Magnificent Seven Stocks Went Flat in First Half of 2026 While Small Caps and Software Ran

The trade nobody was pitching in January

The Magnificent Seven, the informal club of Nvidia, Microsoft, Alphabet, Amazon, Meta, Apple and Tesla, fell more than 2% in the first half of 2026. Meanwhile the Nasdaq-100 gained nearly 20%, according to CNBC. That is a wide gap for a group that has driven most of the market's gains for three straight years.

Mike Akins, co-founder of ETF Action and former head of ETFs at ALPS, told CNBC's "ETF Edge" this week that the gap is exactly why the second half could look different. He is telling investors to look at what got left behind: software, cloud computing, disruptive-technology names in the mid and small-cap range, and yes, the Mag Seven itself as a catch-up trade.

Why software and cloud got cheap

Akins argues software and cloud stocks fell off "nosebleed valuations" over the past couple years even as their underlying businesses kept growing. His point: AI hype pulled money into chipmakers and infrastructure plays, but companies still need software to run day-to-day operations.

"These companies prove that 'yes,' we still do need software to do our day-to-day jobs," Akins said, per CNBC.

That is a fair, testable claim. Software spending doesn't disappear because Nvidia's stock is hot. If earnings estimates hold up, a valuation reset plus continued revenue growth is a straightforward setup for multiple expansion. It is not a guarantee. Software names have lagged for real reasons too, including slower enterprise IT budgets and AI tools that threaten to commoditize some SaaS products.

Small caps already had their run

Akins is also bullish on small and mid-cap stocks heading into 2027, and the data backs up that these stocks already started moving. The Russell 2000, which tracks small-cap companies, is up almost 20% so far this year. The S&P 500 is up almost 11% over the same span, according to CNBC.

That is not a subtle gap. Small caps have historically been more sensitive to interest-rate expectations and domestic economic growth than the mega-cap tech names that dominate the S&P 500. If the Federal Reserve continues cutting rates or growth stays resilient, that tailwind could keep blowing. If growth stumbles, small caps typically get hit harder than mega-caps with global, diversified revenue streams.

The Mag Seven catch-up is already showing up

The catch-up trade may already be underway. In the early days of the second half, the Magnificent Seven index is up 5% while the Nasdaq-100 is down 1%, as of Friday's close, according to CNBC. That's a real reversal from the first-half pattern, though six trading days does not make a trend.

Akins framed the first-half numbers almost with disbelief. "Who [would have] thought that Mag 7 was going to be flat year-to-date at the halfway market," he said, according to CNBC.

What this is and isn't

This is one analyst's read on sector rotation, not a forecast with a track record attached in these sources. Akins runs an ETF research firm, ETF Action, which means his business depends on investors caring about sector and thematic allocation calls like this one. That doesn't make him wrong. It does mean his incentive is to find rotation stories worth acting on, and readers should weigh that.

The underlying numbers are solid: Russell 2000 up almost 20% year-to-date, S&P 500 up almost 11%, Mag Seven down over 2% in the first half against the Nasdaq-100's near-20% gain, and the early second-half reversal showing Mag Seven up 5% against the Nasdaq-100's 1% dip through Friday. Those are facts, sourced to CNBC's reporting on Akins' comments.

What isn't a fact yet is whether this rotation holds for six months. Valuation resets in software and small caps can just as easily stall if AI capital spending keeps concentrating in chips and cloud infrastructure providers like Nvidia and Microsoft, the same companies some of this money would be rotating away from. Investors chasing this trade are betting on earnings estimates from analysts panning out, and those are estimates, not locked-in results. The next check on this call comes with third-quarter earnings season later this year, when software and small-cap companies report whether the growth Akins is counting on actually showed up in the numbers.