Why Retail Traders Are Over the Mag Seven

Steve Booth (0:00)

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Alex Ossola (0:33)

Retail investors are over the Magnificent Seven Mega Cap Tech stocks.

Hannah Erin Lang (0:38)

They're just not what they're looking to for that aggressive, high growth stock. They're starting to realize that they're going to find that in other parts of the market in newer AI plays.

Alex Ossola (0:51)

Plus, a legal challenge for the $81 billion Paramount Warner Bros.

Steve Booth (0:54)

deal.

Alex Ossola (0:55)

And it's not just Spain. Winners of the World Cup might include ranch dressing. It's Monday, July 20th. I'm Alex Ossola for the Wall Street Journal. This is the PM Edition of What's News, the top headlines and business stories that move the world today.

We begin this evening in Shanghai, where China's biggest artificial intelligence convention just wrapped up. And that's where Alibaba previewed its newest AI model that it says is among the most powerful available today. The company said, Quen 3.8 Max is second only to Anthropic's most cutting edge model, Fable 5, and that Alibaba plans to make its model available for developers to download and modify soon. Chinese AI models are gaining traction globally. Many of them are open source, and they're generally cheaper to run than Western models. Another Chinese company, Moonshot AI, spooked tech stocks in the US this past Friday, with the launch of its Kimi K3 model.

Speaking of tech stocks, the companies that make up the Mag 7 have dominated the US stock market. But now their hold on individual investors seems to be loosening. The market data firm, Vanda Research, says retail traders are buying fewer shares of Microsoft, Apple, Amazon, Meta, NVIDIA, Alphabet and Tesla.

Instead, traders are flowing to newer AI trades with names that might not be as famous. Journal Markets reporter Hannah Erin Lang joins me now with more. Hannah, why is there less of this appetite for Mag 7 from retail investors right now?

Hannah Erin Lang (2:27)

The Mag 7 kind of ruled the AI trade, especially for the first few years that this has taken hold on Wall Street. Retail investors are turning a lot of their attention away from these trillion-dollar firms that are funding the artificial intelligence buildout.

They're looking towards companies making the pieces and components that are part of that, right? So those making the chips, think like Micron or SK Hynex, companies that make cooling systems for data centers, power providers, and even more far-flung things like space companies and quantum computing. It's like who could be the next set of big beneficiaries as we all start to use AI and integrate it into our everyday lives.

Alex Ossola (3:10)

Okay, that is all to say, though, that Mac 7 is still hugely influential in the market, right? It's not like they're going away. I mean, what does less attention on those companies mean for the broader market?

Hannah Erin Lang (3:21)

It's not that retail investors are completely turning away from The Magnificent Seven or from mega-cap tech companies as a whole. A lot of them still maintain significant exposure to these companies. Even if they don't own the individual stocks, these stocks make up 36 percent of the entire S&P 500 index. So you're heavily exposed to mega-cap tech just by investing in the major US stock indexes.

I think this just means that investors are starting to think about The Magnificent Seven a little differently. There's still a core holding in their portfolio, but they're just not what they're looking to for that aggressive, high growth stock. They're starting to realize that they're going to find that in other parts of the market in newer AI plays.

Alex Ossola (4:08)

That was WSJ Markets reporter, Hannah Erin Lang. Thank you, Hannah.

Hannah Erin Lang (4:11)

Thank you for having me.

Alex Ossola (4:15)

Oil prices finished higher today. Brent crude futures added more than 1 percent to about $89 a barrel. Traffic in the Strait of Hormuz remains crippled, and the Houthi militia in Yemen today said they would blockade Saudi shipping. That could cut off the Red Sea oil route that Saudi Arabia is using to get around the blockade in Hormuz. Those Middle East tensions and AI anxieties also weighed on stocks. The major indexes were slightly lower today, with the Dow leading the losses and finishing down 0.6 percent.