The Magnificent 7 Trade Is “Likely Over,” Piper Sandler Warns. Here Are the 2 Sectors Taking Its Place

Thomas Richmond

Thu, July 30, 2026 at 3:51 PM GMT+3 3 min read

Quick Read

Microsoft short interest sits at an 11-year high while NVDA gained just 6% year to date despite posting 85% revenue growth.
QQQ dropped 5% in a week while Health Care and Financials posted outsized gains, validating Piper Sandler's rotation out of tech since February.
Act now: the analyst who called NVIDIA in 2010 just named his top 10 AI stocks — and Microsoft didn't make the cut. Grab the names FREE today.

On CNBC's Morning Call Sheet roundtable on July 29, Piper Sandler chief market technician Craig Johnson made a firm call against the Magnificent 7 and explained why he instead prefers the Health Care and Financial sectors today.

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"The Mag-7 trade [has] been very long in the tooth for a while, and it's likely over, and you're seeing a reset happening," Johnson said. "It's just not about the Mag-7. It's just not about the semiconductor stocks. And it's a market that's rotating into other parts of the market. We're seeing clear pickups in Health Care. We're seeing pickups in Financials."

The Numbers Show Market Leadership Is Already Broadening

The Invesco QQQ Trust (NASDAQ:QQQ), one of the easiest ways to get a read on the tech industry as well as the Mag-7, is up 9.96% year to date through July 28, 2026, but it has fallen 4.72% over the past week and 4.39% over the past month.

The Health Care Select Sector SPDR Fund has gone the other direction, rising 4.37% in the past week and 8.97% year to date, while the Financial Select Sector SPDR Fund has gained 7.52% over the past month and 6.07% year to date. For comparison, the broad S&P 500 is up 8.64% year to date.

Johnson said Piper Sandler has been acting on this thesis for months. "We continue here at Piper Sandler to cut back our technology weighting across the board. And we have been since February. It is time to take profits in tech."

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Microsoft Short Interest Is Flashing a Decade-High Warning

Johnson zeroed in on Microsoft (NASDAQ:MSFT) and the warning signal he's seeing. "Short interest is the highest percentage of the float since 2015, and we've seen the largest increase in short interest in Microsoft of any of the Mag-7."

That sentiment shift contrasts with Microsoft's operating results. In Q3 FY2026, the company reported EPS of $4.27 on revenue of $82.89B, up 18.3% year over year, with Azure growing 40% and its AI business surpassing a $37 billion annual run rate, up 123% year over year. Yet the stock is down 18.3% year-to-date and 22.63% over the past year through July 28, 2026. Capex of $30.88B in the quarter, up 84% year over year, is testing investor patience on AI payback timelines.

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NVIDIA's Explosive Growth Is No Longer Enough

NVIDIA (NASDAQ:NVDA) shows the same tension. Q1 FY2027 revenue landed at $81.62B, up 85.2% year over year, with Data Center at $75.25B (+92%), and management guided Q2 to $91B plus or minus 2%. Yet the stock is up only 5.76% year-to-date and down 4.96% in the past week.

Even at a forward P/E of about 19, the multiple still leaves room for the stock to fall. Johnson noted that SK Hynix reported a sixfold increase in quarterly profits but still fell short of market expectations.

The Bullish Counterpoint: The AI Spending Boom Remains Intact

Sylvia Jablonski pushed back against bearishness in the tech sector, citing the strength of overall AI demand. "The story is intact, right? We're hearing that demand continues. We're hearing that the bottleneck continues, AI infrastructure build-out continues, hundreds of billions of dollars by the AI hyperscalers going into this theme."

Economist Veronica Clark added a macro caveat that cuts both ways. "So much of economic growth is coming from the AI investment, the wealth effect that consumers are feeling, that any kind of sentiment pullback does mean that the overall economy is pretty exposed to it."

Health Care and Financials Are Emerging as New Market Leaders

The question is whether Johnson is identifying a healthy correction within a durable AI cycle or the beginning of a change in market leadership. Solid economic conditions, a VIX of 18.67, and continued hyperscaler spending support the view that this is just a temporary correction, while rising Treasury yields and strengthening Health Care and Financial stocks support the idea that there's a broader rotation going on.