Since 2023, the investment narrative has been remarkably simple: own the Magnificent Seven—Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla—and watch your portfolio soar. These seven stocks have accounted for the vast majority of S&P 500 returns, leaving the other 493 companies in their dust.

But according to fresh analysis from major Wall Street banks, 2026 may mark the beginning of a fundamental shift. The earnings growth gap between the mega-caps and the rest of the market is narrowing to its smallest margin since the AI rally began, potentially reshaping investment strategy for the year ahead.

The Numbers Behind the Convergence

Consensus estimates compiled by FactSet and Bloomberg paint a striking picture:

  • Magnificent Seven: Expected earnings growth of 20% year-over-year in Q4 2025 and 19% in full-year 2026
  • S&P 493: Expected earnings growth of 6% in Q4 2025 and 15% in full-year 2026

While the mega-caps still lead, the gap has compressed dramatically. Compare this to 2024, when Magnificent Seven earnings grew at roughly three times the rate of the rest of the index. The convergence represents a potential turning point for market leadership.

What's Driving the Shift?

Several forces are combining to narrow the earnings gap:

AI Monetization Headwinds

The Magnificent Seven collectively plan to spend over $600 billion on AI infrastructure in the coming years. While these investments position them for long-term dominance, the near-term impact on margins is substantial. Microsoft, Google, and Amazon are all seeing cloud computing margins compress as they build out AI capabilities faster than customers can adopt them.

The Law of Large Numbers

When you're already generating tens of billions in quarterly profit, maintaining 30%+ growth rates becomes mathematically challenging. Apple's services revenue, Nvidia's data center business, and Amazon's AWS all face tougher year-over-year comparisons as their base revenue grows.

Broadening Economic Strength

With unemployment remaining low and consumer spending resilient, sectors beyond technology are finally seeing earnings improve. Financial services, industrials, and healthcare companies are posting stronger results as the economy proves more durable than many forecasters expected.

AI Benefits Spreading

Companies outside the tech giants are beginning to realize productivity gains from AI adoption. Banks are using AI to improve fraud detection and customer service. Retailers are optimizing inventory with machine learning. Healthcare companies are accelerating drug discovery. These efficiency gains are starting to show up in earnings.

What This Means for Your Portfolio

The concentration of the current market presents both risks and opportunities. The top seven stocks now represent approximately 30% of the S&P 500's market capitalization—a level of concentration not seen since the dot-com bubble.

If earnings growth truly converges, several implications follow:

Diversification May Finally Pay Off

Equal-weight S&P 500 funds, which give the same allocation to each company regardless of size, have dramatically underperformed cap-weighted funds in recent years. A narrowing earnings gap could reverse this trend.

Small Caps Look Interesting

The Russell 2000 has already begun outperforming in 2026, climbing more than 8% year-to-date compared to the S&P 500's 1.5% gain. Small-cap earnings are particularly leveraged to improving economic conditions and lower interest rates.

Value Stocks May Resurface

When growth rates converge, valuation multiples matter more. Many S&P 493 stocks trade at significantly lower price-to-earnings ratios than the mega-caps, creating potential for multiple expansion if earnings deliver.

The Bull Case for Continued Concentration

Not everyone agrees the convergence will persist. Bulls argue that:

  • AI is still early: The Magnificent Seven's infrastructure investments will generate exponential returns as AI adoption accelerates
  • Network effects are real: The tech giants' competitive moats remain formidable, protecting their market positions
  • Quality commands a premium: In uncertain times, investors naturally gravitate toward companies with the strongest balance sheets and most predictable earnings

BlackRock's Assessment

In their latest weekly market commentary, BlackRock's Investment Institute noted that "earnings can keep delivering, partly as U.S. stocks driving earnings growth broaden out." They highlighted that the gap between the Magnificent Seven and the rest of the S&P 500 is narrowing as the other 493 companies see earnings improve.

"The S&P 493 is expected to see earnings growth accelerate from 6% in Q4 to 15% in full-year 2026, closing the gap with mega-cap technology for the first time since the AI rally began."

— BlackRock Investment Institute Weekly Commentary

How Investors Should Position

For investors considering how to respond to potential market broadening:

  • Don't abandon the winners entirely: The Magnificent Seven remain exceptional companies with durable competitive advantages. The question is position sizing, not whether to own them at all
  • Consider rebalancing: If mega-cap tech has grown to dominate your portfolio, modest trimming to diversify may be prudent
  • Look at equal-weight alternatives: Equal-weight S&P 500 ETFs provide exposure to the same companies with less concentration risk
  • Examine mid-caps: Companies in the $10-50 billion market cap range often combine growth potential with more reasonable valuations
  • Stay patient: Regime changes in markets take time. Position for the long term rather than trying to time the exact rotation

The great earnings convergence may be the most important market story that isn't making headlines. While attention remains focused on the latest AI announcement from the mega-caps, a quieter but potentially more consequential shift is underway in the rest of the market. For investors willing to look beyond the Magnificent Seven, 2026 could offer opportunities that have been hiding in plain sight.