Investing.com -- Wolfe Research maintains that artificial intelligence (AI) spending remains a key investment theme for the second half of 2025, with Magnificent 7 capital spending projected to increase by 35% in 2025.

The research firm notes that economic indicators, including the recent sub-50 ISM manufacturing index reading, suggest the economy will continue in a later cycle environment throughout the remainder of the year. Based on this outlook, Wolfe favors large cap secular growth stocks and defensive market sectors such as Staples and Utilities over earlier cycle areas like transports, housing, and analog semiconductors, as well as value stocks and small caps.

Wolfe does not view Monday’s price action, where the Nasdaq 100 index , growth stocks, large caps, and momentum stocks underperformed, as the beginning of a new trend. Instead, the firm characterizes it as a temporary reversal following the run-up to quarter end.

The research firm expects AI-driven technology companies and related businesses to deliver some of the strongest results in the upcoming earnings season, which they believe will maintain narrow market leadership.

According to Wolfe, the Magnificent 7 companies, serving as a proxy for the tech ecosystem, have experienced the lowest downward revisions to earnings per share (EPS) for 2025 and are expected to grow EPS at more than double the rate of the median S&P 500 company.

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