Market Leadership Shift: What to Do if the ‘Magnificent Seven’ Narrative Unravels
6 MAR, 2025
By Jupiter AM
Author: Amadeo Alentorn, Head of Systematic Equities at Jupiter Asset Management.
In the early months of 2025, markets have undergone a significant shift. While US indices have been the main drivers of returns in recent years, they have remained in more neutral territory at the start of this year. In contrast, European markets such as the IBEX, the French CAC, and the German DAX have posted gains of between 10% and 15%, outperforming their North American peers. We may be witnessing a potential change in market leadership. The big question is how long it will last, but it undoubtedly opens up opportunities in the equity space.
One of the most notable aspects of the current market environment is the correction experienced by the major tech stocks, known as the "Magnificent Seven." Since mid-December, a balanced portfolio of these seven companies has fallen by more than 10%. However, within this group of stocks, there has been significant dispersion in returns. While Meta has posted gains of around 20% year-to-date, Tesla has plummeted by approximately 40%.
In this scenario, the question arises as to whether the "Magnificent Seven" narrative is unravelling. It may be necessary to take a deeper look at the individual opportunities of each company and take positions accordingly, rather than investing in all of them as a homogeneous group.
Regarding the technology sector and artificial intelligence (AI), the key lies in identifying which companies are achieving real efficiencies with these technologies. Beyond the headlines about the big tech firms, there are banks improving customer service with chatbots and pharmaceutical companies speeding up drug discovery using AI. Investment opportunities will lie in those companies that manage to integrate these innovations to boost their profits, regardless of the sector in which they operate.
Moreover, a fundamental issue in the realm of AI is the monetisation of investment. Big tech firms continue to make astronomical investments in AI, but the big question is how they are going to monetise them. This is particularly relevant now that smaller companies, such as DeepSeek, are emerging, offering efficient solutions with much smaller investments. This factor could be contributing to the decline seen in many tech stocks so far this year.
The approach is not to take a macro position on the tech sector as a whole but to carefully analyse thousands of companies to find individual opportunities. Our goal is to find opportunities in both long and short positions, allowing us to benefit from market movements, whether they go up or down.
Another factor influencing the evolution of the tech sector is the growing competition in AI between the US and China. The emergence of companies like DeepSeek has been a turning point in the market, demonstrating that smaller, more economical models can be developed that are highly efficient in specific fields. This trend is forcing major players in the sector to adjust their strategies, as seen with OpenAI, which has cut the price of its premium service from $200 to $20 to match other competitors.
The market continues to evolve with the emergence of new players, such as Mistral, a French start-up that recently launched a model based on the mixture of experts, achieving results comparable to DeepSeek with lower resource consumption. Such innovations are increasing global competitiveness and could change the dynamics of the sector in the coming years.
The investment landscape in equities and technology continues to evolve with key factors such as the rotation of market leadership, the correction in major tech stocks, and the growing competition in AI. For investors, the key will be to identify opportunities with a detailed and selective approach, looking beyond the broader market narratives.
