The stock market has a funny way of humbling even the most confident investors. For nearly two years, the Magnificent Seven dominated everything. Nvidia, Microsoft, Apple, Alphabet, Amazon, Meta, and Tesla were the unstoppable force. They drove index returns. They captured every headline. They made investing look easy.
Not anymore.
August 2026 tells a very different story. The Magnificent Seven are stumbling. Money is moving. And a new trade is emerging—one that veteran strategist Ed Yardeni calls the “anyone but AI” rotation.
The Roundhill Magnificent Seven ETF is up just 1% this year. The S&P 500 has gained 9%. Microsoft, once the darling of the AI trade, has dropped 17% in 2026 as investors worry about massive capital spending. On a single day in July, the Magnificent Seven lost roughly $767 billion in market value.
Something has shifted.
What Is “AI Fatigue,” Exactly?
Ed Yardeni, the founder of Yardeni Research and the man who coined the term “bond vigilantes,” has a simple explanation.
Investors are exhausted.
“Everyone is a little tired of trying to figure out who will make money in this game,” Yardeni said in a recent interview. “So what you’re seeing now is the market moving toward companies whose businesses everyone understands”.
That is AI fatigue in a nutshell.
It is not that AI is unimportant. It is not that the technology lacks potential. Yardeni himself believes AI’s long-term prospects remain strong. The problem is complexity. The AI ecosystem has become a maze. Chipmakers. Hyperscalers. Software providers. Infrastructure builders. Data centers. Each layer has its own winners and losers. Each requires specialized knowledge to evaluate.
Most investors do not have that knowledge.
So they are doing what investors always do when things get complicated. They are retreating to simpler ground. They are buying what they understand.
Yardeni calls this a “broadening market”. Money is rotating out of expensive, hard-to-value tech stocks and into more defensive, better-understood sectors. The Dow Jones and Russell 2000, filled with old-economy names, have become the new favorites.
The Numbers Tell the Story
The earnings data for the second quarter of 2026 paints a clear picture. S&P 500 companies are expected to post roughly 23.6% year-over-year earnings growth. That is strong by any historical measure.
But look closer. The growth is not evenly distributed.
| Sector | Expected Q2 2026 Earnings Growth |
|---|---|
| Energy | +122.9% to +129.5% |
| Technology | +48.8% to +63.3% |
| Basic Materials | +45.2% |
| Financials | +23.5% |
| Healthcare | -9.0% |
Sources: Zacks Investment Research, FactSet, IG
Energy leads the pack with staggering growth. Rising oil prices—WTI crude averaged 45% higher than the prior year—have turbocharged the sector. Technology still shows strong growth, but the gap is narrowing.
Healthcare stands out for the wrong reasons. It is the only sector expected to post a year-over-year decline. Gilead Sciences is largely responsible, with $11.5 billion in acquisition and R&D costs weighing down results. Strip out Gilead, and healthcare would grow 7.1%—still below the market median.
The broader point is this: only 3 of 11 S&P sectors are expected to deliver above-average earnings growth. Sector selection matters more than ever.
Where the Money Is Going
Yardeni has been clear about where he sees opportunity. He recommends overweighting Energy, Healthcare, Financials, and Industrials.
These are not exciting sectors. They do not generate breathless headlines. But they have something the AI trade lacks: clarity.
Energy is the simplest story. Oil prices are up. Earnings are up. Companies like Schlumberger (SLB) benefit directly from higher drilling activity and international market growth. The math is straightforward.
Industrials offer another clear narrative. Caterpillar (CAT) just reported Q2 adjusted earnings of $5.99 per share, beating estimates of $5.53. Revenue rose 22.2% year over year. The company raised its full-year 2026 outlook to low double-digit growth. Eaton (ETN) raised its 2026 guidance too, with organic revenue growth now expected at 9-11%.
Financials benefit from a different dynamic. Higher interest rates boost net interest margins. Banks earn more on the money they lend. JPMorgan, despite its massive AI investments, remains a profit machine.
Healthcare is the contrarian play. The sector is out of favor. Expectations are low. That is exactly when value investors start paying attention.
The Magnificent Seven Are No Longer Magnificent
The performance gap is impossible to ignore.
Citi recently declared the Magnificent Seven “dead as a construct for assessing large-cap growth dynamics”. The bank’s head of US equity strategy, Scott Chronert, said it is “time to refocus away from the term Mag 7”.
The numbers support this view.
In the first quarter of 2026, the Magnificent Seven delivered 63.2% earnings growth while the rest of the S&P 500 managed just 17.4%. That gap has narrowed dramatically. For Q2, the Mag 7 is expected to grow around 28%—still ahead of the index average, but nowhere near the dominance of earlier periods.
The group is fragmenting. Some are spending big on AI (Microsoft, Meta, Amazon, Alphabet). Others are benefiting from that spending (Nvidia). Some have mostly stayed away (Apple). They no longer move in lockstep.
Microsoft is the worst performer in the group, down 17% in 2026. Investors are nervous about the company’s massive AI capital expenditures. The spending is necessary, but the returns are uncertain.
Josh Brown, CEO of Ritholtz Management, sees the shift clearly. He recently told CNBC that investors should rotate out of the Magnificent Seven and into a wider assortment of companies. He specifically likes insurers like Travelers and Chubb, as well as industrials like Caterpillar and GE Vernova.
“The whole broadening out trade that we’re living through in the markets is being driven by this idea,” Brown said.
JPMorgan’s Warning: AI and Jobs
There is another reason AI fatigue is setting in. The technology is starting to eliminate jobs.
JPMorgan Chase CEO Jamie Dimon disclosed in July that AI has already cut 30% to 40% of headcount in some of the bank’s units. The bank runs close to 1,000 AI use cases across functions from fraud detection to back-office processing. Roughly 150,000 of its more than 300,000 employees use an internal large language model every week.
The efficiency gains are real. But so are the costs.
Dimon tempered any hope that these job cuts would translate into fatter profits. “You don’t uniquely benefit from AI,” he warned. If every major bank is using the same technology, the competitive advantage disappears. The savings get recycled into higher computing bills rather than dropping to earnings.
JPMorgan’s CFO, Jeremy Barnum, cautioned that spending on generative AI tokens is set to climb sharply in the second half of 2026. Token expenses are currently “trivial,” but the bank is “forecasting some meaningful acceleration in that number”.
This is the double-edged sword of AI. It boosts productivity. It eliminates jobs. It creates new costs. And it does not guarantee higher profits for any single company.
For investors, this adds another layer of uncertainty. If even JPMorgan cannot fully predict the financial impact of AI, how can retail investors?
Why Energy Stocks Are the Top Earnings Growers
The energy sector’s Q2 performance is remarkable. Expected earnings growth of 122.9% to 129.5% dwarfs every other sector.
The driver is simple: oil prices.
The Middle East conflict has pushed WTI crude prices up 45% on average compared to the prior year. When oil prices rise, energy companies make more money. It is one of the oldest and most predictable relationships in finance.
Analysts expect this strength to continue. For Q3 2026 through Q1 2027, estimated earnings growth rates for the energy sector are 75.6%, 69.5%, and 49.6%, respectively. Chevron is expected to post 94% earnings growth for 2026, while ExxonMobil is forecast at 58%.
The energy trade is not complicated. You do not need to understand chip architectures or cloud computing margins. You just need to watch oil prices and geopolitical developments.
That simplicity is exactly what investors are craving right now.
What This Means for Your Portfolio
The “anyone but AI” trade is not about abandoning technology forever. Yardeni still believes in AI’s long-term potential. The market is expected to broaden, not collapse.
But the dynamics have changed. Sector selection matters more than it has in years.
Consider these points:
Valuations matter again. The tech sector’s forward P/E ratio has come down from over 30.0 to around 23.7. That is still elevated relative to historical averages, but the gap is narrowing.
Earnings growth is spreading. Excluding the Magnificent Seven entirely, Q2 earnings for the rest of the S&P 500 would still be up a robust 24.3%. The recovery is broad-based.
Dividends are back in fashion. Traditional sectors like energy, financials, and industrials offer reliable dividends. In a world of uncertain AI returns, cash income has appeal.
Geopolitical risk cuts both ways. Rising oil prices boost energy stocks but threaten the broader economy. Yardeni has warned that “geopolitical fatigue” could emerge among consumers if gasoline prices spike again.
Conclusion
August 2026 is shaping up as the month the AI trade finally lost its magic.
The Magnificent Seven are no longer magnificent. The Roundhill Magnificent Seven ETF is up just 1% this year while the S&P 500 has gained 9%. Microsoft is down 17%. The group lost nearly $800 billion in a single day.
Ed Yardeni calls it AI fatigue. Investors are tired of trying to pick winners in a complex ecosystem. They are rotating into simpler businesses they understand—energy companies, industrial manufacturers, financial institutions.
The earnings data supports the shift. Energy leads all sectors with 122.9% growth. Industrials like Caterpillar are beating estimates and raising guidance. The broadening market is creating opportunities beyond the tech giants.
JPMorgan’s warning about AI and employment adds another layer of concern. The technology is eliminating jobs. It is creating new costs. It is not guaranteed to boost profits for any single company.
The “anyone but AI” trade is real. It is happening now. And it could be the defining investment theme for the rest of 2026.
Disclaimer:
This article is for informational purposes only and does not constitute financial advice. Always do your own research before making investment decisions.
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