The so-called "Magnificent Seven" technology behemoths suffered their biggest one-day drop since April 2025, with an index of the group falling 4.8% and eliminating $797 billion in market value. This significant selloff pushed the S&P 500 Index down 1.2% and the tech-heavy Nasdaq 100 Index sank 1.9%. This downturn is attributed to AI skeptics liquidating their tech stock holdings, indicating a shift in investor sentiment.
This event is part of a broader momentum selloff, where high-growth, high-valuation stocks are declining, signaling a potential loss of market leadership. Such selloffs often occur when investors move from growth stocks to more defensive or value-oriented sectors. The current situation is particularly noteworthy as dominant tech giants like Nvidia and Microsoft have experienced significant pullbacks, with the Nasdaq Composite recently entering bear market territory, down more than 20% from its peak. This suggests a waning appetite for risk among investors.
Despite the current downturn, some analysts, such as UBS's trading desk, see this selloff as nearing its end, creating an opportunity for investors to gradually rebuild positions in momentum and semiconductor shares. UBS's head of hedge fund equity derivative sales, Michael Romano, advises investors to "buy the dip" due to improving AI fundamentals, suggesting a prudent, scaled approach to re-entering the market. Hedge funds have already unwound approximately 5% of gross market value in momentum and semiconductor stocks, one of the largest reductions on record, bringing net positioning back to April levels.
The recent momentum meltdown also saw Goldman Sachs' high-beta momentum basket fall about 24% month-to-date through the first half of July, its worst stretch since April 2009. Morgan Stanley's tech momentum index registered a 17-day rate of change of -35%, the worst in 27 years. This was partly triggered by China's Moonshot AI unveiling Kimi K3, a 2.8-trillion-parameter AI model, which reignited fears about the durability of the American AI premium. The Philadelphia Semiconductor Index dropped over 10% this week, reaching near a 20% drawdown from its June high, with individual stocks like Marvell, Arm, and Micron seeing significant losses of 20%, 17%, and 13% respectively. Surprisingly, Microsoft and Amazon actually ended the week positive, indicating the selloff was targeted.
