Magnificent Seven Wiped Out Over $1 Trillion This Week: Is The AI Bubble Bursting?

It's been a brutal week for tech stocks, with AI-linked names tumbling across the board despite strong earnings from several industry leaders — a clear sign investors are starting to question whether the artificial intelligence boom has run too far, too fast.

By midday Friday, the Nasdaq 100 – as tracked by the Invesco QQQ Trust (NASDAQ:QQQ) was down nearly 5% for the week — its worst performance since April — as risk-off sentiment swept through Wall Street.

The iShares Semiconductor ETF (NYSE:SOXX) plunged over 7%, while Cathie Wood's ARK Innovation ETF (CBOE: ARKK) tumbled more than 10%, underscoring the depth of the tech rout.

Magnificent Seven Lose $1 Trillion In Market Value

Even the so-called Magnificent Seven couldn't escape the selloff — though their losses were somewhat milder. The Roundhill Magnificent Seven ETF (NYSE:MAGS) slid 3.8% for the week, its sharpest drop since early April but still below the broader sector's 5% decline.

Just a week ago, investors were celebrating Nvidia Corp. (NASDAQ:NVDA) surpassing a $5 trillion market capitalization, lifting the combined market value of the Magnificent Seven above $22 trillion.

Fast forward to Friday, and that total has fallen to $21 trillion, erasing more than $1 trillion in market value. Nvidia alone lost over $500 billion, with shares down 8% for the week.

Did Michael Burry Trigger The AI Selloff?

Veteran strategist Ed Yardeni of Yardeni Research noted that the tech downturn began on Tuesday, after reports that Michael Burry — the famed "Big Short" investor — had taken bearish positions against Palantir Technologies (NASDAQ:PLTR) and Nvidia.

Ironically, the news broke just as Palantir reported blockbuster quarterly results, easily beating expectations.

Yardeni noted that while Burry's move sparked fear across the market, it looked more like a tactical short on specific high-fliers rather than a call on a full-blown AI bubble.

According to Yardeni, technology's dominance today is underpinned by real earnings strength:

"The S&P 500's Information Technology and Communication Services sectors together now make up 45% of market cap and 38% of earnings," he wrote. "There's more earnings support for today's tech valuations than there was in the late 1990s. The bubble may leak air from time to time — but it's unlikely to burst."

Jordi Visser, head of Macro Research at 22V Research, echoed that sentiment, arguing that higher valuations reflect a structural transformation in corporate profitability.

"If AI continues to expand margins structurally, today's multiples aren't a bubble — they reflect permanently higher earnings power," Visser said.

As he explained, "Just as zero interest rates redefined what a ‘fair' P/E was in the 2010s, near-zero marginal cost of cognition will redefine it in the 2020s."

He added that as labor and process costs collapse, earnings — the denominator in valuation metrics — could expand far faster than traditional models anticipate, suggesting that calling equities expensive relative to history "ignores the fact that the cost structure of capitalism itself is being rewritten."

‘AI Euphoria Is Still A Bubble'

Not everyone shares the optimism. Robert Edwards, chief investment officer at Edwards Asset Management, cautioned that markets are caught in an AI-fueled mania. He described the current environment as "a mega-cap growth bubble," fueled by a capital expenditure arms race and stock prices running well ahead of actual AI-driven revenues and earnings.

Edwards warned that FOMO investing always meets the test of results, though he conceded that in hindsight, predictions made today might ultimately prove conservative a decade or two from now.

Similarly, Sean Peche, founder of Ranmore Fund Management, sees echoes of late-cycle euphoria. He noted that U.S. equities now account for roughly 72% of the global equity benchmark, and that the Magnificent Seven collectively trade at 58 times free cash flow—or about 77 times when adjusted for stock-based compensation.

According to Peche, those companies have a combined market cap of $22 trillion and generate about $385 billion in annual free cash flow, far below their reported net income of $568 billion.

History, he warned, shows that paying such stretched multiples rarely delivers strong long-term returns.

"No one knows what the catalyst will be that bursts this bubble," Peche said, "but when valuations stretch this far, time itself becomes the biggest risk."

He added that as global leaders increasingly accept they can't rely solely on America, "perhaps investors should reach the same conclusion."

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