The commerce in AI technology is still ongoing. As 2026 approaches, investors are becoming more selective about which players could win. Due to worries about funding for Oracle (ORCL) data centers and construction delays from CoreWeave (CRWV), which shook AI plays, tech (XLK) stocks have been on a rollercoaster lately.
Charlie McElligott, an equity derivatives analyst at Nomura Securities, wrote in a note on Thursday, "I do believe these are all hyper-valid concerns for the theme, and with the market now breaking out the 'scrutiny scalpel' we are finally seeing appropriate 'winners and losers' dispersion, and that's a good thing."
However, a surge in AI trading was spurred by Micron Technology's (MU) spectacular results. AI-driven demand helped the memory chipmaker outperform Wall Street projections on Q1 revenue and EPS. McElligott likened the "upside shock" of Micron's earnings to Nvidia's (NVDA) May 2023 results, which served as a trigger for the wider AI bubble.
After Oracle's shares dropped after the Financial Times revealed that Blue Owl Capital would not back Oracle's $10 billion data center project, investors have been keeping an eye out for possible funding risks inside the AI trade. Given the market concentration among the biggest tech companies in the S&P 500 (^GSPC), the worries are especially noteworthy.
The top seven stocks in the index are expected to drive the S&P 500's earnings growth of more than 12% in 2026, according to Goldman Sachs analysts. Nvidia (NVDA), Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL, GOOG), Amazon (AMZN), Broadcom (AVGO), and Meta (META) are a few of these. They collectively make up about 25% of the index's profits.
According to Yahoo Finance data, the "Magnificent 7" tech companies have gained an average of 21% this year, while the S&P 500 has gained 16%. Tom Essaye, the creator of Sevens Report Research, told Yahoo Finance that he anticipates seeing winners and losers in the group going into the upcoming year.
"I think we're going to see some pretty massive bifurcation," Essaye stated."The next evolution of this trade, where there are going to be winners and losers within the Mag 7."
He claimed that due of the potential for growth in Google's Gemini artificial intelligence program, Alphabet is his favorite company.
"I think companies like Oracle that are not overextended financially, but are sort of raising eyebrows with a lot of the spending that AI, I think that companies like that could struggle," he stated.
Following an agreement to host and run TikTok's U.S. operations, Oracle shares surged 7% on Friday. Though some Wall Street analysts see a buying opportunity, the stock is still 40% below its September peak.
According to Guggenheim analyst John DiFucci, "the reason we're so positive about Oracle is because they just have a better mousetrap."
"Their cloud infrastructure is better than anybody else's out there," he stated. "They provide a service with better performance at a lower cost, and they're still comfortably profitable." Wall Street experts point to the AI trade and looser fiscal and monetary policies as reasons why stocks will rise next year.
"Without taking any single-stock views, we believe the overall AI story remains intact," Ulrike Hoffmann-Burchardi of UBS Global Wealth Management wrote in a letter to investors on Thursday.
According to the firm's projections, the index will rise 13% from Friday's level to 7,700 by the end of 2026. "We do not see evidence of an investment bubble, with company fundamentals in aggregate still robust," she stated.
