Microsoft, Meta, Amazon and Apple report results this week in an environment where investors no longer reward just spending on AI, but demand concrete returns. The market punished Alphabet and Tesla after announcing large investments without immediate profits.
The earnings season on Wall Street reaches its peak this week. A total of 177 companies in the S&P 500 will publish their accounts, including four of the Magnificent Seven: Microsoft, Meta, Amazon, and Apple. The market is no longer satisfied with promises: it demands that artificial intelligence begins to translate into real profits.
So far, the results of the index have been exceptional. The aggregate growth of profits reaches 37.9%, the highest rate since the third quarter of 2021. Net margins are at historic highs and most companies exceed consensus forecasts. However, the focus has shifted from spending to profitability.
Alphabet, Google's parent company, has been the main protagonist, explaining 92% of the expected profit growth improvement for the S&P 500 on its own. But a significant part of that increase comes from extraordinary gains from the revaluation of investments like SpaceX or Anthropic, not from operational business. Without that contribution, the expected growth would be 25.9%, a still solid but less spectacular figure.
Despite exceeding forecasts, the market punished Alphabet. Its shares fell 7.1% on Thursday after the company raised its capital expenditure forecast for 2026 to between $195 billion and $205 billion. A similar situation occurred with Tesla, which plummeted 14.5% after reporting lower profits.
Experts at Neuberger believe that the recent volatility in the sector should not be interpreted as the end of the artificial intelligence cycle, but as a correction caused by extremely high expectations. The bar for surprising the market has been raised extraordinarily.
From XTB, they point out that the upcoming results from Microsoft, Meta, Amazon, and Apple will be particularly relevant. After several years rewarding practically any increase in AI spending, investors are beginning to demand proof that record investments in data centres, chips, and infrastructure translate into higher revenues, profits, and cash generation.
Attention will be particularly focused on Microsoft and Meta, two of the companies that have bet the most on accelerating their artificial intelligence capabilities. In Microsoft's case, investors will look for signs regarding Azure and the ability to monetise its partnership with OpenAI. Meta will need to demonstrate that its massive investment effort in infrastructure can improve its advertising revenues and new AI-based services.
For investors, the message is clear: the next phase of the cycle will no longer depend on who invests the most, but on who can demonstrate a greater return on those investments. Companies that fail to do so could suffer corrections, as has already been seen with Alphabet and Tesla.
This week will be key to determining whether the current valuations of the Magnificent Seven are justified. If the results do not convince, significant adjustments in the market could occur.
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