A group of mega-cap technology companies, the ‘Magnificent Seven,’ experienced their largest one-day drop since the tariff shock in April 2025, as results from Alphabet Inc. and Tesla Inc. raised concerns about the sustainability of the artificial intelligence trend that has supported the stock market for over three years. The Bloomberg Magnificent 7 index fell by 4.8% during Thursday’s trading session, resulting in a market value loss of approximately 767 billion dollars.
The decline was led by Tesla and Alphabet, which alarmed Wall Street with their earnings reports on Wednesday. Alphabet raised its capital expenditure forecast to 205 billion dollars this year, while Tesla‘s earnings fell significantly short of expectations. CEO Elon Musk informed investors that 2026 would be a “year of record capital expenditures.”
Growing AI Costs Raise Concerns
“The real problem is the scale of the spending that is happening now,” said Ken Mahoney, CEO of Mahoney Asset Management. “No one knows what the return on these investments will be.” He added that macroeconomic conditions, including rising oil prices amid escalating tensions with Iran, are increasingly weighing on these stocks. “It’s a perfect storm,” Mahoney said.
The sell-off comes amid growing investor caution regarding the massive sums that big tech companies are spending on artificial intelligence infrastructure. The index has now fallen by 11% from its record high reached at the end of May, wiping out 2 trillion dollars in market value. Wednesday’s earnings reports only heightened these concerns.
Although Google’s parent company, Alphabet, reported encouraging results showing steady growth in its cloud business, its spending forecast exceeded expectations. This occurred despite Alphabet announcing increased spending when it raised capital in early June. The 45 billion dollars spent by the company in the second quarter resulted in negative cash flow for the first time as a public company. “This indicates a significantly higher risk for the shares than before, when the company consistently generated significant cash flow,” commented Jason Lemire, chief investment officer at Bold Wealth Partners.
Meanwhile, Musk stated that Tesla “must spend on capital investments as quickly as possible — as fast as possible without excessive waste.” Tesla’s shares fell by 13% on Thursday, marking their largest intraday drop since June 2025, while Alphabet dropped by 7.3%, reaching its lowest level since April.
Market Reaction and Other Players
Other major companies heavily investing in artificial intelligence also saw declines: Microsoft Corp. lost 3.1%, Amazon.com Inc. lost 5%, and Meta Platforms Inc. lost 4.7%. All three companies are set to release their financial results next week.
While each member of the ‘Magnificent Seven’ ended the day in the red, Nvidia Corp. and Apple Inc. suffered the least losses. Apple has so far avoided the large-scale investment race in artificial intelligence, and investors have recently viewed this approach positively. The company’s shares have risen by 11% this month and by 18% since the beginning of the year. Nvidia‘s shares have lagged behind other semiconductor manufacturers this year as investor attention has shifted to memory chip makers such as Micron Technology Inc. and Sandisk Corp., whose products are critical for AI data processing centers. Meanwhile, Nvidia‘s shares remain up by 13% in 2026.
Source: Bloomberg
