Big Tech Fizzles in Early 2025: Jeremy Siegel

Don’t pop the bubbly just yet.

Big Tech’s extraordinary bull run, which has seen the Magnificent 7 tack on $1.8 trillion in market value since the election, is expected to fizzle in the new year, according to famed WisdomTree economist Jeremy Siegel. Sky-high valuations are simply not in line with the sector’s real-world returns and that’s creating a worrisome outlook for tech stocks come 2025. 

“The continued dominance of the Magnificent Seven in the equity markets has been striking,” Siegel wrote in a column, citing the tech-heavy Nasdaq that surged past the 20,000-point milestone for the first time last week. It could spell a pullback as investors search for better bargains elsewhere. “While this tech-led rally persists, a recalibration and rotation is possible in January to reflect more balanced market leadership,” the Wharton School professor said.

Cost Ineffective

The biggest problem is one of the cornerstones of Big Tech’s success: artificial intelligence. While AI is projected to reshape entire segments of the workforce, it’s nowhere near making good on those expectations. Investors are projected to pump $1 trillion into AI infrastructure in the coming years, but returns on those investments are becoming increasingly unclear, per a report by Goldman Sachs. The researchers found:

• AI is expected to boost US productivity by just 50 basis points over the next decade, and push GDP up by less than 1%.
• Just a quarter of AI tasks will be cost-effective over the same timeframe.
• For all the fanfare, the technology is expected to impact less than 5% of all tasks. 

“The market’s resilience reflects continued optimism about AI-driven growth and deregulation,” Siegel said. “However, the tangible economic benefits of AI adoption remain distant.”

With automated trading and algorithm-based investments on the rise, future corrections may be sharper than previous cycles that were solely driven by human traders (remember them?), said Yashin Manraj, CEO of the finance technology provider Pvotal. In fact, future movements could be increasingly drastic. “The bull run so far has defied logical and rational metrics,” he said. “2025 will be a wild ride for most tech stocks.”

Bargain Basement. So, where’s the best place to look for a killer bargain in 2025? Siegel predicts a rotation into “neglected areas” of the market, such as value or small-cap stocks. The shift is even more likely if the new administration’s home-grown investments, and favorable stance on deregulation, create advantages for other sectors.

“Investors should remain vigilant as tech valuations climb further, with an eye toward rebalancing opportunities early next year,” Siegel wrote.