The ‘Magnificent Seven’ stocks spent years convincing investors that their tremendous AI spending would translate into sustainable growth, powerful cash flows, and fatter valuations.
That assumption is now up against a major test.
Wall Street has largely treated hyperscaler spending as a powerful long-term growth engine, but Bank of America strategist Michael Hartnett just flagged a major risk that could test how much investors are willing to pay for the AI trade.
The contrast is becoming incredibly tough to ignore.
Stock markets remain somewhat resilient, but parts of the credit market are flashing more caution around AI spending.
That said, BofA now sees one major market signal as critical to the Mag 7’s ability to shrug off that threat.
Bank of America warns cheaper Chinese compute could challenge Magnificent Seven stocksAnnabelle Chih/Bloomberg via Getty Images
Why BofA sees a critical test for the Magnificent Seven
According to Seeking Alpha reporting, Hartnett just identified what needs to keep working for the AI trade to remain credible.
More AI:
He zeroes-in on the Roundhill Magnificent Seven ETF (MAGS), holding around $70, turning the ETF into a confidence gauge.
If the group can maintain pricing strength despite concerns about cheaper Chinese compute, it suggests investors are still buying into the long-term AI CapEx story.
For now, though, it seems markets are becoming a lot less comfortable with that assumption.
Credit spreads and credit-default swaps linked to AI hyperscalers are moving in a far more cautious direction.
He pointed to two major signs, including rising U.S. investment-grade tech credit spreads and Oracle’s (ORCL) five-year CDS, as evidence that credit investors are growing increasingly cautious about the AI infrastructure trade.
Though stocks are still rewarding the AI story, credit markets are beginning to question its cost.
Cheap Chinese computers add a major…
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