AI Revolution Reshapes U.S. Stock Market as "Big Seven" Lose Their Shine

The dynamics of the U.S. stock market are witnessing a subtle transformation this year. The "Big Seven," comprising tech giants like Apple, Microsoft, Amazon, Google, META, and NVIDIA, have prominently led the stock surge for the past two years. However, their momentum has waned, with an increasing number of S&P 500 constituents outperforming the index, as investment capital shifts towards a broader array of stocks. Goldman Sachs highlights that this shift is closely tied to rapid advancements in AI technology, particularly with the emergence of China's DeepSeek, which has hastened the transition from a 'macro-driven' to a 'micro-driven' market.

Since the start of the year, approximately 46% of S&P 500 companies have surpassed the index's performance, a noteworthy increase from the 30% seen in 2023 and 2024. The information technology sector is now lagging behind, while financial and materials sectors have emerged as market leaders. Despite the slowdown in momentum from the "Big Seven," the market's risk appetite remains robust, with investors expanding their portfolios to include a wider range of promising stocks.

Goldman Sachs' Chief Equity Strategist David Kostin notes that the current U.S. market dynamics are increasingly reliant on individual company performance rather than overarching market conditions. The launch of DeepSeek serves as a prime example of this trend, having caused a sharp decline in NVIDIA's stock value while simultaneously boosting stocks like META, due to perceived benefits from more affordable AI solutions. This differentiated market reaction indicates that investors are placing a greater emphasis on company fundamentals and industry prospects.

For ordinary investors, this market trend underscores the heightened importance of stock selection. Opportunities for identifying companies poised to outperform the index are expanding amidst favorable economic growth conditions and the continued rise of AI technologies. The evolving landscape not only challenges traditional tech giants but also offers a fertile ground for emerging companies and innovative technologies to thrive.