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April 1, 2026

MAG7 MONITOR: Tech Stocks Bounce, But Skepticism Lingers

Stocks surged yesterday on indications that the war could be coming to an end. With reports that Iran is ready to comply with U.S. demands in exchange for certain assurances, the S&P 500 advanced nearly 3%.

Technology stocks outperformed and sent the NASDAQ Composite up closer to 4%.

The first quarter of 2026 may have just finished on a very strong note, but the quarter overall was relatively disappointing, with the S&P 500 down 4.4% since the start of the year.

Performance was considerably worse, however, for the MAG7 tech names that still dominate the market cap rankings. These stocks on average returned -12% this quarter.

The conflict in Iran remains a highly fluid situation. But if we are now on our way toward a more enduring resolution and a normalization of oil prices, this could pave the way for a strong recovery.

And as yesterday’s market action signals, such a recovery could be led by large-cap technology names after a stretch of significant underperformance.

Are they cheap?

Investors are now asking an important question:

Has the recent market turmoil produced an opportunity to scoop up some of the most successful and profitable businesses in corporate history at bargain levels?

The average MAG7 stock is still trading more than 20% below its 52-week high. In several cases, declining share prices have pushed valuation multiples to levels that appear disconnected from expected earnings growth.

Given the outsized influence of these companies on major indexes, whether this group is undervalued matters for nearly all investors.

Our view is that these tech leaders have reached a point where valuations, broadly speaking, look attractive—with certain names (discussed below) now trading at particularly compelling levels.

Surveying the damage

Every single MAG7 name that we cover underperformed the S&P 500 in the first quarter of 2026.

This has not happened since the second quarter of 2022, a period of severe weakness in markets when the S&P 500 declined 16% (and the average MAG7 stock declined 28%).

The second quarter of 2022 was the worst quarter of that year. Investors sold stocks aggressively in response to rapid interest rate hikes, as the Fed tried to combat surging inflation.

The first quarter of 2026 was bad for the MAG7, but not quite that bad.

The best performer was NVIDIA (NVDA), which returned -6%. The worst performer was Microsoft (MSFT), which returned -23%.

MAG7 MONITOR Coverage Universe

What went wrong?

Looking at the first quarter of 2026 month by month, January was actually a positive month for the average MAG7 stock (up 1.5%). February was only slightly negative (down 0.9%).

The vast majority of the decline came in March, following U.S. military strikes on Iran, which commenced on February 28.

Technology businesses tend to be less directly connected to oil markets, so why the sharp underperformance? In our view, there were two main factors that affected the group as a whole.

First, these are among the largest and most liquid stocks in the index.

If investors want to pull capital from the stock market—or rotate into more defensive areas of the market, including energy—large-cap tech names will inevitably be sold.

Second, rising interest rates.

One of the main impacts of the conflict in Iran was the way it altered the outlook for monetary policy. The Fed signaled in March that it was now less likely cut rates in the immediate future, given potential inflation pressure from higher oil prices.

As we saw back in 2022, the last time the MAG7 substantially underperformed, tech/growth stocks are particularly susceptible to rising interest rates.

These are stocks whose valuations are pinned to long-term expectations of cash flow growth. This makes them more sensitive to relative changes in long-term rates (similar to how long-term bonds behave).

While risk-off sentiment and rising rates affected the group broadly, it does not explain all of the weakness. There were a number of important company-specific factors at play as well.

The software nosedive

As noted, MSFT was the worst performer this quarter. MSFT’s fourth quarter earnings results were reasonably strong, although some investors were underwhelmed with growth in the cloud segment.

The bigger story, though, was MSFT’s involvement in the controversy around software stocks. As we discussed in early February (Software as a Sell-Off), subscription-based software companies have become increasingly viewed as potential victims of AI innovation.

The concern is that AI agents, sometimes referred to as “claws,” will be able to perform many of the same functions that software companies now provide—at a fraction of the cost. And these agentic systems are only getting better.

The majority of MSFT’s operating income still comes from software, such as the Windows operating system and the Office suite of applications.

Like essentially all the MAG7 names, MSFT is gradually transforming itself into an AI infrastructure company, with aggressive investments in data centers. Yet it remains the only true software stock in the group—and was punished accordingly.

MSFT’s trajectory this quarter overlapped almost perfectly with the iShares Software ETF (IGV). MSFT is itself one of the largest holdings in that sector fund, with an approximately 8% allocation.

MSFT vs. Software ETF

(Total Return - Year to Date)

Lawsuits, too

While MSFT got caught up in the software maelstrom, two other MAG7 constituents, Meta Platforms (META) and Alphabet (GOOGL), found themselves on the wrong side of a legal judgment in late March.

A California jury found both companies liable for inflicting psychological harm on a minor.

The lawsuit centered around META’s Instagram and GOOGL’s YouTube. The jury awarded the plaintiff $6 million after finding both companies responsible for her alleged addiction to these online services.

An important legal point is that the judge in the case was not convinced that the companies should be protected by Section 230 of the Communications Decency Act (a 1996 federal law that generally protects ​online platforms from liability over user-generated content).

The plaintiffs successfully argued that the companies harmed young users by the way they deliver content over their platforms rather than the content itself. Therefore, META and GOOGL were seen has having direct responsibility.

The jury award was negligible in relation to the size of the companies, but the market reacted negatively to the precedent. And even though the companies have in recent years amended their policies and algorithms to address these types of concerns, the legal risk represents a new worry for investors.

While we are not particularly concerned that this litigation will ultimately have a material effect on the companies, the verdict exacerbated negative sentiment toward a group already mired in a range of other investment-related controversies.    

Has it gone too far?

Before Iran, the software meltdown and the lawsuits, investor enthusiasm toward the MAG7 was already held back by persistent doubts related to AI.

In years past, companies like MSFT, META and GOOGL generated enormous free cash flow. Now, as many of these businesses pursue costly data center buildouts, their capital expenditure budgets have soared.

Generally speaking, the stocks continue to deliver strong earnings growth. But investors are uneasy about how much of those profits are getting reinvested in data center expansion.

Concerns around capital spending are a major reason MAG7 stocks now trade at lower earnings multiples than they used to, relative to the broader market.

This “multiple compression” is visible when we compare the current year earnings multiple of the Vanguard Mega Cap Growth ETF (MGK) with the S&P 500.

MGK is not a perfect representation of the MAG7, but it is a useful proxy for the group. The MAG7 currently represent more than 60% of the value of this fund, which is concentrated in large-cap growth stocks.

The relative Price/Earnings ratio of MGK versus the S&P 500 has declined substantially. Over the past five years, it has typically ranged between 1.4 to 1.7x. As the quarter comes to an end, it is closer to 1.3x.

Mega Cap Growth vs. S&P 500

(Relative P/E - Last 5 Years)

Where we see the most value

With the MAG7 now getting much less of a growth premium within the market, two stocks in the MAG7 universe strike us as especially compelling. Both of them are holdings within our growth-oriented American Resilience Model Portfolio.

NVDA

Perhaps the biggest mismatch between fundamental operating performance and share price is in NVIDIA (NVDA). Remarkably, NVDA now trades at a 2026 P/E multiple that is just marginally above the S&P 500 index.

NVDA vs. S&P 500

(Relative P/E - Last 5 Years)

Yet NVDA is growing much faster than the index. Based on consensus forecasts, earnings per share are expected to rise 36% in 2027 and another 16% in 2028.

This far exceeds market expectations for S&P 500 earnings growth in the same time frame (approximately 10% to 15% per year).

NVDA’s lack of a premium earnings multiple implies real skepticism toward the company’s long-term ability to grow. We find this skepticism unwarranted.

The “hyperscalers” within the MAG7 (including MSFT, GOOGL and AMZN) are aggressively investing in their AI buildouts, which has many investors concerned. This is not a direct concern for investors in NVDA, which has minimal capital spending requirements and continues to generate high levels of free cash flow.

What is a concern is that NVDA is a top supplier of hardware to these hyperscalers, which are its main customers. If their pace of investment proves to be unsustainable, or if they are able to transition away from NVDA hardware to competing products, NVDA revenue could suffer.

It is hard to argue the market has entirely “given up” on the NVDA growth story. NVDA remains the most valuable company in the world, with a $4 trillion market cap. But at current prices, we think the market is too aggressively handicapping NVDA’s long-term growth potential.

Despite the skeptics, the world remains hungry for AI. When CEO Jensen Huang spoke a few weeks ago at the company’s annual GTC conference, he referenced a trillion dollars of revenue visibility through 2027, which suggests consensus earnings forecasts may in fact be conservative.

Custom silicon and alternative chips are being developed, but NVDA’s advantage extends beyond hardware. Its CUDA ecosystem, developer tools, and integrated software stack create high switching costs and make NVDA extremely difficult to replace.

From a longer term perspective, NVDA is the innovation leader in AI. The business has transitioned away from merely being a supplier of chips to becoming an end-to-end provider of “AI factories.”

NVDA sits at the epicenter of the AI revolution, which is still in the early stages. We expect NVDA’s high rates of growth to continue for many years ahead.

Even if the market continues to value NVDA as cautiously as it does now, the share price will likely rise as earnings rise. And if the historical growth premium returns to NVDA, the upside could be much greater.

META

META also now offers what we would describe as “cheap growth.”

META trades at 19x current year earnings, slightly below the broader market multiple (20x) and the lowest in the group. Yet META is expected to grow earnings at a mid to high teens rate over the next two years, with potential acceleration later on as AI investments pay off.

Unlike NVDA, where the debate centers on the durability of demand, META’s recent weakness reflects concerns around spending and margin pressure.

META is not technically a hyperscaler in that the company does not directly host cloud computing for third parties. But the company is still investing heavily in AI infrastructure—data centers, compute, and model development—which has weighed on near-term profitability.

What makes META compelling is that AI is already working in the business today. Improved recommendation systems, ad targeting, and engagement are driving measurable gains in advertising efficiency.

In other words, META is not just investing in AI—it is actively monetizing it.

META controls its own distribution through Facebook, Instagram, and WhatsApp—platforms with billions of users. That gives it a direct channel to deploy AI at scale and capture the economic benefits internally.

In a market concerned about the cost of AI, META stands out as a company where the returns are already visible. As spending normalizes and efficiency gains compound, we expect that to become more apparent in the financials and for investor confidence in META to return.

Similar to NVDA, if META merely holds a low earnings multiple while earnings grow, this is sufficient for good performance. The opportunity for multiple expansion represents an extra source of potential upside.

Getting back to business

As President Trump has described it, Iran has been an unwanted “excursion.” He understood it would be disruptive to the economy, at least in the short term.

Technology stocks seem to have borne the brunt of this decision.

From a political perspective, there is a good debate to be had as to what constitutes success in Iran. Is the near total destruction of Iranian military capability sufficient? Or should we push for more lasting reforms within the Iranian political system?

At the moment, Trump appears keen to consolidate U.S. successes and limit the ongoing damage to the global economy. From a market perspective, this is what matters most—resolution and the prospect of normalized energy flows.

It was a long month, but periods like this often create entry points into great businesses for investors willing to take a longer-term view.

MAG 7 — Valuation

MAG7 — Performance

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