The Magnificent Seven stocks – a group formed by Microsoft MSFT, Amazon AMZN, Apple AAPL, Alphabet GOOG, GOOGL, NVIDIA NVDA, Tesla TSLA and Meta META – posted their sharpest one-day decline since the tariff-driven market sell-off in April 2025, wiping out nearly $797 billion in market value, according to Bloomberg, as quoted on Yahoo Finance.
Alphabet and Tesla Lead the Sell-Off
Alphabet and Tesla bore the brunt of the decline, with shares falling 7% and 14.5%, respectively, after reporting quarterly earnings. Tesla alone shed roughly $200 billion in market value, per the source.
Although Alphabet delivered strong revenue growth and highlighted a growing cloud-services backlog, investors focused on its sharply higher AI infrastructure spending, triggering a sell-off in the stock.
Alphabet management has consistently told investors that it is ramping up capital spending to capture the AI opportunity. In the latest quarter, it raised its 2026 capital expenditure (capex) guidance by another $15 billion to $195 billion-$205 billion.
At that pace, Alphabet is expected to spend roughly $120 billion on capex in the second half of the year, suggesting free cash flow is likely to remain under pressure, as quoted on Yahoo Finance.
AI Spending Shifts Investor Focus
According to Evercore ISI Senior Managing Director Mark Mahaney, the market is rewarding companies that benefit from AI investment rather than those making the investments, as mentioned in Yahoo Finance.
Alphabet’s higher capital expenditure reinforced the view that the AI infrastructure “picks-and-shovels” companies stand to gain the most from the AI spending boom. As a result, shares of memory-chip makers Micron Technology (MU), SK Hynix (SKHY) and Sandisk (SNDK) rallied even as hyperscaler stocks declined.
This scenario puts the focus on the Roundhill Memory ETF DRAM for potential gains. Although memory stocks were sold off massively in recent times due to high valuation, their operational fundamentals remain strong.
Meanwhile, Tesla also plans to significantly increase AI spending as it accelerates the development of autonomous robotaxis and humanoid robots, technologies that are still some distance from widespread commercialization.
How to Play the Scenario?
Focus on Compelling Valuation & Upbeat Earnings
Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company, believes investors should look beyond richly valued AI leaders and diversify into companies with stronger current earnings and more reasonable valuations, as mentioned in the above-said Yahoo Finance source.
