NEW YORK — The tech sector’s red-hot rally, led by the “Magnificent Seven” giants, is showing signs of strain as investor confidence wanes, according to a CNBC report on Sunday, August 24, 2025. Doubts about artificial intelligence returns, sky-high valuations, and a lackluster launch of OpenAI’s GPT-5 have prompted a shift toward defensive sectors like utilities and consumer staples.
The “Magnificent Seven” Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla have driven market gains for years, fueled by AI optimism. But recent weeks have seen cracks emerge. OpenAI’s GPT-5, released earlier this month, underwhelmed investors with modest performance improvements, sparking broader skepticism about AI’s near-term payoff. “The AI bubble is showing signs of deflating,” a Goldman Sachs analyst told CNBC, noting that valuations, with some tech stocks trading at 40 times earnings, are hard to justify.
Key pressures on the tech rally include:
- A 5% drop in the Nasdaq Composite since July, erasing $1.2 trillion in market value.
- Nvidia’s stock sliding 8% post-GPT-5 launch, reflecting AI growth concerns.
- Investors redirecting $3 billion into utility and consumer staple ETFs last week.
Cooling enthusiasm has pushed investors toward safer bets. Utility stocks, like NextEra Energy, and consumer staples, such as Procter & Gamble, have gained 3% this month, outperforming tech. “We’re seeing a flight to stability,” a JPMorgan strategist noted, highlighting fears of a broader market correction. The shift comes as the Federal Reserve signals caution on rate cuts, adding pressure on growth stocks.
While some analysts remain bullish on tech’s long-term prospects, others warn of a prolonged cooldown. The muted GPT-5 debut, coupled with regulatory scrutiny of AI deployments, has tempered the sector’s momentum. As investors recalibrate, the focus on defensive sectors suggests a cautious outlook for Wall Street in the months ahead.
Source: CNBC
