The "valuation purge" of the Magnificent Seven is nearing its end! Muse and Astra ignite the "AI FOMO trade," and a major tech stock rally is gathering momentum.

Title context: The "valuation purge" of the Magnificent Seven is nearing its end! Muse and Astra ignite the "AI FOMO trade," and a major tech stock rally is gathering momentum. Text: After the Nasdaq 100 index hit a new high last week, Wall Street financial giant JPMorgan Chase began following the bullish footsteps on U.S. tech stocks taken by giants such as Goldman Sachs Group, Inc., Jefferies Financial Group Inc., and Yardeni Research, which to some extent also pushed institutional and retail investors to increasingly focus on buy-the-dip strategies during Monday's U.S. stock market pullback. JPMorgan believes that the overall valuation adjustment of the seven largest U.S. tech giants that carry heavy weight in the U.S. stock market (the Magnificent Seven, or Mag 7) may already be largely complete, and earnings growth is expected to once again become the main force supporting share prices; JPMorgan said that the ratio of the Magnificent Seven's forward 12-month price-to-earnings multiple relative to the broader market has fallen to about one standard deviation below the historical median, at a ten-year low. At the close of U.S. stocks on Monday, September 28, most popular AI computing-themed stocks, including AMD, Micron, and SanDisk, came under heavy pressure as oil prices and U.S. Treasury yields rose, but the "AI chip overlord" NVIDIA Corporation (NVDA.US) rose against the trend after announcing a record $150 billion increase in its share buyback authorization. JPMorgan's positive judgment also did not ignore changes in business models: AI capital expenditures have raised capital intensity, increased financing needs, and pressured free cash flow, which indeed should correspond to a certain degree of valuation discount, but the market has already digested a considerable portion of the adjustment, and subsequent earnings growth may still exceed the drag from continued valuation compression. Apple Inc., Microsoft Corporation, Alphabet Inc. Class C parent Alphabet, Amazon.com, Inc., Meta, NVIDIA Corporation, and Tesla, Inc. are not only important components of the U.S. stock market's market-cap-weighted indexes, but also influence global AI investment expectations through AI chips/AI semiconductors, cloud computing, AI applications, and broad end-device deployment. Previously, through the end of 2025, the roughly $30 trillion market value expansion during the three-year super bull market in the S&P 500 was significantly driven by the seven tech giants and the broader AI computing infrastructure supply chain. Therefore, changes in the Magnificent Seven's earnings and valuations can simultaneously affect benchmark index performance, global equity market risk appetite, and the growth prospects of the AI computing industry chain. As Meta Muse and OpenAI's GPT-6 Astra fully ignite the massive wave of AI agents, the "AI FOMO trade" (referring to investors' fear of missing out on gains in AI-related assets, and therefore chasing or rebuilding previously reduced positions) can be said to have made a comeback. From the perspective of the underlying architecture of AI computing infrastructure, Muse and Astra are expected to further expand the scope of AI agent use. The massive expansion of AI inference workloads they bring will simultaneously increase demand for model inference, tool execution, and state management, while also deepening competitive pressure on some software companies. Accelerators such as GPUs and TPUs handle model computation; CPUs run browsers, virtual machines, product retrieval, database queries, and transaction orchestration; HBM and server DRAM carry model data, context, and concurrent working environments; enterprise SSDs store product indexes, task records, and persistent state, while high-speed networking and optical interconnects support distributed data exchange. The so-called "Magnificent Seven" (Mag 7), which occupy a heavy weight (more than 40%) in the S&P 500 and Nasdaq 100 indexes, are the core driving force behind the S&P 500's repeated record highs, and are also regarded by many top Wall Street investment institutions as the portfolio most capable of delivering huge returns to investors amid the largest technological transformation since the internet era. JPMorgan: The valuation reset of the Magnificent Seven may be largely complete According to the latest research report released by JPMorgan's equity strategy team led by Mislav Matejka, the Magnificent Seven have undergone a significant valuation reset, and their forward 12-month price-to-earnings ratio relative to the broader market is now close to one standard deviation below the historical median and at a ten-year low. JPMorgan's strategist team believes that as crowding in bullish tech-sector positioning declines, earnings performance remains strong, and valuations become more realistic, tech stocks will regain some of the momentum lost since the end of the first half, and therefore recommends that investors re-enter the sector during market pullbacks. Tech stocks are still leading the S&P 500 by a wide margin this year, but the rally has cooled in recent months amid concerns that massive AI spending may not deliver the returns optimists assume. Within the tech sector, the Magnificent Seven's valuations are at their lowest level in 10 years, while semiconductor stocks are emerging from a difficult stretchworsened by Anthropic's Dario Amodei and OpenAI's Sam Altman previously calling for coordinated slowing of advanced AI development. "We doubt there will ultimately be a pronounced slowdown, because this race remains an existential, winner-take-all contest," wrote JPMorgan's equity strategy team led by Mislav Matejka. JPMorgan said that although the kind of gains seen in the first half are unlikely to be repeated, major opportunities still exist. The Magnificent Seven's valuations being at a ten-year low is not an isolated judgment by JPMorgan. Data from Morgan Stanley Wealth Management's Global Investment Committee show that the valuation premium of the Magnificent Seven relative to the other 493 stocks in the S&P 500 is currently only 10%, the lowest level in more than a decade, while these seven giants as a group still enjoy an annual earnings growth advantage of about 45%. Morgan Stanley Wealth Management Chief Investment Officer Lisa Shalett wrote in a report: "By comparison, we think these hyperscalers now look downright cheap." JPMorgan strategists added that the seven largest U.S. tech giants, along with the rest of the tech sector, have undergone a valuation downgrade, and this valuation adjustment process is largely complete. The bank had previously noted in March that the valuation downgrade may have been excessive. The strategists added that changes in these companies' business models provide a reasonable basis for some multiple compression, including rising leverage and declining free cash flow as AI-related capital expenditures continue to increase substantially. But they said a considerable portion of the valuation adjustment has already occurred, and the extraordinarily strong earnings performance of hyperscalers may continue to support their share price performance, although some of that support may still be offset by further valuation downgrades. From "valuation killing" to "earnings taking over": JPMorgan and Goldman Sachs Group, Inc. see a new round of momentum for the tech sector rally What JPMorgan's strategist team favors is a re-entry opportunity created by easing positioning crowding, lower valuations, and earnings resilience, with a particular preference for semiconductors. According to the institution's latest research report, since June, forward 12-month earnings per share forecasts for semiconductors have been raised by about 30%, while software earnings expectations have lacked corresponding improvement; the hyperscaler capital expenditure outlook it cites is approximately $950 billion in 2026, about $1.4 trillion in 2027, and about $3 trillion in 2030. On this basis, JPMorgan favors a relative trade of "long semiconductors, short some high-momentum software," while also believing that software valuations have already adjusted substantially and are not suitable for simply shorting across the board. Muse and Astra strengthen the application basis for this AI-driven strong earnings logic based on "earnings taking over": agents transform a single user request into multi-stage work such as retrieval, planning, tool invocation, code execution, and result verification, so that in addition to GPU computing, CPU scheduling, memory capacity and storage access, and high-speed data transmission via optical interconnects are simultaneously pulled forward by computing demand. Muse already has dedicated cloud virtual machines, browser operation, continuous background work, and memory mechanisms; Astra strengthens computer operation, software use, and multi-step professional task execution capabilities. More important for investment strategy is whether the massive expansion of AI complex-task workloads can exceed the impact of falling per-unit inference prices and cloud service revenue, chip orders, and sustainable profits. The market has already reacted to expectations for application adoption: Nasdaq's official weekly report confirmed that Muse's early performance and the AGI discussion ignited by Astra together substantially boosted the AI FOMO trade, with the Nasdaq 100 index hitting a record high on September 22 and rising about 3% last week. Goldman Sachs Group, Inc. strategists provide another supporting path. Goldman Sachs Group, Inc. senior strategist and partner Mark Wilson believes that the year-end rally opportunity does not necessarily require waiting for the midterm elections to end: if inflation moderates and growth cools moderately without falling into recession, the market's expected further tightening may be difficult to fully materialize. Goldman Sachs Group, Inc. economist Jan Hatzius emphasized that upside risks to growth markets have diminished, while Goldman Sachs Group, Inc. equity market strategist Ben Snider believes that some industries have excess earnings, but overall an earnings bubble has not yet formed. The key to the "Goldilocks" scenario unanimously recognized by Goldman Sachs Group, Inc. strategists is that while inflation and interest rate pressures ease, core earnings can still remain resilienta view that belongs to Goldman Sachs Group, Inc. strategists' conditionally optimistic judgment. The AI bull market seems to be looking for an "earnings takeover window"that is, when valuation compression slows, as long as earnings per share continue to grow, share prices do not have to rely on the price-to-earnings ratio rising back to a high level in order to rise; if interest rate pressures subsequently ease, valuation stability may in turn increase return potential. JPMorgan focuses on positive signs in both earnings trends and positioning, while Goldman Sachs Group, Inc. focuses on improvement in the macroeconomic environment. Together, both point to the importance of AI-driven strong performance being delivered by tech companies. Wall Street financial giant Jefferies Financial Group Inc. recently said that, driven by the dual engines of the AI investment frenzy and AI-related companies' better-than-expected earnings growth, the S&P 500 is expected to surge to 8,000 by the end of 2026 and further reach 9,000 in 2027. The core logic of Jefferies Financial Group Inc. is clear and powerful: in a cycle where AI-driven earnings growth exceeds the historical average by more than double, fighting the earnings trend is dangerous. Jefferies Financial Group Inc.'s 2026 baseline forecast of 8,000 for the S&P 500 is based on earnings per share (EPS) reaching $373 (up 35% year over year, far above the market consensus of 29%) and a price-to-earnings multiple of 21.5x.