Morgan Stanley’s Andrew Slimmon believes big tech stocks are about to make a stunning comeback. After several months of underperformance, he believes the market is underestimating the group’s next move.
This is shocking, to say the least, as the narrative surrounding tech has deteriorated of late.
Lately, we’ve seen a shift into industrials, cyclicals, and interest-rate cut-related assets, leaving the big names in tech stocks treading water.
In the long run, according to PortfoliosLab, Industrial Select Sector SPDR Fund (XLI) Get up 2.80% over the past month,and Technology Select Sector SPDR Fund (XLK) Closed 0.33%.
While tech stocks have remained in the lead throughout the year, things have clearly been bad lately.
To be fair, I’ve been covering the stock market for about five years, especially “The Magnificent Seven,” which I’d seen before.
Investor sentiment can shift quickly, and stocks that felt almost out of reach suddenly feel like yesterday’s trades.
Slimon’s perspective breaks with this common belief.
He believes Big Tech’s pricing looks much more reasonable than many sectors that investors are piling into. Earnings haven’t fallen yet, but expectations have.
The Magnificent 7 is basically Mr. Market’s nickname for seven of the largest mega-tech leaders that can almost effectively drive the major benchmark indexes up or down on their own.
A Bank of America strategist popularized the label because of the group’s dominance of total capitalization in the S&P 500.
More tech stocks:
Over the years, concentration has reached its limits.
Reuters reports Mag 7 representatives about one third The sum of the weights of the S&P 500 Index nearly 45% A member of the Nasdaq 100 Index.
According to Reuters, Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, commented.
Slimon believes the fourth-quarter sell-off in big tech companies has little to do with a breakdown in fundamentals.
In fact, this is mainly because interest rate cut expectations have taken center stage and investors are chasing something safer and more timely.
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The key point Slimon makes is that Earnings never show cracks.
Despite the strong performance, large-cap tech stocks have lagged, which has depressed valuations through 2026.
This is in stark contrast to what we see in cyclical and industrial stocks, where prices reflect optimism about easy monetary policy.
Slimon draws on ideas popularized by Warren Buffett to explain the growing disconnect between price action and performance.
An interesting dichotomy is that industrial stocks need earnings to justify their expanding valuations, while tech stocks have earnings but valuations don’t follow.
In the long run, big tech companies Q3 2025 Earnings season delivered the goods.
FactSet calls the Mag 7 a powerful performer 18.4% Third-quarter profit growth year-over-year 11.9% for another Chapter 493 S&P 500 companies. The company forecasts Mag 7 growth for the fourth quarter of 2025 of 19.8%.
Additionally, Slimon pointed to one technology outlier: financials, which he said are still trading close to 30% discount Towards a broader market.
He also dismissed concerns about large-scale AI-related IPOs or debt issuance affecting the market, saying he did not think it would have a significant negative impact in 2026.
Magnificent 7’s recent stock market data suggests its momentum has largely stalled.
Big tech stocks have been rising steadily in the past six monthsbut their three months return The underline gradually fades.
Actually, NVIDIAthe most expensive stock in the batch, is currently trading at 47 times price-to-earnings ratioAccording to Macrotrends data, well below its The level in early January 2020 was close to 52and long before the AI craze broke out.
Momentum has cooled significantly as Nvidia stock falls Relative Strength Index Chart now in 56 (The Relative Strength Index is a momentum indicator and a reading above 70 indicates overheating), which is a far cry from 2017 levels. Late July 2025 (age 78).
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Tesla
6 months: +37.91% vs. 3 months: −1.50% -
apple
6 months: +32.37% vs. 3 months: +6.54% -
NVIDIA
6 months: +19.55% vs. 3 months: +1.22% -
Microsoft
6 months: −4.58% vs. 3 months: −8.52% -
meta platform
6 months: −11.75% vs. 3 months: −11.36% -
Amazon
6 months: +3.24% vs. 3 months: +3.16% -
letter
6 months: +79.11% vs. 3 months: +29.72%
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This article was originally published by TheStreet on January 3, 2026, and first appeared in the Investment section. Click here to add TheStreet as your preferred source.