How 2025's Mag 7 Laggards Could Surpass the S&P 500 in 2026

The year 2025 marked a pivotal shift in the tech sector, as Apple, Amazon, Meta, and Microsoft faced significant underperformance amid a broader market recalibration. While these companies lagged behind the S&P 500, their struggles were not indicative of long-term decline but rather a temporary recalibration driven by aggressive AI investments, margin pressures, and market overcorrection. For investors, this underperformance represents a compelling entry point, as these tech titans are now positioned to outperform in 2026 through strategic reinvention, forward-looking growth metrics, and undervalued fundamentals.

The AI-Driven Overinvestment and Margin Pressures

The root of 2025's underperformance lies in the massive capital expenditures (CapEx) directed toward AI infrastructure. Microsoft, for instance, in its fiscal 2026 first quarter alone to AI-related projects, straining short-term profitability and free cash flow. Similarly, Amazon, Meta, and Apple redirected billions to develop AI tools, cloud capabilities, and agentic AI features, prioritizing long-term dominance over immediate earnings growth. This surge in spending led to rising depreciation costs and reduced buyback capacity, triggering investor skepticism.

However, these investments are not arbitrary. As noted by analysts, the AI arms race is a necessary battleground for maintaining competitive advantage. Microsoft's Azure cloud division, for example, is now a cornerstone of its AI infrastructure, while Amazon's AWS continues to solidify its leadership in cloud computing. Meta's recent launch of AI models like Avocado (for coding) and Mango (for image/video generation) underscores its commitment to capturing the next wave of AI-driven revenue streams.

Market Overcorrection and Valuation Normalization

The broader tech sector's shift from speculative hype to valuation normalization further exacerbated 2025's underperformance. Investors, once willing to tolerate sky-high P/E multiples for AI-driven growth, began demanding tangible returns. This shift punished companies like Meta, whose stock plummeted after CEO Mark Zuckerberg failed to articulate a clear profit path from AI investments. Similarly, Apple faced scrutiny for its perceived slow adoption of agentic AI features and regulatory challenges around its App Store.

Yet, this overcorrection has created attractive entry points. , a reasonable valuation given its projected cloud and AI-driven earnings growth. Amazon's forward P/E of 29.6 reflects confidence in its AWS and e-commerce synergies as enterprises increasingly adopt cloud-based AI solutions. Meanwhile, Apple's stock buybacks and Meta's hardware innovations (e.g., Ray-Ban smart glasses) are being reevaluated as catalysts for 2026 recovery as AI infrastructure matures.

Strategic Reinvention and Analyst Sentiment

The 2026 outlook for these companies is bolstered by strategic reinventions and strong analyst sentiment. Microsoft is widely viewed as a leader in AI infrastructure, with in 2026 due to its dominance in Azure and partnerships with OpenAI. Amazon's AWS division, which generated $7.86 per share in 2026, as enterprises increasingly adopt cloud-based AI solutions.

Meta's AI pivot is equally compelling. The company's Superintelligence Lab, led by Alexandr Wang, is developing cutting-edge models like Avocado and Mango, while its hardware ecosystem (Quest headsets, Ray-Ban glasses) positions it to capitalize on the spatial computing revolution. Analysts project Meta to maintain a 20% growth rate in 2026, despite short-term volatility from AI spending overhangs.

Apple, meanwhile, is leveraging its ecosystem strength to accelerate AI integration. While it lagged in 2025, its Services segment and iPhone sales remain resilient, and strategic buybacks are expected to enhance shareholder value in 2026. Analysts have upgraded Apple's outlook, citing its potential to outperform as it closes the AI gap with competitors like Alphabet and Microsoft.

The Path to 2026 Outperformance

The convergence of undervalued fundamentals, strategic AI investments, and analyst optimism suggests that these companies are poised to outperform the S&P 500 in 2026. Microsoft's Azure cloud expansion, Amazon's AWS dominance, Meta's AI and hardware ecosystem, and Apple's ecosystem-driven buybacks all point to a sector-wide rebound.

Moreover, macroeconomic factors are aligning in their favor. The Federal Reserve's cautious 2026 outlook and sticky inflation may temper broader market volatility, but the tech sector's focus on productivity-driven AI adoption could insulate these companies from macro risks as AI infrastructure matures. As AI infrastructure matures and monetization strategies crystallize, the 2025 underperformance of Apple, Amazon, Meta, and Microsoft will likely be viewed as a buying opportunity rather than a warning sign.