Strategists at JPMorgan Chase, led by Mislav Matejka, wrote in a report on Monday that they anticipate stocks tied to the technology and artificial intelligence sectors will not hold the same dominant position as they did in the first half of 2025. One reason cited is that the "Magnificent Seven" stocks—including Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA)—may continue to face investor concerns about whether high capital expenditures will ultimately yield strong returns.

The strategists also advised caution, predicting that investor wariness toward so-called "AI erosion areas," specifically the software, business services, and media sectors, will persist. They noted: "We believe these sectors will continue to struggle in the long term, regardless of their resilience to the AI threat, though there may be tactical rebounds given the significant valuation adjustments already seen." Since January, software stocks have experienced a sharp sell-off amid fears that AI could fundamentally disrupt their business models. The iShares Expanded Tech-Software Sector ETF (IGM) has fallen nearly 11% year-to-date, while the Roundhill Magnificent Seven ETF (MAGS) has remained roughly flat over the same period.

JPMorgan strategists favor semiconductor stocks over hyperscalers and AI-vulnerable companies, particularly as AI-related spending may increase. However, they expect cyclical stocks to lead gains in the second half of the year, while also anticipating better performance from consumer cyclical stocks ahead. The firm continues to call for a broader market leadership expansion, identifying several key stock drivers for the second half. First, they suggest the U.S. economy may remain resilient despite geopolitical tensions, such as those with Iran. Second, they anticipate the Federal Reserve may attempt to "stay as accommodative as possible." Before the conflict, the market had priced in rate-cut expectations, which have since reversed, but if clear signs of declining inflation emerge in the coming months, the Fed could shift to a more dovish stance.

Other positive factors include strong second-quarter earnings and attractive stock valuations outside the U.S., where valuations are most stretched. They cite data showing the U.S. market's average price-to-earnings ratio is 20.2 times, 21% above its 20-year median. In contrast, the UK market is 5% above its median, and Japan is 18% above. The strategists stated: "If our view is correct that market participation will continue to broaden in the second half, the Iran conflict will not escalate sharply, and the AI monetization issue will persist, then non-U.S. stocks could outperform the U.S. market for a second consecutive year."

Finally, the strategists noted that investors may have already reduced their overweight positions in popular stocks, such as widely favored semiconductor names, which should help stabilize the sector. They remarked: "It is reassuring that, despite a substantial pullback in momentum factors—with the Korea KOSPI index falling nearly 40% over the past 4 to 6 weeks and the Philadelphia Semiconductor Index dropping 30% until last Friday's rebound—global indices like the MXWO, SPX, and SXXP remain less than 1% off their all-time highs."