As ‘Magnificent Seven’ stocks experience a downturn amid concerns over escalating investments in data centers and high earnings growth expectations, analysts see a shift into “cyclical areas” of the market.

AI Rally Broadens Beyond Mega Caps

Stephanie Link, chief investment strategist at Hightower Advisors, told CNBC that the AI rally is broadening and that investors don't have to own just those mega-cap stocks because other companies are also poised to benefit and “will win.”

Besides Link, Melius Research analyst Ben Reitzes noted that the slide in Big Tech comes as the group’s AI investments have benefited a range of downstream AI players, like data center builders, power-generating companies, and energy infrastructure names.

Reitzes said he would not be surprised if Broadcom Inc. (NASDAQ:AVGO) generates more free cash flow than Microsoft Corp. (NASDAQ:MSFT) this year, noting that capital is shifting from hyperscalers to infrastructure players like Nvidia Corp.