Citi has declared that the "Magnificent Seven" (Mag 7), the group of mega-cap technology stocks that has dominated U.S. equity markets for the past three years, is no longer the best framework for evaluating AI investment opportunities.

In a new research report, Citi strategist Scott Chronert introduced a broader concept called the "Growth Cluster," arguing that it better reflects the companies driving and benefiting from the AI economy.

AI Winners Are No Longer Moving Together

According to Citi, the seven companies have become increasingly differentiated as their AI strategies, capital spending, and business models diverge.

This year, Apple has been the only Mag 7 stock to outperform the broader market, while Microsoft has been among the weakest performers. The Bloomberg Magnificent Seven Index has gained only about 1.1% year to date, compared with gains of nearly 18% for the Nasdaq-100 and roughly 10% for the S&P 500.

Citi believes investors are shifting their focus from which companies are spending the most on AI to which companies are generating meaningful returns from those investments.

A Broader "Growth Cluster"

The proposed Growth Cluster extends beyond large-cap technology companies to include semiconductor manufacturers, semiconductor equipment makers, software firms, technology hardware companies, data-center operators, media businesses, and selected automotive companies benefiting from AI adoption.

Together, these companies account for more than half of the S&P 500's market capitalization and nearly 48% of its earnings.

Citi argues that this broader framework provides a more accurate picture of the market than focusing solely on the Magnificent Seven.

Capital Rotation Is Underway

Citi also sees a major shift in AI-related capital flows.

By mid-July, the combined market value of the Magnificent Seven had increased by about $1.5 trillion during the month. In contrast, semiconductor companies excluding NVIDIA lost nearly $1.7 trillion in market value, representing a sector rotation of roughly $3.2 trillion.

Meanwhile, software stocks have staged a strong recovery, with 44 of 51 major software companies posting gains. Retail investors are also reducing exposure to the Mag 7 and rotating into new AI beneficiaries, including memory-chip makers such as SK Hynix, according to Vanda Research.

Earnings Season Will Test AI Spending

Citi believes the upcoming earnings season will determine whether massive AI investments can begin producing sustainable profits.

FactSet estimates that the Magnificent Seven will deliver second-quarter earnings growth of 31.1%, compared with 22.8% for the rest of the S&P 500.

However, investors are increasingly focused on whether the combined $725 billion in AI-related capital expenditures planned this year by Alphabet, Microsoft, Amazon, and Meta will eventually translate into stronger earnings growth.

Apollo Global Management projects that earnings-per-share growth for the Magnificent Seven will slow to around 20% in 2026 and 15% in 2027, suggesting that the market is transitioning from an AI growth narrative to one centered on earnings validation.

A New Stage for AI Investing

Citi argues that replacing the "Magnificent Seven" with the "Growth Cluster" reflects a broader shift in AI investing—from rewarding companies for spending aggressively on AI infrastructure to rewarding those that can successfully monetize those investments.

The firm believes future market leadership will depend less on who spends the most on AI and more on which companies generate sustainable earnings growth and long-term shareholder value from AI adoption.