Why a longtime Wall Street bull is souring on Big Tech
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One of Wall Street's longtime tech bulls, Ed Yardeni, says investors should underweight the Magnificent 7, arguing that the Big Tech companies have too much competition and that their stocks have less room to run.
Why it matters: His call bucks a broader bullishness across Wall Street about how far tech stocks can continue rallying.
What they're saying: "Competition is what will start to erode the profit margins of the Magnificent 7," Yardeni tells Axios.
- His base case is rooted in a belief that a new AI winner can pop up every single day in a "horse race that won't have an end."
- "Nvidia was ahead of the pack. Now it looks like Google. Things are constantly changing," the Wall Street research veteran says.
- DeepSeek has debuted new competing models to Gemini and OpenAI, which had him questioning the tech trade in recent weeks.
Zoom in: Another threat is that stocks have already performed well, so much so that only two sectors, technology and communication services, now make up nearly half of the S&P 500, which Yardeni deems "not sustainable."
- He says investors should try to rebalance their portfolios to a slightly less than market-weight allocation to technology stocks, with more given to financial, industrial and health care stocks.
Reality check: It is not necessarily a bearish view on tech, but a broader one.
- "I'm coming around to the view that we really have to consider that all companies are technology companies. Either you make it or you use it," Yardeni says.
Zoom out: That leaves him optimistic about the other 493 companies outside of the Magnificent 7, which can benefit from their own AI adoption.
- Financial firms are becoming more like fintechs. Industrials will benefit from more capital spending. Health care will benefit from AI adoption.
Follow the money: An added bonus for those 493 firms: If the Magnificent 7 stocks face more competition, they will likely have to lower prices, giving the rest of the S&P 500 cheaper access to AI tools, Yardeni notes.
Threat level: Yardeni says everyone is too worried about an AI bubble for us to actually experience one. "We're taking air out of it, which is a good thing."
- He still sees a potential slowdown coming for large tech names, saying that "there's no way they can really know whether they're going to get a return" on their massive AI investments.
What to watch: The consensus view is tech will keep soaring in 2026, but there is growing agreement that investors should diversify into overlooked sectors and foreign markets in case the AI boom fails to keep booming.
