Beneath the sector surface: could investing in ‘boring, but important’ tech see you outperform the Magnificent Seven?

With a market cap of $19 trillion^[1], tech currently represents roughly one third of the global economy^[2]. It wasn’t always this way. Tech used to be a solidly performing sector powered by telecoms, and firms with manufacturing power like Intel, Microsoft and IBM.

The dot-com boom and the rise of social media changed the tech sector forever. It brought to life for retail investors the concept of "big tech" as a way of investing in innovative, rapid-growth tech businesses that they personally used and understood.

It could be about to change again.

Keep reading to find out:

• Why the 'Magnificent Seven' is making analysts nervous
• Why 'boring, but important' could be key to spotting the next growth stocks
• Which companies stand to benefit the most from AI
• How open-source innovation can cause established stocks to tumble, and fast

How big is the tech sector?

Following the dot-com boom, the tech sector became personality-driven, with Steve Jobs, Bill Gates, Jeff Bezos and Elon Musk achieving household name status as growth became concentrated among an elite group of companies.

The subsequent seismic growth of companies like Meta, AI computing giant Nvidia and semiconductor manufacturer Broadcom, gave rise to what is now called the ‘Magnificent Seven’; a group of companies with a combined market cap of around $17.4 trillion. As of July 2025, the Magnificent Seven account for around 30% of the total weighting of the S&P 500^[3].

Impressive, yes.

But has this elite cluster of the sector hit a ceiling?

Unsurprisingly, Magnificent Seven stocks are already highly valued, making them more exposed to fluctuations. Increasing regulator scrutiny demands even more caution from tech investors and traders looking to take positions on individual stocks or the top end of the sector collectively.

Growth investors will have noted slowing growth of the Roundhill Magnificent Seven Exchange Traded Fund^[4], a vehicle for investing in the Magnificent Seven collectively. It’s still producing value, but the rate of growth is declining, having dropped from 16.67% year-on-year growth to 1.57% in the past six months. That comparison is even starker for investors who took a position during the Covid-19 era. They will have seen their investment grow 119% in the five years to July 2025^[5].

It might be too early to bet on a prolonged slowdown. But could emerging subsectors like cybersecurity and payment platforms be the smarter pick for tech investors seeking growth?

If you’re curious about the unexpected ways the economy could be affecting your portfolio, get familiar with our expert insights, with new analysis added regularly.

Is the ‘Magnificent Seven’ still a good investment?

The tech landscape is shifting. Yet analysts struggle to agree on whether the Magnificent Seven is in correction territory and what the short-term future of the sector holds. The closest thing to a consensus is a general agreement that tech is becoming increasingly more embedded in, and crucial to, other growth sectors like health and finance.

This could mean growth being concentrated away from household big tech brands and into less glamorous sectors like data centres, semiconductors and infrastructure.

Joint ventures between already established firms could emerge as a potential force multiplier for investors. Dell and Nvidia^[6] have already joined forces to combine Dell’s computing capacity with Nvidia’s AI capabilities, for example.

Data centres and cloud computing are two areas analysts are excited about, given the increasing demand driven by AI adoption.

How can tech investors ‘spot the next Google’?

Historically, the tech stocks that deliver the most meaningful investor value have been the companies that altered human behavior. Microsoft made home computing accessible, Amazon gave us unparalleled consumer convenience, Apple put music collections in our pocket, Google put the world’s information at our fingertips, and social media gave us new ways to connect.

Artificial intelligence shows the most promise in this regard, having already started to alter how we shop, find information and travel. Chinese multinational Baidu’s forays into autonomous driving infrastructure have the potential to deliver another behaviourally significant innovation.

Analysts are also pointing to AI-driven efficiencies in ad tech leading to better-than-predicted results for some of the world’s largest advertisers.

Curious investors should be looking at undervalued AI stocks and AI ETFs. Experienced traders will be keeping an eye out for stocks caught in a value trap, consistently underperforming despite appearing undervalued.

How do tech investors spot risks?

Perhaps the biggest source of disruption to the value of the tech sector is the tech sector itself. Any industry that innovates at such a rapid and disruptive rate has the capacity to commit self-inflicted harm. Think back to January 2025 when Chinese AI research lab DeepSeek launched an open-source AI platform, causing the share price of chip makers Nvidia and Broadcom, among others, to tumble^[6].

Cybercrime will have a major influence on tech fortunes one way or another. The existential threat of hacking, which poses reputational and business continuity challenges to any tech firm targeted, is endemic. On the flip side, geopolitical tensions and the AI-powered acceleration of state-sponsored cybercrime capabilities could provide fertile ground for a cybersecurity boom.

Stocks like Zscaler and Cloudflare should be attracting attention from smart investors looking for a growth pick.

Understanding the true beneficiaries of innovations like AI could be key to identifying undervalued stocks and long-term growth opportunities.

Companies making AI tools and platforms like Nvidia and financial services platform Yiren Digital have demonstrated impressive growth in the past decade.

But will the firms that implement this kind technology into their own products yield stronger returns over time?

Can tech investments be defensive?

It’s an exciting sector that continues to innovate. But while AI continues to hog the headlines, basic consumer and workplace computing retains the power to drive very impressive sector growth on a cyclical basis. Consider, for example, that seven in every ten computers run on the Windows operating system.

The phase out of Windows 10 in October 2025^[7] will drive what analysts expect to be a significant PC refresh cycle, as user demand for hardware that supports AI and hybrid computing increases.

In the U.S. alone, by 2030, employment in the IT sector is expected to grow by 10%, from 7.1 million in 2023, as workers with entirely new skillsets enter the workforce. They’re all going to need computers and software^[8].

Keep a close eye on the companies best placed to deliver the ‘nuts and bolts’ in support of this growth.

Will it still be the likes of Microsoft, Lenovo and Dell?

The bottom line

Expect the unexpected when investing in the tech sector. It’s historically been a source of incredible value creation and extreme volatility, so adjust your approach according to your appetite for white knuckle experiences. It’s already an expensive sector to invest in.

As always, trade policy will have an influence on the sector’s short-term fortunes. U.S. policy, in particular, has already proven to cause supply chain friction for Apple and Amazon. Longer term, ask yourself if you think the American tech sector has capacity for further growth or if China presents better opportunities.

The sector is still booming, but signs of a correction loom. Especially where the biggest growth is concentrated. Experienced investors should already be thinking about diversification and pragmatic portfolio rebalancing, paying attention to the less ‘magnificent’ subsectors like hardware, infrastructure, data centers and chip makers.