Investing.com -- Investors are reducing risk in technology stocks heading into the second half of 2026, particularly among the Magnificent Seven, according to Goldman Sachs derivatives specialist Brian Garrett.

Garrett said the rotation away from mega-cap tech has a straightforward explanation. "One of the reasons for the decrease in Mag7 exposure seems almost too simple as it's been hiding in plain sight for months," he wrote. "The market is rightly rewarding the names that earn (capex beneficiaries, semiconductors, etc) while at the same time questioning the names that spend (hyperscalers)."

Goldman Sachs stated that asset-light stocks are becoming asset-heavy, creating questions around valuations and multiples. Garrett noted that efforts to rein in hyperscaler spending could benefit those companies individually but would prove net negative for the broader market.

Until hyperscalers can demonstrate a clear inflection path for earnings, Goldman Sachs believes reducing risk in the largest stocks appears to be the prevailing investor playbook.

The bank pointed to options market pricing as evidence of growing concern, noting that the cost of downside hedging in the QQQ ETF is already significantly above the equivalent level for small-cap stocks.

The cautious stance comes as the Magnificent Seven have broadly underperformed the wider market in recent months, with investors increasingly distinguishing between companies that generate returns from AI infrastructure spending and those bearing the cost of it.

Goldman Sachs feels that dynamic is likely to remain a key driver of positioning as the second half of the year gets underway.