In 2024, investing in stocks was all about buying the "Magnificent Seven"... And while you might think your S&P 500 Index fund is diversified, last year, more than half its gain came from those seven tech behemoths.
Another Way to Play the AI Boom
By Joe Austin, senior analyst, Chaikin Analytics
In 2024, investing in stocks was all about buying the "Magnificent Seven"...
And while you might think your S&P 500 Index fund is diversified, last year, more than half its gain came from those seven tech behemoths.
The index itself gained nearly 25% in 2024. And the Magnificent Seven were up almost 70%. But without those seven stocks, the S&P 500 only increased about 15%.
That's still a respectable rate of return for the year. But even today, the Magnificent Seven still have an outsized effect on performance.
As we entered 2025, they made up roughly a third of the total market value of the index. That was up from 20% of its value just two years before.
In the wake of "Liberation Day" on April 2, they declined about 14%. That's roughly 2 percentage points more than the S&P 500 itself.
By now, the Magnificent Seven as a group are roughly flat in 2025. Meanwhile, the S&P 500 is up about 4%.
But AI adoption rates are still soaring...
According to researchers at Stanford University, U.S. private AI investment came in at nearly $110 billion last year.
The same survey showed 78% of organizations were actively deploying AI in 2024. That's up from 55% in 2023.
And everywhere you turn, you'll find examples of AI automating repetitive tasks, reducing costs, and increasing productivity.
AI is obviously here to stay. But many regular investors don't seem to be excited about the big tech stocks...
Retail buying of AI-related stocks as a percentage of total inflows was about 23% in mid-June. That's roughly half of what it was (41%) before the market turmoil in April.
So if investors have cooled on the Magnificent Seven, what's next for investing in AI? The answer may be simpler than you think...
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According to a Boston-based institutional financial-research firm serving clients like Goldman Sachs, JPMorgan Chase, and BlackRock, "The way income will be calculated for Social Security could soon change forever." Today, the firm is sounding the alarm on huge changes ahead. It adds, "Sources confirm: AI is already inside the Social Security Administration, with a full federal action plan due this summer." Click here to see how it could impact your money.
I love investing in tech stocks. Tech has been a staple in my portfolio ever since I started covering the sector in 1985.
Economists think that about 50% of annual growth in GDP is a result of innovation. So you obviously don't want to miss out on an opportunity like that.
But most tech manias follow a predictable pattern...
First, wild enthusiasm drives valuations to dizzying heights. Then reality sets in. And everyone decides the party is over.
That's what I refer to as the "throwing out the baby with the bath water" phase of the cycle. Greed is out... and gloom is in.
Whether it's the PC revolution, the dot-com boom, the social networking craze, or even AI today... when tech is going down, there's no place to hide.
But I see two ways to invest in the AI boom...
The first and most obvious way is to buy tech stocks. And with a couple of exceptions, the Magnificent Seven still fit the bill from that standpoint.
Here at Chaikin Analytics, we also have the Power Gauge to help us find good ideas and manage risk within tech.
But along with their massive upside potential, tech stocks are risky.
After all, a fundamental rule in finance is the positive relationship between risk and reward.
With tech stocks, much of their attractiveness comes from their future earnings potential. And when market uncertainty crops up, investors run away from these stocks.
That's exactly what we've seen relative to the Magnificent Seven so far this year.
But another way to invest in AI is to look for companies that benefit from the technology itself.
I call these "hidden AI" opportunities across the broader economy.
Think of a pharmaceutical company using AI to discover a new drug... an insurance company using AI for more precise underwriting... or a pipeline company using AI to improve the safety and efficiency of its operations.
These ideas might not be as "sexy" as the latest and greatest large language model or chatbot. But at the same time, you're not going to get torpedoed by something like DeepSeek coming out of China.
I'm talking about established companies that are using AI to make themselves more competitive. They can use AI to reduce costs, improve customer service, and enter new businesses and markets altogether.
And if the AI theme doesn't pan out, you still own shares in a great business. That's a powerful benefit from a risk-management standpoint.
So make no mistake, I'm still bullish on tech. But to benefit from it, you don't have to always chase the hottest stocks...
You can also invest in companies solving real-world problems that will be around long after the hype fades.
That means investing for the upside... and with a lot less risk, too.
Good investing,
Joe Austin Editor's note: Yesterday, Joe joined Marc Chaikin on camera for a big reveal...
During this special event, they discussed how today's chaotic market has opened an incredible new investment vehicle. And they explained how it could double or triple your money this year – by spotting the 2.3% of AI and other innovative stocks that could soon experience a massive earnings beat.
If you missed the big event, you're in luck. You can watch the replay with all the details right here.
Market View
Major Indexes and Notable Sectors
# Hld: Bullish Neutral Bearish
Dow 30
-0.22%
8
15
7
S&P 500
+0.06%
108
254
138
Nasdaq
+0.26%
25
57
19
Small Caps
-1.17%
494
999
392
Bonds
+0.13%
— According to the Chaikin Power Bar, Small Cap stocks have become somewhat more Bullish than Large Cap stocks. Major indexes are mixed.
* * * *
Sector Tracker
Sector movement over the last 5 days
Information Technology
+3.2%
Financial
+2.37%
Communication
+1.68%
Consumer Discretionary
+1.25%
Industrials
+1.1%
Health Care
+0.5%
Utilities
-0.07%
Materials
-0.22%
Consumer Staples
-0.24%
Real Estate
-1.46%
Energy
-4.02%
* * * *
Industry Focus
Dow Jones REIT Services
6
43
52
Over the past 6 months, the Dow Jones REIT subsector (RWR) has underperformed the S&P 500 by -4.75%. Its Power Bar ratio, which measures future potential, is Very Weak, with more Bearish than Bullish stocks. It is currently ranked #20 of 21 subsectors and has moved down 1 slot over the past week.
Indicative Stocks
APLE
Apple Hospitality RE
AKR
Acadia Realty Trust
ALEX
Alexander & Baldwin,
* * * *
Top Movers
Gainers
SMCI
+8.8%
NTRS
+4.76%
NVDA
+4.33%
AMTM
+3.9%
TECH
+3.78%
Losers
PAYX
-9.4%
EQIX
-9.07%
BXP
-5.26%
PAYC
-5.22%
GIS
-5.11%
* * * *
Earnings Report
Earnings Surprises
MU Micron Technology, Inc.
Q3
$1.91
Beat by $0.31
GIS General Mills, Inc.
Q4
$0.74
Beat by $0.03
PAYX Paychex, Inc.
Q4
$1.19
Met estimate
* * * *
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