A steepening yield curve, which is when the spread between long-term and short-term treasuries increases, has been a tailwind for mega-cap tech stocks like Apple (AAPL), Microsoft (MSFT), and Nvidia (NVDA), according to 22V Research. However, if the yield curve’s momentum slows down, the performance of these tech giants could also lose steam. With the 10-year yield climbing to 4.55% at the time of writing and fewer Federal Reserve rate cuts expected, investors are pricing in higher nominal yields and controlled inflation without a recession.
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While strong earnings expectations continue to support mega-caps, their lofty valuations depend on robust EPS growth in 2025 and 2026, said 22V’s chief strategist, Dennis DeBusschere. Despite their dominance, the “Magnificent Seven” stocks have started to weaken from overbought levels. Indeed, technical strategist John Roque notes that previous corrections in this group have seen declines of 13%-16%, which implies more downside potential of 12% from recent levels.
Interestingly, mega-cap tech stocks now make up 24% and 14.5% of the S&P 500’s (SPX) EPS and sales expectations, respectively. DeBusschere warns that although broader market conditions are not recession-like, internal market weakness could still emerge. He predicts that equities may move lower if spreads widen, curves flatten and financial conditions tighten further.
Which Magnificent Seven Stock Is the Best Buy?
Overall, when it comes to the Magnificent Seven stocks, analysts expect the most upside potential from Nvidia stock thanks to its price target of $177.08 per share, which implies gains of more than 27% from current levels. On the other hand, they expect the least from Tesla (TSLA), as its price target of $294.30 per share implies a decline of more than 30%.
