Mag7 are not “losers” from AI, they simply priced in their gains earlier than others. They’re also now fighting flows — eventually this will revert. Matter of time. Not interested here but as memory / mag7 ratio continues to break open there will be a time

2026 Consumer Staples $XLP +16% Mag7 $MAGS +6% *Markets are Speaking: Why are recession resistant, defensive stocks like (think XLP names like, Proctor & Gamble, Coca-Cola, Colgate-Palmolive) destroying the Mag7 this year?

Last wk S&P/Nas/Mag7 +1.0%/+1.6%/+4.7%. The forced asset sale by Situational Awareness helped drive a sharp rally on 7/30. On 7/29, I wrote, “From a technical standpoint, I believe forced liquidations and margin calls in both retail accounts and hedge funds that typically run with leverage over the past couple of weeks is leading to a technical bottom… In summary, my view is that we could have seen at least a short-term bottom today with a strong rally ahead of us in the sectors most caught in the latest speedbump.” On Thursday 7/30, the Morgan Stanley TMT (Tech Media and Telecom) Momentum Index rebounded a record 19% on Thursday and added another 1% on Friday. This followed a decline of 54% from 6/22-7/29. It is now down 44% from 6/22. This is why I focus on avoiding “speed bumps” as I warned about on my 6/20 post. It is hard to predict how bad they will be and down 50% requires a 100% gain to get back to even. I feel like the near-term low on the current speedbump was seen on 7/29. Looking at Mag7 results this earnings season, stock reaction to earnings results mostly came down to two factors: 1) did estimates go up for CQ3 if capex went up and 2) did you report results before or after the Situational Awareness (SA) forced sale. $MSFT results strengthened my recent view that co-Pilot could be a winner in enterprise AI longer-term. As I wrote in my earnings preview. “It operates natively within the Microsoft 365 ecosystem where enterprise work already happens.” There are ~450M M365 paid seats but only ~30M Co-Pilot. Microsoft guided above consensus for CQ3 while capex remained unchanged. Azure also saw growth improve sequentially from 39% to 43% y/y with guidance to 45% for CQ3. Helped by the SA forced sale, the stock saw the 5th highest one day percentage stock move in history at +16% on Thursday. $META unfortunately had both revs & operating income go down for Q3 while revising up capex & opex. They also did not announce any definitive plans around a public cloud offering or API for their foundational models to monetize this spend. The stock declined 8% in reaction on Thursday which likely would have been worse if not for the SA forced sale. $AMZN while guiding both revs & operating income below consensus for Q3 and increasing capex, had AWS rev growth accelerate from 28% in Q1 to 37% in Q2 which was the highest growth rate since Covid in Q4:2021. AWS normalized operating margins expanded 1% sequentially. The stock rallied 15% on Friday in reaction to earnings following a 4% rally on Thursday as investors continued to regross in the AI names. But this brings me to $GOOGL which remains my long-term winner in consumer AI with the complete AI stack. Google like Amazon guided capex higher while implied revs & operating income declined for Q3. But Google Cloud Platform performance crushed AWS performance. GCP saw revs accelerate from 63% in CQ1 to 82% in CQ2 while operating margins expanded 3% sequentially. But Google unfortunately reported a week prior to the SA forced sale and saw their stock decline 7% in reaction the next day. $AAPL was the anti-AI trade leading up to their results and their stock hit an all-time high intra-day on Wednesday. The stock as a result declined 1% on Thursday as investors regrossed AI names on the SA forced sale and fell 7% on Friday in reaction to revenue & gross margin guidance that was below consensus. Big picture, I think the severe drawdown in the AI favorites from 6/22-7/29 was good for the market. It reminded investors of the need to be vigilant and the perils of excessive leverage/risk taking. Long-term bond yields hitting new 20 year highs last week and the unresolved Iran war are factors I am monitoring. In summary, out of the mega-cap earnings the past two weeks and the forced SA sale, my favorites are $GOOGL, $AMZN and $MSFT. I increasingly view value as shifting from the model layer which is increasingly getting commoditized to the infrastructure layer which includes the public clouds. I think the short-term bottom in the current speed bump was on 7/29. Best of luck in the week ahead.