Morgan Stanley’s Andrew Slimmon feels large-cap tech stocks are poised for a stunning comeback. After months of underperformance, he feels markets are underestimating the group’s next step.
That’s a shock, to say the least, as the narrative around the technology has slowed recently.
Recently, we have seen a change in industrial, cyclical, and assets linked to a reduction in interest rates, leaving the big guns in technology treading water.
For perspective, according to PortfoliosLab, the Industrial Select Sector SPDR Fund (XLI) it’s up 2.80% during the last monthwhile the Technology Select Sector SPDR Fund (XLK) he is down 0.33%.
Although technology 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 change 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 big tech is looking much more affordable than many of the sectors into which investors have rushed. Earnings didn’t disappoint, but expectations did.
7 major gains stalled recently, even as earnings remain strong and valuations cool. Photo by Spencer Platt at Getty Images” loading=”eager” height=”640″ width=”960″ class=”yf-lglytj loader”/>
Magnificent 7 gains have stalled recently, even as earnings remain strong and valuations cool.Photo by Spencer Platt at Getty Images
The Magnificent 7 is basically Mr. Market’s nickname for seven of the biggest mega-cap tech leaders who can effectively drag major benchmarks up or down almost single-handedly.
A Bank of America strategist popularized the label, as the group dominated the total capitalization of the S&P 500.
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Over the years, the levels of concentration have become extreme.
Reuters reported that the Mag 7 represents roughly a third of the weight of the S&P 500 and almost 45% of the Nasdaq 100.
This prompted comments from Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, Reuters reported.
Slimmon argues that the Q4 selloff in Big Tech had little to do with breaking fundamentals.
In fact, it was mostly about investors looking for what felt safer and more timely, as expectations of rate cuts took center stage.
Related: Major banks issue bold gold price target for 2026
The main point that Slimmon makes is that earnings never cracked.
Large-cap tech stocks lagged even as the results held, pushing down valuations heading into 2026.
That’s a markedly different setup than what we’re seeing in cyclical and industrial stocks, where prices reflect optimism over easier monetary policy.
Slimmon relied on a popular Warren Buffett idea to explain the growing disconnect between price action and performance.
In an interesting dichotomy, industrial stocks need 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 deliver the goods.
FactSet says the Mag 7 reported strong 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 in 19.8%.
In addition, Slimmon pointed to an exception technology: financials, which he says are still trading almost at a high level. 30% discount to the wider market.
He also dismissed concerns about massive AI-related IPOs or debt issuance affecting the markets, saying he doesn’t see that as a big negative in 2026.
Recent stock market figures for Magnificent 7 show that momentum has largely stalled.
Big Tech stocks have been tracking well in the green over the past six monthsbut theirs quarterly returns highlights his fading head.
In fact, Nvidiathe most valuable stock of the lot, currently trading at 47 times earningsaccording to Macrotrends, comfortably under her early January 2020 level near 52and long before the AI boom began.
The momentum has cooled substantially, with Nvidia stock RSI figures now in 56 (the relative strength index is a gauge of momentum where readings above 70 signal overheating), away from its level in late July 2025 (at 78).
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 Platforms 6 months: -11.75% vs 3 months: -11.36%
Amazon 6 months: +3.24% vs. 3 months: +3.16%
Alphabet 6 months: +79.11% vs. 3 months: +29.72%
Related: Nvidia, AMD in focus ahead of keynote event
This story was originally published by TheStreet on January 3, 2026, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.
