Big Tech was the stand-out performer last year, as investors piled into the so-called “Magnificent Seven”: Alphabet , Amazon , Apple , Meta , Microsoft , Nvidia and Tesla . While tech’s potential — driven in large part by the hype around artificial intelligence — continues to put these stocks in the spotlight, one investment strategist says some lesser-known U.S. small caps are much more attractive plays right now. “The Magnificent Seven stocks generally are starting to run out of steam at this point because their valuations are getting pretty full at this point of time,” Morningstar’s Chief Markets Strategist David Sekera told CNBC Pro on Feb. 2. He said Morningstar expects market gains this year, but that “we are looking for the market to spread out, away from the Magnificent Seven.” “With the rate of economic growth slowing, but not necessarily going into a recession, and interest rates coming down slowly over the course of the year, I think that sets the year up pretty well for value stocks. And I think those same attributes will help the small-cap category as well,” Sekera added. The Russell 2000 , the benchmark for small-cap stocks, has had a tough start to the year so far, down around 3.5%. The S & P 500 , Dow and Nasdaq 100 , in comparison, have all hit new all-time highs. However, Sekera thinks things are looking up for small-caps and value stocks — the latter of which he says are trading at an 11% discount relative to Morningstar’s fair value and look like a “good area for investors to overweight in U.S. stocks right now.” Tech stocks The chief strategist remains bullish on tech, albeit outside of the Magnificent Seven, and named Cognizant Technology Solutions and Snowflake as picks to play the theme. Calling both companies “second-derivative AI plays,” Sekera likes them for their role in building out the AI systems that will potentially be used across sectors. Value in energy The energy sector — one of the laggards of the stock market last year — is also on Sekera’s radar. “We’re actually now starting to see values in the energy sector that we haven’t seen for quite some time,” he said, naming ExxonMobil and APA Corp as top picks. Morningstar gives stocks a rating of between one and five stars, with a top rating indicating that the shares are undervalued. It has a four-star rating on Exxon, given that it is trading at a 17% discount to fair value, has a dividend yield of 3.7%, and will resume its “very, very large” share buyback plan. Sekera described it as “the most undervalued of the global [oil] majors right now.” The company last week reported quarterly earnings that beat analysts’ expectations, but profit fell compared to a year before on lower oil prices. Fellow energy player APA also has a four-star rating from Morningstar. “Our analyst doesn’t think that the market right now is giving the company very much — or even any — credit towards a discovery in Suriname,” Sekera said, referencing an oil drilling project the company has embarked on with French energy major TotalEnergies . “This discovery — if it starts to get developed — could actually double APA’s production over the next 10 years. So, this is one stock I think is interesting from the hard catalyst perspective,” Sekera added. Go-to utilities picks Sekera said that utilities stocks in particular had fallen under the radar after getting “hammered last year as interest rates were rising.” He said the market traded down “way too much” on utilities, and “that overcorrected the utility sector too much to the downside.” “Right now, utilities are trading at about a 9% discount to fair value at a sector level,” he added, identifying Entergy Corp , WEC Energy and NiSource as his picks to play the sector. “Entergy has been our go-to stock in this space,” the strategist said, adding that the electricity firm has a four-star Morningstar rating, and is trading at a 17% discount. Another four-star rated stock, electric services player WEC Energy, has “some of the best-in-class management in the utility space,” Sekera said, adding that the company has above-average growth opportunities. As for NiSource, the strategist believes that the five-star-rated stock “has a very good runway of long-term growth, and is one of the leaders in the Midwest in the United States in growing its renewable energy portfolio.”