AI Euphoria Continues: Mag 7 Earnings Growth and Market Outlook

Market Pullback and Tech Earnings

• 📉 The market experienced a pullback, with software stocks leading the NASDAQ down, exacerbated by significant drops in Microsoft and Meta despite both beating earnings expectations.
• 💡 Despite market reactions, the sentiment is that AI euphoria isn't over, and the Mag 7 companies are expected to continue strong earnings growth.

Investor Scrutiny and Diversification

• 🧐 Investors are now examining Mag 7 companies with a more critical eye, focusing on their capital expenditure (capex) spend and the viability of their growth stories.
• 🎯 There's a shift from viewing the Mag 7 as a basket to analyzing them independently, a trend observed in 2025 and continuing.
• 📊 The market is seeing a broadening out trade, with sectors like industrials, financials, consumer staples, real estate, and energy showing strength.

Overweighting Small Caps and Emerging Markets

• 🚀 Neuberger Berman remains overweight in the small cap space, seeing attractive valuations and potential in a deregulatory, pro-business environment with lower interest rates.
• 🌍 The firm has also shifted to being overweight in emerging markets, specifically highlighting India and Brazil, due to undervalued AI-related companies and eased concerns about country integrity.
• 💰 Investors are advised to look at their portfolios at the start of the year to rebalance risk and opportunistically allocate capital from cash into these areas.