AI Bubble Bursting? Magnificent 7's Profit Margins Face Pressure As 'Capital Spending Can Tumble' In 2025

As the Magnificent 7 companies have estimated a total capital expenditure of over $330 billion on the artificial intelligence infrastructure in 2025, there is a possibility that China’s AI breakthrough, despite chip shortage, could affect their targets, affecting profitability.

What Happened: The Magnificent 7 companies are widely expected to spend more than $330 billion on capex in 2025. While the chipmaker Nvidia Corp. hasn’t explicitly mentioned a target during its earnings call, the iPhone maker Apple Inc. broadly expects to spend $500 billion over the next four years.

The remaining companies, however, have provided a specific target for 2025.

According to Edward Yardeni, the President of Yardeni Research, the “AI bubble” could be “bursting” as China continues to scale its AI-linked technology with inexpensive chips.

He said, “The fear now is that open-source large language models (LLMs) like DeepSeek and Manus, developed in China, require much less powerful semiconductors to operate.”

“If so, then AI capital spending will tumble along with the profit margins on AI systems,” adds Yardeni.

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Why It Matters: All Magnificent 7 companies have underperformed in 2025, except Meta Platforms Inc. The exchange-traded fund that tracks these seven companies, Roundhill Magnificent Seven ETF (BATS:MAGS), has declined by 12.87% on a year-to-date basis.

Since DeepSeek was introduced on Jan. 24, MAGS has been down by 16.21% according to Benzinga Pro.

The underperformance of Magnificent 7 companies can be attributed to "interest rate sensitivity," "unraveling trade tensions," and the high concentration of these stocks in the S&P 500's market capitalization amid the market correction, according to John Murillo, the chief dealing officer at B2BROKER.

Price Action: The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, rose on Monday. The SPY advanced 0.77% to $567.15, and the QQQ also jumped 0.65% to $482.77, according to Benzinga Pro data.

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