Big tech earnings land with AI winners still In question

Core Viewpoint - The performance of the Magnificent Seven tech giants has been mixed, with five out of seven members' shares declining since reaching a record high on October 29, while Alphabet and Amazon.com are the only stocks showing gains during this period [1][17]. Group 1: Performance of Magnificent Seven - An index tracking the Magnificent Seven closed at a record on October 29, but since then, five of the seven members have seen their shares decline, trailing the S&P 500 Index [1][17]. - Alphabet has increased nearly 20% since the record high, while Amazon.com is also in the green [1][17]. - In contrast, stocks like Sandisk Corp. have surged over 130%, Micron Technology Inc. has risen 76%, and Western Digital Corp. has gained 67% since the index peak [3][17]. Group 2: Earnings Expectations - The Magnificent Seven are expected to report a 20% profit growth for the fourth quarter, which would be the slowest growth rate since early 2023 [7][17]. - Microsoft, Meta Platforms, and Tesla are set to report earnings soon, with Alphabet and Nvidia following in early February [6][17]. - Investors are looking for signs that the significant capital expenditures made by these companies are beginning to yield returns [10][11]. Group 3: Capital Expenditures and Growth - Microsoft, Amazon, Alphabet, and Meta are projected to spend approximately $475 billion on capital expenditures by 2026, up from $230 billion in 2024 [10][17]. - Azure revenue for Microsoft rose 39% in the fiscal first quarter, driven by demand for AI services, with expectations of 36% growth in the next quarter [10][17]. - Companies are under pressure to meet growth targets, as failure to do so could lead to significant stock price declines [11][17]. Group 4: Market Position and Valuation - The Magnificent Seven represent eight of the nine largest weights in the S&P 500, accounting for over a third of the index [11][17]. - The earnings growth for companies outside the Magnificent Seven is projected at only 8% for the fourth quarter, significantly lower than the expected growth for Big Tech [12][17]. - The Magnificent Seven index is trading at 28 times expected profits over the next 12 months, which is in line with its average over the past decade [12][17].