The current AI boom resembles a gold rush, and Alex Cardona is choosing to avoid the overcrowded main sites, instead seeking opportunities in less explored areas.

This 50-year-old software company executive follows this principle, allocating a significant portion of his portfolio to AI infrastructure companies, including data center operator Equinix and semiconductor manufacturer Marvell Technology.

He has little interest in the so-called "Magnificent Seven" US tech giants, holding only minimal positions. These mega-cap tech stocks were once the primary drivers of the broader US market rally.

"I prefer to invest directly in pure-play companies like Marvell, a mid-sized chipmaker many average investors haven't even heard of," he said. Marvell is his portfolio's top performer this year, with gains exceeding 120%. "My investment thesis focuses on capturing the essential underlying infrastructure required for AI to function."

The fervent enthusiasm retail investors have shown for leading tech giants for years is cooling. Individual traders are buying shares of Microsoft, Apple, Amazon, Meta, Nvidia, Alphabet (Google), and Tesla with decreasing intensity, shifting capital instead into new AI sub-sectors. These include memory chip makers like SK Hynix or thematic ETFs such as the Roundhill Memory ETF. Data from flow-monitoring firm Vanda Research confirms this trend.

A significant market rotation is underway: the spotlight that was monopolized by the seven tech behemoths is temporarily shifting to chipmakers, memory suppliers, and a group of small- to mid-cap stocks tied to AI infrastructure build-out. This year, only two of the seven giants have outperformed the broader market: Apple leads with a 23% gain, while Microsoft lags with a 19% decline.

The risks of chasing niche AI plays were laid bare last Friday when news of a new AI model release triggered a market panic. The entire tech sector sold off sharply, with AI infrastructure stocks leading the decline: the Philadelphia Semiconductor Index fell 1.6%, retreating over 20% from recent highs and officially entering bear market territory.

Like Cardona, many retail investors still hold some shares of the Magnificent Seven, whose combined market capitalization accounts for 36% of the S&P 500. However, an increasing amount of capital is being diverted to lesser-known names, with investors betting they will become the next generation of AI superstars.

Vanda analysts noted in a report last week, "Retail investors are no longer crowding into the Magnificent Seven. They are starting to pick their own sector winners, investing in companies with the most compelling narratives in their view."

Vanda data shows that since July, retail investors have been net buyers of $52 million worth of Microsoft stock, making it the most favored among the giants. In contrast, they have poured a net $194 million into Intel and $56 million into AI cloud service provider Iris Energy (IREN) over the same period.

In recent years, ordinary investors were the most loyal supporters of the tech giants, consistently adding to their positions during the AI industry's infancy, market volatility in early 2025, and the tariff-induced sell-off last spring.

But now, the fortunes of the seven giants are diverging significantly. In recent months, individual traders have moved away from chasing the trillion-dollar market cap giants pouring money into AI research, instead targeting upstream supply chain players—chipmakers, cooling equipment providers, and power infrastructure companies.

Brett Kenwell, US Investment Analyst at eToro, stated, "For years, the Magnificent Seven were the market darlings. Now, retail investors are following the flow of industrial capital up and down the supply chain."

This does not mean retail investors are exiting the stock market. Scott Rubner, Head of Equities and Derivatives Strategy at Citadel Securities, noted that retail trading activity hit consecutive record highs in May and June, with average daily stock trading volume in those two months more than double the 2024 average.

Even before last Friday's sharp decline, the US AI rally was showing signs of fatigue: the previously hot semiconductor sector cooled, and major US indices entered a typical summer period of sideways consolidation. Investors are focusing on second-quarter earnings reports, urgently seeking concrete evidence that corporate AI investments are translating into revenue and productivity gains.

Jonathan Kofsky, Portfolio Manager for the Global Technology and Innovation Team at Janus Henderson, said, "The market needs to see more tangible proof that AI is driving revenue and improving productivity. To justify the current massive AI capital expenditures, the entire industry must deliver profitable returns."

All AI-themed stocks face the same fundamental test. Last Friday, small-cap chipmakers, software companies, and the Magnificent Seven all fell in unison.

For some traders, the potential for high returns justifies the volatility risk. Davis Cantrell, a 19-year-old college student near Atlanta with two years of investing experience, has long tracked leading AI companies.

Recently, however, he reduced his Microsoft position and sold all his Nvidia holdings, shifting capital into two sectors he finds more promising: aerospace and quantum computing. He believes these industries will experience explosive growth as the AI revolution unfolds.

Cantrell stated that the leading tech giants still have investment merit, but their period of major upward momentum has ended.

"I am now focusing on high-beta, high-growth sector stocks. Microsoft and Nvidia no longer fit that criteria."