, "We believe that exposure to AI-related stocks will remain a key differentiator for equity market performance over the long run, but we also believe diversification, both within and beyond AI, is essential."
Investors are counting down to July 2026, when second‑quarter earnings reports begin. Those numbers will show whether the billions poured into AI are starting to pay off. The Magnificent 7 lost 3.4% this year, while the chip stocks soared - so the next few weeks will reveal who placed the smarter bet.
The sell-off marks a sharp contrast to the broader market's enthusiasm for AI-related hardware. While the Magnificent 7 have poured hundreds of billions into data centers and advanced chips, the actual revenue from AI products and services has yet to materialize at the scale investors expected. This disconnect has driven a rotation away from the mega-cap names and toward the suppliers that are already booking orders, such as Micron and other semiconductor firms. Cloud providers, meanwhile, are still expected to see a revenue lift later in 2026, which could help validate the spending if earnings surprise to the upside.
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