Good morning, investors. Both investors and media headlines tend to focus on Big Tech companies, but the second- and third-order repercussions of their ambitious spending plans may ultimately bring the most intrigue.
And while everyone believes the Magnificent 7 names will change the world, that doesn’t mean they will be the ones who see the most outsized returns.
Tech’s spending race and civil war
Big Tech companies have entered an expensive civil war and the rest of the S&P 500 stand to collect the spoils.
The Magnificent 7’s — Meta, Alphabet, Nvidia, Microsoft, Amazon, Tesla and Apple — once-unquestioned monopolies are starting to deteriorate as AI turns each of them into direct competitors.
Magnificent 7 have outperformed again in 2025 (Chart courtesy of Exhibit A)
Veteran strategist Ed Yardeni frames this as a war of seven kings, each of which are scrambling to out-spend and out-innovate one another.
That competition has shrunk each of the monopolies that were clear just a couple years ago:
Google in search
Microsoft with software
Nvidia and GPU chips
Amazon’s online retailing
Meta with advertising
Apple’s hardware and smartphones
Tesla and electric cars
Investors are increasingly questioning Big Tech’s capex plans, though in Yardeni’s view, the boom as a whole will fuel the entire market the rest of the decade.
“We continue to believe that the integration of AI into the broader economy will boost productivity, subdue unit labor costs, and widen profit margins for S&P 500 companies, especially the ‘S&P 493’ over the long-haul,” Yardeni said.
In fact, for the year ahead, his team recommends investors shift overweight to the S&P 493 and underweight the Magnificent 7 stocks as the entire index benefits from increasing competition from the top.
The logic is straightforward. As the biggest companies in the world spend trillions to avoid falling behind, the market will increasingly question their return on investment.
The Magnificent 7 see large stock returns alongside increased volatility (Chart courtesy of Exhibit A)
And with generative AI allowing each of the Magnificent 7 to eat into one another’s moats, each company becomes increasingly vulnerable to competition.
And that, according to Yardeni, will bring greater spoils for the rest of the market.
“As the clash of the titans forces them to slash prices and race to deploy the most powerful tools to win the throne, the productivity benefits will cascade down to the rest of the S&P 500, keeping our ‘Roaring 2020s’ scenario very much alive, even as the kings bleed,” Yardeni said.
Economic growth forecasts continue to accelerate (Chart courtesy of Exhibit A)
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Market snapshot
Elsewhere
📊Investors are buying more stocks than just AI. Concerns about debt and execution risk led to a recent sell-off in technology names, yet the Dow and S&P 500 continued to push toward record highs, indicating a rotation into financials and small-cap stocks. (Barron’s)
⏰ 24/7 trading is coming to Wall Street. The Nasdaq exchange is planning to submit paperwork with the SEC to roll out around-the-clock trading for equities, following the lead of crypto markets. (Reuters)
🛢 Oil prices dropped to their lowest level since 2021. The US crude benchmark is now hovering at prices last seen in February 2021 at $57 a barrel as markets begin to price in a new deal to end the war in Ukraine. A peace agreement could lift restrictions on Russian oil, undoing long-standing disruptions. (Bloomberg)
Rapid-fire
European defense stocks dipped after President Zelenskyy said Ukraine would be open to ditching its effort to join NATO (CNBC)
Intel appointed a Trump economic advisor as its head of government affairs (Reuters)
Ford expects to incur a $19.5 billion charge due to its lagging EV business (WSJ)
Eric Jackson shares the stocks that could 100x from here (Full Signal)
PayPal applied to form a bank that can form small business loans and savings accounts (CNBC)
The US offered Ukraine a security guarantee to push peace talks forward (WSJ)
The US likely lost an average of 20,000 jobs per month between April and September, Jerome Powell estimated (Investopedia)
Three straight years of 20% stock gains do not rule out a fourth (Opening Bell Daily)
The combination of AI, easy money and deregulation could supercharge US growth (Pomp Letter)
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On this day
🗓 December 16, 2024: One year ago today, the Nasdaq Composite closed at a record high ahead of the Federal Reserve’s policy meeting, where central bankers announced a 25 basis point rate cut.
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About me
📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.
I write our flagship newsletter and host our show, Full Signal, to prepare you for each trading day — unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else.
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