The Alternative to the Mag 7
A framework of 29 stocks across 8 buckets that offers a broader, more resilient way to play the AI era.
Everyone obsesses over the Mag 7, but the real story is beneath them. Here’s a structured look at 29 stocks in 8 buckets that offer alternative leadership, alternative growth paths, and alternative risk profiles for the AI-driven market.
Introduction
In my recent analysis, The Reemergence of Volatility in the Tech Sector, I highlighted a series of warning signals suggesting that the technology market may be transitioning into a more turbulent phase.
The Reemergence of Volatility in the Tech Sector
https://bernsteinbook1958.substack.com/p/the-reemergence-of-volatility-in
From Michael Burry’s bearish posture—rooted in concerns about accounting distortions and inflated AI optimism—to OpenAI’s surprising suggestion that governments might one day serve as financial “backstops” for its capital-intensive operations, the sector is flashing signs reminiscent of prior late-cycle periods. These developments, combined with extreme index concentration in the “Magnificent Seven,” suggest that investors relying too heavily on mega-cap AI names may face a level of volatility they are no longer compensated for.
In that earlier piece, I argued that investors should not assume the Magnificent Seven will continue delivering the same low-volatility compounding they have exhibited for most of the last decade. High expectations, rising capex, valuation stretch, and narrow leadership all raise systemic risk.
I concluded by suggesting that it may be time to begin rotating—carefully and selectively—into the second tier of technology innovators. This paper is the next step.
Here, I propose a structured, theme-based 8-Bucket Second-Tier Mag Framework designed to reduce concentration risk and provide exposure to the next big tech winner. The greater diversification outlined here—achieved through the purchase of buckets of similar stocks—is essential because these companies are smaller, more volatile, and more sensitive to product cycles than the Mag 7. This approach increases the chance of capturing an early-stage compounding engine that becomes a market-defining company.
Before we dive into the details, here are the eight buckets:
1. AI Networking, Infrastructure & Architecture Hardware
2. Semiconductor Equipment (EUV/DUV)
3. AI Compute & Edge AI Chips
4. Cybersecurity + Secure Communications
5. Enterprise Software & Digital Productivity
6. Consumer Digital Media
7. Autonomous Systems, Drones & Defense AI
8. Mobility Networks
In total, this framework reviews 29 individual stocks across the eight buckets, including both core positions and optional names.
Below the paywall, readers receive a full breakdown of every stock in all eight buckets, including buy-now and limit-order guidance, along with preliminary percentage weights for each bucket and company. The section also explains why certain names are prioritized over others by providing valuation notes such as P/E ratios, price-to-sales metrics, and margin considerations, as well as clear reasoning for why specific stocks were excluded. For investors seeking exposure while waiting for limit orders, optional ETF alternatives such as SMH are discussed. Finally, the section offers practical guidance on risk management, portfolio balance, and volatility control to help readers apply the framework effectively.
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