The “Magnificent Seven” continue to exert outsized influence over US equities. As of last week, the group made up roughly one-third of the S&P 500’s market value and has delivered more than 40 percent of the index’s total return since the April 8th bottom. That rebound has come even as the group still trails the broader index on a year-to-date basis. Their leadership matters because the cohort’s earnings power and capital spending now rival entire sectors and, critically, may be strong enough to offset pockets of weakness elsewhere, particularly where policy uncertainty is weighing on smaller firms.
By Kewis Krauskopf | Source: LSEG | S&P 500 vs MAGS ETF in 2025
Main-Street Cap-Ex Still Stuck in Neutral
Tariff headlines are freezing smaller firms’ investment plans. The National Federation of Independent Business’s (NFIB) May survey shows only 22% of businesses intend to spend on plant or equipment in the next three to six months, hovering near Covid-era lows and roughly 7% below the long-term average since 1986.
Source: NFIB as of May 31, 2025
Historically, unusually low NFIB cap‑ex plan readings have coincided with weaker private investment, one of the main drivers of Gross Domestic Product (GDP).
Source: Real Investment Advice as of January 19, 2021
The AI Cap-Ex Super-Cycle Fills the Gap
While small-business capex remains cautious, Big Tech is moving in the opposite direction, deploying capital at an unprecedented pace. The largest AI infrastructure builders are on pace to spend over $320 billion in 2025, a 28 percent increase from last year, according to Bloomberg Intelligence.
Source: Statista as of April 16, 2025
This surge in spending, centered on cloud infrastructure, data center builds, and proprietary AI chip development, is not just about maintaining existing capacity, it reflects a strategic expansion of AI capabilities that could power the next wave of growth across multiple sectors, from semiconductors to industrial automation
Earnings Edge May Prove Stickier Than Forecasts
Despite moderating expectations, the Magnificent Seven continue to hold a powerful earnings lead. FactSet reports aggregate Q1 earnings growth of 27.7% for the group, versus just 9.4% for the rest of the S&P 500. They also exceeded consensus estimates, surprisingly, by 14.9%, compared to 8.2% for the broader index.
Looking ahead, analysts forecast mid-double-digit EPS growth from Q2 2025 through Q1 2026: 14.0%, 8.9%, 10.6%, and 10.2% respectively. While slower than 2024’s high, these mid-double-digit rates still reflect a significant premium.
With semiconductor-equipment billings up 21% year-over-year in Q1, a growth driven by AI demand and fab expansion, and Azure reporting 33% revenue growth (with 16 percentage points attributed to AI) remain reliable early indicators of AI deployment and lend credence to the view that analysts may be underestimating second-half earnings upside.
Source: Statista as of April 16, 2025
Conclusion: Advisor Perspective
Taken together, these insights support a bullish yet cautious outlook for equities. While smaller firms await clarity on tariffs, the vast AI-driven capital investment from major tech players provides a powerful economic buffer. If the yield curve stabilizes, and policy uncertainty eases, there is potential for meaningful upside, especially for high-quality growth stocks. Advisors should closely watch these indicators as potential catalysts for further equity market gains.
