Ever since the AI stock bull market began in early 2023, it has been dominated by the Magnificent 7 tech stocks: Apple (AAPL), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOGL), Meta (META), Amazon (AMZN), and Tesla (TSLA). These seven stocks rose nearly 150% from early 2023 to summer 2024. However, the rest of the market, often referred to as the 'S&P 493' – the S&P 500 minus these seven tech giants – only increased by 20% during the same period. But change is in the air. Since the Fourth of July weekend about two months ago, the S&P 493 has risen 5% while the Mag 7 tech stocks have decreased by about 10%.

Is this just an anomaly, or are we witnessing the start of a significant market shift? We believe it marks the beginning of a big transformation. While the Mag 7 tech stocks enjoyed a massive head-start in the AI investment cycle due to their vast resources and talent, the so-called 'other guys' are now starting to catch up by launching their own AI products and services. For instance, Axon (AXON), a provider of law enforcement technology solutions, recently introduced a new AI product called Draft One. This tool uses AI to automatically generate the first draft of police reports from body camera footage data. Early interest in Draft One is substantial, with bookings surpassing $100 million within just three months, and Axon's stock has increased by over 60% in the past year.

Similarly, GitLab (GTLB), a solutions provider for coding, reported impressive quarterly results, with revenues rising over 30% year-over-year due to the high demand for its new AI coding assistant tool, GitLab Duo. GitLab’s stock has jumped more than 30% in the past month. Samsara (IOT), a company committed to digitizing physical industries like construction and manufacturing, also reported strong quarterly results, driven by healthy demand for its AI solutions. Their revenues increased by nearly 40%, and the stock is up almost 250% over the past two years. Organizational software provider Smartsheet (SMAR) reported a 50% sequential increase in the number of users utilizing its AI tools.

These 47,000 users have collectively saved about a million hours through AI automations, resulting in surging revenues, and Smartsheet’s stock has risen 20% over the past two months. Other smaller tech stocks like Monday.com (MNDY), Box (BOX), Intapp (INTA), Klaviyo (KVYO), AppLovin (APP), Wix (WIX), and Fortinet (FTNT) have also seen significant improvements in their results, driven by new AI products and services, and their stocks have been performing well. The list of companies benefiting from AI is extensive. Meanwhile, Nvidia (NVDA) stock has fallen by 20% over the past two months, indicating a shift in momentum.

The baton in the AI boom is being passed from the Magnificent 7 to smaller AI stocks. The era of Mag 7 dominance in the 'Age of AI' is coming to an end, giving way to a new era where smaller AI stocks can lead and shine. This shift could present many more individual stock opportunities compared to the previous era, where only seven stocks were dominating the market. This new age could become even more exciting with a significant market event potentially accelerating the transition in less than two weeks. To get ready for this market broadening, I'm hosting an important strategy session this Wednesday, September 11, at 8 p.m. EST, where I’ll reveal one of the best investment strategies to capitalize on this potential shift. Reserve your seat for the strategy session now.

On the date of publication, Luke Lango did not have any positions (either directly or indirectly) in the securities mentioned in this article. P.S. Stay up-to-date with Luke's latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.