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It’s a big week with MAG7 earnings on deck, an FOMC rate decision, new inflation data and the end of the month, so there’s a ton to discuss [tap to join us for the Daily Profit Plan]!
Something caught my attention recently that’s making me rethink how the top tech stocks might perform over the next year.
Tesla (TSLA) just beat both top and bottom line earnings estimates — yet the stock sold off. The reason? They tripled their AI and robotics spending to somewhere between $25-$30 billion. That’s not a typo. And as the stock started sinking lower, I ended up trading it pretty safe because the market reaction wasn’t matching the headline beat.
But here’s the thing — this isn’t just a Tesla issue. This is a MAG7 and hyperscaler reality that’s about to reshape the entire market structure. Tesla is simply the latest reminder that the capex spending from these hyperscalers and MAG7s isn’t going away.
Anyone who wants to stay on the cutting edge of the future is going to pay a big price for it, and that price tag keeps getting heavier.
The Spending Problem That Won’t Go Away
Let me be clear about something — the capex spending from these companies isn’t temporary. If they want to compete in AI, robotics, energy infrastructure or advanced chips, the cost of staying relevant is enormous.
These companies were flush with cash, and now that cash is being tapped aggressively. We’re seeing creative debt strategies and accounting maneuvers across the board to keep that spending going.
The reality is simple — the price tag for AI leadership is extremely high. And none of these companies can afford to slow down because the competitive pressures are only intensifying.
What This Means for Market Leadership
Right now, investors don’t seem bothered by the elevated spending because markets are sitting at all-time highs in the S&P 500 (SPY). But that’s exactly why this could be the turning point where MAG7 or top 10 stocks start to underperform compared to the equal-weight S&P 500 (RSP).
The market is rewarding performance at the index level, but there’s a growing divergence under the surface that can’t be ignored.
Look at the recent action. RSP rallied around 9.5% off its recent lows, almost mirroring the size of its drawdown. It didn’t make new highs, but it fell less than the SPY’s nearly 10% pullback and managed a strong recovery. That strength relative to the mega caps isn’t random — it’s a sign the market may already be factoring in the profitability squeeze from these massive spending commitments.
That’s why I’m positioning for this shift by selling ratio spreads on MAG7 stocks at lower strikes. I’m not expecting dramatic collapses, but I do think the days of unlimited upside might be behind us as these spending levels settle in as the new baseline.
The companies that dominate now will likely continue to dominate — but that doesn’t mean they’ll deliver the same market-beating returns investors have grown used to. And that’s something worth preparing for.
I’ll see you in the markets.
Chris Pulver
Chris Pulver TradingÂ
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