Key Takeaways:
Individual investors are rotating out of Magnificent Seven mega-cap tech stocks and into the companies building the physical infrastructure for artificial intelligence.
Individual investors are abandoning the Magnificent Seven for AI infrastructure plays, funneling a net $194 million into Intel alone this month.
"Retail traders are picking winners based on conviction rather than following the market's biggest names," said Bret Kenwell, U.S. investment analyst at eToro.
The rotation extends beyond Intel. Cloud company IREN drew $56 million in net retail purchases, while chip maker Marvell Technology has surged more than 120 percent this year, making it the top performer in Alex Cardona's portfolio. The 50-year-old software director said he prefers pure-play AI infrastructure names like Equinix and Marvell over the megacap tech giants.
The shift comes as the PHLX Semiconductor Index entered bear-market territory Friday, falling 1.6 percent to sit more than 20 percent below its recent high after a new AI model from China's Moonshot AI spooked Wall Street. The selloff shows that even the most popular AI trades remain vulnerable to competitive pressure.
Mag Seven loses its grip on retail portfolios
For years, ordinary investors were the most loyal buyers of the seven megacap tech stocks that together account for 36 percent of the S&P 500's market value. That relationship is fraying. Microsoft, the most popular Mag Seven name among retail traders this month, drew just $52 million in net purchases — a fraction of the flows going to Intel and IREN.
Davis Cantrell, a 19-year-old college student near Atlanta, sold all his Nvidia shares and trimmed his Microsoft position to rotate into space and quantum computing stocks. "I'm looking for aggressive, more high-risk growth stocks," he said. "I just don't see Microsoft and Nvidia fitting into that category anymore."
AI infrastructure boom meets a reality check
The enthusiasm for AI infrastructure names has been fueled by record retail activity. Average daily stock-trading volumes in May and June were more than double the 2024 average, according to Scott Rubner, head of equity and equity derivatives strategy at Citadel Securities.
But Friday's selloff, triggered by news of a new model from China's Moonshot AI, dragged down AI stocks across the board — from small-cap chip makers to software companies to the Mag Seven themselves. The PHLX Semiconductor Index's slide into bear territory marks a stark reversal for a sector that had been the market's hottest trade.
"The market is looking for more signs of AI driving revenue growth or driving productivity gains," said Jonathan Cofsky, portfolio manager on the global technology and innovation team at Janus Henderson. "To continue supporting that level of spend, you need the returns to be pervasive throughout the economy."
This article is for informational purposes only and does not constitute investment advice.
