Time To Trim Big Tech? This Analyst Says Reducing 'Mag 7' Exposure Is Now 'Prudent'

The CEO of Trivariate Research, Adam Parker, recommended investors reduce their exposure to the “Magnificent Seven” stocks amid high valuation and related risks.

What Happened: “Over the last several years we have maintained the view, that it was prudent for long-only U.S. equity managers to be at least market-weight the Mag 7. Today, our views have evolved to the point where we are changing our mind and believe lowering exposure is prudent,” stated Parker in a research note on Saturday.

Parker’s advice is based on three reasons. First, the significant capital expenditure on AI infrastructure by these companies. “There is no question either way that the high capital spending will continue to come under increasing scrutiny until investors can better understand the return on today's massive investments,” cautioned Parker.

Yahoo Finance reports that Meta, Microsoft, Amazon, and Alphabet are projected to allocate a combined $325 billion in capital expenditures and investments toward AI in 2025.

Second, despite the sell-off, the valuation of these stocks remains a concern. Lastly, these stocks appear to be over-owned by investors. Parker cautions that the high beta, rising capital intensity, and high valuation of the Magnificent 7 are becoming growing concerns.

SEE ALSO: ‘Investors Seem To Remain Poised For A Good Year In The Markets’ Even As Valuation Remains Elevated, Says Fidelity’s Macro Chief

Why It Matters: The “Magnificent Seven” stocks, which include Meta Platforms Inc. META, Amazon.com Inc. AMZN, Alphabet Inc. GOOG GOOGL, Apple Inc. AAPL, Nvidia Corporation NVDA, Microsoft Corporation MSFT, and Tesla Inc. TSLA, have been underperforming recently. Only Meta has seen double-digit gains, while the rest have experienced an average drop of 3% to 4% year to date, with Tesla being the worst performer, down by nearly 13%.

Moreover, Parker’s team also observed that just 4.8% of the 504 analyst recommendations for the Magnificent Seven are rated as Sell. As the investment thesis for the Mag 7 evolves, the extreme bullish sentiment may no longer align with reality, feels the analyst.

Last week, there was also a surge in Chinese technology stocks, led by DeepSeek, which is closing the valuation gap with the U.S. ‘Magnificent Seven.’

Given these developments, investors may need to give a second thought about their positions in the Mag 7 stocks.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.