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Morgan Stanley’s Andrew Slimmon feels large-cap tech stocks are poised for a stunning comeback. Following months of underperformance, he feels the markets are underestimating the group’s next move.
That’s a shock take, to say the least, as the narrative around tech has soured of late.
Recently, we’ve seen a shift into industrials, cyclicals, and assets linked to interest-rate cuts, leaving the big guns in tech treading water.
For perspective, according to PortfoliosLab, the Industrial Select Sector SPDR Fund (XLI) is up 2.80% over the past month, while the Technology Select Sector SPDR Fund (XLK) is down 0.33%.
Though tech still leads on a full-year basis, things have clearly been rough lately.
To be fair, having covered the stock market for half a decade or so, especially the Magnificent 7, I’ve seen this movie before.
Investor sentiment can turn quickly, and stocks that felt virtually untouchable suddenly feel like yesterday’s trade.
Slimmon’s take cuts through that prevailing view.
He makes the case that large tech is looking a lot more reasonably priced than a lot of the sectors investors have rushed into. Earnings haven’t cracked, but expectations have.
The Magnificent 7 is basically Mr. Market’s nickname for seven of the biggest mega-cap tech leaders that can effectively drag major benchmarks up or down almost by themselves.
A Bank of America strategist popularized the label, as the group dominated the S&P 500’s total capitalization.
More Tech Stocks:
Over the years, the concentration levels have gotten extreme.
Reuters reported the Mag 7 represents roughly one-third of the S&P 500’s weight and nearly 45% of the Nasdaq 100.
This prompted comments from Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, Reuters reported.
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Apple (AAPL)
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Microsoft (MSFT)
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Alphabet (GOOGL) (often paired with GOOG)
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Amazon (AMZN)
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Meta Platforms (META)
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Tesla (TSLA)
Slimmon argues that the Q4 sell-off in Big Tech had little to do with fundamentals breaking down.
In fact, it was mostly about investors chasing what felt safer and more timely, as rate-cut expectations took center stage.
Related: Major bank issues bold gold price target for 2026
The key point Slimmon makes is that earnings never cracked.
Large-cap tech stocks lagged even as results held up, which drove down valuations heading into 2026.
That’s a remarkably different setup to what we’re seeing in cyclical and industrial stocks, where prices are reflective of the optimism over an easier monetary policy.
Slimmon leaned on a popular Warren Buffett idea in explaining the growing disconnect between price action and performance.
In an interesting dichotomy, industrial stocks require earnings to justify their expanding valuations, while tech has earnings on its side, but valuations haven’t followed.
For perspective, Big Tech’s Q3 2025 earnings season delivered the goods.
FactSet says the Mag 7 reported a powerful 18.4% year-over-year earnings growth in Q3, compared to 11.9% for the other 493 S&P 500 companies. For Q4 2025, the firm forecasts Mag 7 growth at 19.8%.
Furthermore, Slimmon flagged an exception tech: financials, which he states are still trading nearly at a 30% discount to the broader market.
He also dismissed concerns over massive AI-related IPOs or debt issuance impacting markets, saying he doesn’t see that as a major negative in 2026.
Recent stock market figures for Magnificent 7 show that momentum has largely stalled.
Big Tech stocks have been tracking firmly in the green over the past six months, but their three-month returns underscore fading upside.
In fact, Nvidia, the priciest stock of the lot, currently trades at 47 times earnings, according to Macrotrends, comfortably below its early January 2020 level near 52, and well before the AI boom kicked in.
Momentum has cooled off substantially, with Nvidia’s stock’s RSI figure now at 56 (the relative strength index is a momentum gauge where readings above 70 signal overheating), a far cry from its level in late July 2025 (at 78).
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Tesla
6-month: +37.91% vs. 3-month: −1.50% -
Apple
6-month: +32.37% vs. 3-month: +6.54% -
Nvidia
6-month: +19.55% vs. 3-month: +1.22% -
Microsoft
6-month: −4.58% vs. 3-month: −8.52% -
Meta Platforms
6-month: −11.75% vs. 3-month: −11.36% -
Amazon
6-month: +3.24% vs. 3-month: +3.16% -
Alphabet
6-month: +79.11% vs. 3-month: +29.72%
Related: Nvidia, AMD in focus ahead of key event
This story was originally published by TheStreet on Jan 3, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.
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