It's a rarity to see the "Magnificent Seven" tech stocks this cheap.

Quick insight: The Magnificent Seven stocks are now trading at their cheapest valuation relative to the S&P 500 (^GSPC) in more than a decade, according to Morgan Stanley.

The analysis looks at the price-to-earnings multiple premium for the Magnificent Seven relative to the other 493 companies in the S&P 500. The premium has held above 30% for most of the 2020s but is now closer to 10%.

All Magnificent Seven stocks have underperformed the S&P 500 in 2026 except for Alphabet (GOOG), which has notched a 14.5% year-to-date gain versus the benchmark index's 8.8% advance.

The companies that make up the Magnificent Seven are Nvidia (NVDA), Microsoft (MSFT), Alphabet, Amazon (AMZN), Meta Platforms (META), Apple (AAPL), and Tesla (TSLA).

What's behind the move: Wall Street is growing increasingly impatient with Big Tech's astronomical capital expenditures on artificial intelligence, projected to balloon 70% and exceed $700 billion this year.

This aggressive, unyielding infrastructure spending on data centers and high-end GPUs has heavily cannibalized corporate cash generation. The Magnificent Seven's collective 12-month forward free cash flow is expected to drop sharply from its 2024 peak.

"There is growing apprehension regarding the capex spend by the largest hyperscalers," Deutsche Bank strategist Jim Reid warned in a note.

Sprinkle in concerns about a Fed rate hike later this year — which would increase the cost of financing for AI projects — and it makes sense why this group is relatively underperforming the S&P 500.

The bottom line: These stocks are likely to stay in the penalty box for now as the companies show no signs of slowing down AI spending. Moreover, sentiment has now been negative for a prolonged stretch, and it won't turn positive at the drop of a dime.

"While 'AI fever' continues globally, with benchmarks like the KOSPI index up over 100% year-to-date, leadership in the market has shifted away from the Mag 7 for now," Reid added.

Brian Sozzi is Yahoo Finance's Executive Editor, host of the 'Power Players With Brian Sozzi' podcast and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email [email protected].

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