Breaking Down Mag 7 Earnings: Good or Bad?

Core Insights - Amazon (AMZN) missed EPS estimates in its December-quarter report, but the business is performing well overall [1] - The market's negative reaction was primarily due to Amazon's significant capital spending plans for 2026, which raised concerns about the broader AI landscape and its potential impact on legacy technology earnings [1][2] Capital Expenditure Plans - Amazon plans to increase its capital expenditures to $200 billion in 2026, up from $132 billion in 2025 and $83 billion in 2024 [2] - This substantial increase in spending has led to concerns that 2026 capex may exceed operating cash flows, which modestly surpassed $132 billion in 2025 [2][3] Business Performance - Amazon's core businesses are thriving, particularly its cloud unit, Amazon Web Services (AWS), which saw a revenue increase of 24% in Q4 2025 compared to the previous year [4] - AWS backlog grew by 40% year-over-year to $244 billion, indicating strong demand [4] - In comparison, Google Cloud's revenue increased by 48% in Q4 2025, highlighting competitive momentum in the cloud sector [4] Market Context - Amazon shares have declined by 8.8% over the past year, underperforming the broader market's 15.8% gain and Alphabet's 74.1% rise [3] - The Magnificent 7 group, which includes Amazon, is projected to account for 26.6% of all S&P 500 earnings in 2026 and 33.5% of the index's market capitalization [9]