(Bloomberg) — Investors have made a pile of money recently by focusing on niche stocks in the AI trade. Earnings from some of the world’s biggest technology companies this week will offer an indication of whether they should stick to that strategy in 2026.
The Magnificent Seven tech giants — Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms Inc., Microsoft Corp., Nvidia Corp. and Tesla Inc. — have led the stock market higher for much of the past three years. But that reversed at the end of 2025 as Wall Street grew skeptical of the hundreds of billions of dollars the companies are spending to develop artificial intelligence and when the returns on those investments will materialize.
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An index tracking the group closed at a record on Oct. 29, and since then the shares of five of the seven members are down and trailing the S&P 500 Index. Alphabet, which has soared almost 20% during that stretch, and Amazon.com are the only stocks in the green.
In response, traders have been piling into the recipients of Big Tech’s largesse. Memory and storage maker Sandisk Corp. is up more than 130% since the Magnificent Seven index hit an all-time high and then retreated, while Micron Technology Inc. has jumped 76% and Western Digital Corp. has gained gained 67% in that time. Power producers and generator makers have also advanced, and even materials companies are outperforming on expectations for accelerating economic growth and the appeal of cheaper valuations.
“Tech has become more of a show-me story,” said Darrell Cronk, chief investment officer, wealth and investment management at Wells Fargo, which manages $2.3 trillion. “If Big Tech can continue to deliver, I think capital will start flowing in tech’s direction again.”
Microsoft, Meta Platforms and Tesla report earnings on Wednesday, followed by Apple on Thursday. Alphabet, by far the best performer among the Magnificent Seven last year, reports on Feb. 4, while number two Nvidia’s results land on Feb. 25. Amazon.com reports on Feb. 5.
The results will offer a glimpse into the health of industries ranging from cloud computing and electronic devices to software and digital advertising. The group is expected to post 20% profit growth for the fourth quarter, which would be the slowest pace since early 2023, according to data compiled by Bloomberg Intelligence. So the companies are under pressure to show that the vast sums they’ve committed to capital expenditures are starting to pay off in a bigger way.
“We’re no longer in an environment where companies can beat by 1% to 2% and continue spending on capex and get rewarded,” said Chris Maxey, managing director and chief market strategist at Wealthspire, which has $580 billion in assets. “They need to show they’re accelerating growth and beating the bar by a pretty evident edge.”
Performance or Punishment
AI growth is most visible in cloud businesses like Microsoft’s Azure, which rents out computing power and is benefiting from a surge in demand from corporate customers who are training AI models and running services. In Microsoft’s fiscal first quarter, which ended in September, Azure revenue rose 39% as demand continued to outstrip supply. Wall Street is expecting 36% growth for Azure in Microsoft’s fiscal second quarter.
Adding computing capacity isn’t cheap. Microsoft, Amazon, Alphabet and Meta are expected to spend roughly $475 billion in capital expenditures in 2026, up from $230 billion in 2024. Not surprisingly, investors want to start seeing a return on those investments. Without it, companies risk getting punished, according to Clayton Allison, portfolio manager at Prime Capital Financial.
“If they don’t hit their growth targets, they’re going to get hit hard,” said Allison, whose firm has $40 billion in assets under management. “If we do start to see an ROI, increased profitability despite increased capex, that would start to massage some of these fears.”
Investors got a sense of what punishment looks like on Oct. 29, when Meta Platforms projected “notably larger” capital expenditures in 2026 with no details on how the spending will lead to profits. The stock dropped 11% the following day and remains down 17% from an August peak. Facebook’s parent’s fourth-quarter earnings per share is expected to rise less than 2% from a year ago to $8.16, while revenue is projected to jump 21%, according to analyst estimates compiled by Bloomberg.
Of course, it’s very hard for investors to avoid the tech giants even if they want to, considering their massive position in the S&P 500. Counting Alphabet’s dual shares, the group represents eight of the nine largest weights in the index and more than a third of it combined.
Besides, it’s doubtful that many shareholders would want to escape the group anyway considering its ability to generate profits at a faster clip than the rest of the market. The 493 companies in the S&P 500 that aren’t in the Magnificent Seven are projected to deliver earnings growth of just 8% in the fourth quarter, according to Bloomberg Intelligence, which is significantly slower than what’s expected from Big Tech.
In addition, the stocks aren’t historically expensive. The Magnificent Seven index is trading at 28 times profits expected over the next 12 months, below previous peaks and roughly in line with its average over the past decade, according to data compiled by Bloomberg. Nvidia shares, for example, have soared 1,184% since the end of 2022, yet they’re priced at 24 times anticipated profits, slightly above the S&P 500’s multiple of 22.
All that being said, investors are waiting for these stocks to snap out of their slumber. To do that, the companies need to deliver on growth before long.
“I don’t know that this is the quarter when those questions have to be answered,” said Wells Fargo’s Cronk. “But the market will look at this earnings season as an important progress milestone.”
