Magnificent Seven and AI: Boom or bubble?

You may have seen headlines about artificial intelligence (AI) and the ‘Magnificent Seven’ – a group of tech giants influencing financial markets. Their rapid rise has sparked talk of a potential bubble in US shares – with concerns that it could burst. But what are the drivers behind this growth, the investment risks and opportunities, and what does it all mean for your super?

In recent years equity markets have become increasingly concentrated, with returns driven by AI and the Magnificent Seven. The total market capitalisation of these stocks was ~$21 trillion at December 2025¹, up from ~$17 trillion² in January 2025. With around $1.5 trillion invested in AI related companies in 2025 alone³, there is debate about whether these companies will continue to sustain this strong performance. Is this a sustainable boom, or the makings of a bubble?  

But it was not to last. There was a significant market correction and massive sell-offs of stocks when the S&P 500 fell by ~49% from its peak in March 2000 to its low in October 2002. The vast majority of these companies failed. However, the survivors have emerged as dominant companies, such as Amazon and eBay, that have become fixtures of our contemporary life. The dot-com era and past innovation cycles, like the 1920s electrification boom for example, have shown transformative technologies do endure, but early phases often involve excess spending and periods of volatility.

Many of these companies trade at premium price-to-earnings ratios. This means if growth or innovation slows, or external pressures arise such as an economic downturn, valuations could fall and trigger a market correction. While it is too early to tell whether the Magnificent Seven and AI will be a ‘boom’ or ‘bubble’, it’s important to note the current market environment is different from the dot-com era. Today's tech players have delivered genuine earnings growth unlike the 2000s speculation. While these companies’ valuations are high – for example, NVIDIA’s enterprise value reached $6.81 trillion at December 2025⁷, alongside a third-quarter revenue of $US 57 billion⁸ – these companies are profitable and well-integrated in the global economy. Still, acknowledging these strengths doesn’t eliminate risk factors like the risk of concentration or high valuations. These small group of stocks drive a significant share of market returns, it’s important for investors to avoid concentrated bets and maintain meaningful exposure to the broader opportunity set – diversification is key. 

There is a large amount of capital invested not just in AI technology but also in the supporting infrastructure, such as data centres, cybersecurity and robotics. These industries will play a critical role in the implementation and operation of AI and present unique investment opportunities. As a long-term institutional investor, ART invests in a wide variety of assets and companies to gain the benefits of diversification. This includes exposure to companies that will benefit from AI-driven demand for data storage and infrastructure. ART holds interests in multiple data centre platforms through our private market managers. Rising demand for digital infrastructure has made data centres valuable assets in our investment portfolio. ART is invested in four separate data centre platforms, which have been strong performers and a contributor to investment returns for ART’s actively managed diversified options. That demand has also meant a strong interest for buyers at premium sale values.

While ART aims to invest for the long term, we also capitalised on strong prices when they arose. In the last financial year, ART delivered substantial profits for our members through the sale of AirTrunk, in what was 2024’s largest corporate deal in Australia, and the 5th largest corporate divestment in Australian history. ART made a $300 million investment in AirTrunk – a technology company focused on hyperscale data centres – in late 2020.⁹ The minority stake alongside Macquarie Asset Management supported the company’s continued growth plans, which sought to capitalise on a structural shortage of data centre capacity in the APAC region. In September 2024, AirTrunk was sold in a AU$24 billion mega-deal, and as part of this agreement, ART sold its full stake and realised significant profits.

Recent market moves have indicated early signs of AI-enabled productivity gains emerging within the software-as-a-service (SaaS) sector. These gains may prove disruptive to existing established companies. This sentiment contributed to volatility in software markets in early 2026, described in media as a “SaaSpocalypse”, as investors considered which subsectors may benefit and which could be challenged by the rise of AI. The S&P 500 Software and Services Industry Group Index fell 4.6 per cent as at 7 February¹⁰, erasing ~$1 trillion in market value for software stocks, with companies including Salesforce ($180 billion decrease in value) and ServiceNow (market cap decrease of -37.55 per cent) experiencing significant drops. Many companies are broadly categorised as “SaaS”, but they face different levels of AI disruption risk. It remains difficult to determine clear winners and losers at this early stage. While current focus remains on the software sector, AI-driven innovation is likely to bring other industries under the microscope, with shifts in industry structure, competitive edge and consumer behaviour expected to follow.

Our professional investment team will continue to maintain a disciplined investment approach with a focus on fundamental value. While our active international share managers will inevitably have differing views on the Magnificent Seven, combined, they are slightly underweight in these companies versus their weight in the global share market index. This strategy is reflective of a risk-aware approach to position the fund to capture investment opportunities beyond today’s mega-cap stocks.