By It might be time for investors to start shedding some exposure to the market’s hottest tech stocks.
Trivariate Research thinks the Magnificent Seven stocks are flashing signs that it could be time for investors to start taking chips off the table.
“Over the last several years we have maintained the view, that it was prudent for long-only US equity managers to be at least market-weight the Mag 7. Today, our views have evolved to the point where we are changing our mind and believe lowering exposure is prudent,” the firm wrote in a note this month, pointing to several signs that the group of tech stocks could be posing more risk to investors.
Here are three signs the firm is seeing that could mean it’s time to sell mega-cap tech.
1. The market is highly concentrated in Magnificent Seven stocks
Trivariate Research, LP
The Magnificent Seven stocks have soared in recent years and now account for a significant portion of the S&P 500’s total value. According to Trivariate’s analysis, the Magnificent Seven’s aggregate exposure to the top 500 US equities climbed to over 31% by the end of January.
Meanwhile, the beta-adjusted exposure of the Magnificent Seven to the market’s top 500 stocks — which can reflect how sensitive a group of stocks is to market changes — is hovering around 45%, the firm said.
“This means that a portfolio manager who owns in market-weight all the Magnificent Seven stocks has nearly half their fund’s beta-adjusted exposure in stocks! This remains near highs of the last 25 years,” analysts added.
2. Tech firms are spending heavily relative to sales
Trivariate Research, LP
The Magnificent Seven’s capital spending-to-sales ratio has also climbed, a sign that companies are spending more relative to what they’re selling. Trivariate said capital spending-to-sales is expected to reach 14.5% by the end of 2025, a record high.
“There is no question either way that the high capital spending will continue to come under increasing scrutiny until investors can better understand the return on today’s massive investments,” the firm said.
3. Valuations have soared
Trivariate Research, LP
Valuations of the Magnificent Seven group have also reached historically high levels. The firm’s analysis found that the Magnificent Seven’s median price-to-forward earnings ratio is hovering at a 42% premium relative to the top eight stocks in the S&P 500, around the highest levels in the last 25 years.
“The high beta and increasingly high capital intensity combined with the elevated valuation of the Magnificent 7 is, in our judgment, an increasing cause for concern,” the firm said. “Investors should be lowering their exposure to the basket of AI stocks, at least to the point where their beta-adjusted exposure is equal to the raw weight.”
Some of the Magnificent Seven names have struggled so far this year amid greater uncertainty surrounding the new administration, as well as concerns fueled by DeepSeek, a Chinese AI model that sparked a major tech sell-off last month.
Tesla stock is down about 10% in 2025, while Microsoft, Apple, and Alphabet shares have all fallen around 2%.
