The long-dominant Magnificent Seven are no longer moving in unison, with most of the group underperforming the S&P 500 so far this year. As earnings leadership broadens and artificial intelligence spending enters a new phase, investors are increasingly questioning whether market leadership is set to shift heading into 2026.
BNN Bloomberg spoke with Mike Dickson, head of research and quantitative strategies at Horizon Investments, about the growing divergence within mega-cap tech, the role of earnings momentum and where opportunities may be emerging beyond the market’s biggest names.
Key Takeaways
- Five of the seven Magnificent Seven stocks have lagged the S&P 500 year-to-date, highlighting increasing divergence within a group that has dominated returns in recent years.
- Investor focus is shifting away from concentrated mega-cap exposure as rotation and repositioning take hold at the top of the market.
- Earnings growth, rather than Federal Reserve policy, is expected to drive the next phase of market gains as participation broadens.
- AI-related opportunities are expanding into infrastructure-linked sectors such as industrials, energy and utilities that support data centres and power demand.
- Small-cap and cyclical stocks may benefit from improving earnings trends, attractive valuations and stronger domestic economic growth heading into 2026.
Read the full transcript below:
ROGER: Let’s take a look at the Magnificent Seven. Our next guest says five of those stocks are lagging the broader market. We’re joined by Mike Dickson, head of research and quantitative strategies at Horizon Investments. Mike, thanks for joining us.
MIKE: Absolutely. Thanks for having me.
ROGER: We all love the Magnificent Seven, but are there other areas investors should be paying attention to?
MIKE: I think so. As you mentioned, only two of the Magnificent Seven are actually outperforming the broader S&P 500 year-to-date, and that’s Google and Nvidia, with the rest lagging. We also saw some notable weakness last week in Oracle and Broadcom in terms of the market’s reaction, despite what were otherwise solid earnings reports.
I think that gives us some insight into sentiment at the top of the market, particularly around AI, where parts of that trade may be getting a bit tired. The positive side is that we’re seeing a broadening of opportunities across the rest of the market. That’s something investors have been waiting for, and it’s supported by a strong economic backdrop and a broadening of earnings. As we head into 2026, that’s a healthy development and creates opportunities well beyond just those stocks.
ROGER: Before we get into those opportunities, what do you think investors are most wary about when it comes to the Magnificent Seven?
MIKE: A lot of it comes down to repositioning after a period of heavy concentration. If you look at names like Broadcom and Oracle, both have had significant runs this year. Broadcom was up close to 70 per cent year-to-date before pulling back last week following strong earnings. Oracle also peaked in the third quarter after a strong rally.
When you step back and look at the Magnificent Seven more broadly, the narrowness we’ve seen in the overall market has also shown up within that group. Google has been one of the recent leaders, driven by developments around Gemini and its cloud business, but overall there’s been a lot of rotation. Investors are simply looking for other places to put capital.
ROGER: So where are you starting to look?
MIKE: Heading into next year, one area that’s particularly interesting is AI infrastructure. We’ve seen a lot of capital expenditures this year, and while investors have questioned some of that spending, the next phase is really about putting that capital to work. That means energy and infrastructure buildouts to support data centres.
That creates opportunities in AI-adjacent industrials, as well as in energy, including renewables that can help meet near-term power demand. Utilities are also important, given the grid expansion required to support that growth. That’s very much the phase-two and phase-three part of the AI trade.
More broadly, when you look at smaller-cap and more consumer-oriented areas of the market, strong GDP growth and fiscal stimulus in the U.S. should help broaden earnings. Many of those areas remain under-owned, and with lower valuations and higher sensitivity to economic growth, they look well positioned heading into 2026.
ROGER: Are those the cyclicals you’re referring to?
MIKE: Yes, absolutely. Traditional cyclicals stand out. Regional banks, for example, benefit from a positive yield curve and continued economic expansion. Materials should also benefit.
Beyond that, small- and mid-cap stocks more broadly look attractive. Over the past few earnings seasons, we’ve seen meaningful beats on both revenues and profits in those segments. These companies tend to be more domestically focused, and they haven’t participated as much in this year’s rally. That creates a compelling entry point as we head into 2026, particularly given the fiscal policies aimed at supporting domestic growth.
ROGER: We’ve been hearing a lot more about small caps lately. Are more investors starting to pay attention?
MIKE: Yes, and for good reason. If you look at relative performance, small caps have significantly lagged the broader market. At the same time, valuations are attractive and earnings are starting to inflect higher. Depending on the index, forward earnings growth for small caps is approaching double digits, which is a notable change after a long period of weak growth.
Interest rates matter as well. While it’s hard to see rates moving meaningfully lower without a negative shock, further hikes are likely off the table. A lower-volatility rate environment is generally supportive for small caps, and that should be a tailwind heading into 2026.
ROGER: We’ll have to leave it there. Mike, thanks as always for joining us.
MIKE: Thank you.
ROGER: Mike Dickson, head of research and quantitative strategies at Horizon Investments.
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This BNN Bloomberg summary and transcript of the Dec. 15, 2025 interview with Mike Dickson are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
