Magnificent Seven Earnings Kick Off

As the second-quarter earnings season gains momentum, all eyes are once again on the so-called "Magnificent Seven" stocks: Microsoft, Apple, Nvidia, Amazon, Alphabet, Meta Platforms, and Tesla. Earnings results for the group is expected to significantly influence the broader market trends due to their combined $13.5 trillion market cap. While many of the tech giants staged a recovery in recent months following a volatile start to 2025, their individual performances have started to diverge.

Investor sentiment was shaken earlier in the year by the unexpected debut of DeepSeek’s cost-efficient artificial intelligence (AI) model in January. Its emergence sparked fresh scrutiny over the scale of AI-related capital expenditure by leading U.S. technology firms and introduced new questions around the sustainability of their dominant positioning in the space.

These concerns loomed large heading into the first quarter earnings season, compounding already elevated investor expectations for both performance and forward guidance from the group.

Adding to the uncertainty, President Donald Trump’s announcement of sweeping new tariffs on the 2nd of April, sent ripples through the Magnificent Seven and global markets alike. While these measures initially unsettled investors, the subsequent 90-day pause and extension of the negotiation window until the 1st of August provided a welcome reprieve. Signs of diplomatic progress have since helped restore confidence, prompting a renewed rotation back into tech stocks.

Despite a rebound across the group, tariff policy remains an overhang as the second half of the year begins. Market participants remain cautious, aware that further geopolitical developments could have material implications for supply chains, margins, and guidance.

While these mega-cap technology companies continue to dominate market sentiment and drive index performance, in 2025, the once-unified narrative around these firms is fragmenting. The group is now defined less by synchronized gains and more by divergent fundamentals. Tesla and Apple are showing signs of weakness, with year-to-date declines of approximately 20% and 15%, respectively. The best performers are Nvidia, Meta and Microsoft, all scoring double digit gains year-to-date.

In Q2 Tesla stands out as the weakest performer, reporting its biggest decline in quarterly revenue in more than a decade and is likely to have the lowest earnings per share among peers. Apple is expected to report muted growth, reflecting headwinds in consumer tech and sluggish demand from China. On the other hand, Alphabet and Amazon appear best positioned with solid fundamentals and attractive valuations, offering the most compelling value-for-risk profile heading into earnings.

Microsoft and Meta are expected to post strong results, driven by continued AI momentum, though both are considered overvalued based on current metrics. Despite these challenges, investor focus remains heavily skewed toward developments in AI, with new guidance, partnerships, or product announcements likely to trigger significant stock moves.

Source: TradingView

Big Tech Earnings Kick Off with Tesla and Alphabet

Tesla and Alphabet have led the Big Tech reporting season, both releasing earnings on Wednesday, the 23rd of July. Tesla reported a 16% decline in automotive revenue as sales fell for a second straight quarter. Adjusted earnings per share came at $0.40, revenue at $22.5 billion, both below expectations.

Alphabet delivered strong earnings beat for the second quarter, reporting $96.43 billion in revenue versus expectations of $94 billion, driven by robust growth in its Google Cloud segment, which surged nearly 32%, well ahead of the 26.5% forecast. On the back of this performance and growing demand for its AI-powered services, Alphabet raised its 2025 capital spending target to approximately $85 billion, up from $75 billion, signalling an aggressive push to expand its AI and cloud infrastructure.  

Meta and Microsoft are scheduled to report on the 30th of July, both showcasing strong financial health. However, their elevated valuations could cap near-term upside potential. Apple and Amazon follow on the 31st of July, with Amazon standing out as the only one offering a compelling combination of quality fundamentals and attractive valuation. Nvidia will round out the Big Tech earnings season on the 27th of August.

Further acceleration in Nvidia’s revenue and earnings per share is likely, creating a compelling risk-reward setup for the quarter. Meanwhile, Nvidia is expected to receive export licenses to continue shipments to China at levels consistent with previous thresholds. While near-term expectations should remain measured, such development is a meaningful long-term positive.

AI Infrastructure Spending Remains a Primary Catalyst

During the first half of 2025, there were growing signs that major tech players might moderate their AI-related investments. The emergence of China’s DeepSeek and its highly efficient AI reasoning model raised doubts over the need for further large-scale computing buildouts. Meanwhile, President Trump’s sweeping tariffs fuelled fears of stagflation and a pullback in both consumer and business spending.

Despite these challenges, the hyperscalers have reaffirmed their commitment to aggressively expanding AI infrastructure. Microsoft, Amazon, Alphabet, and Meta have all indicated that demand for their cloud and AI services continues to outpace available capacity, prompting them to maintain ambitious capital expenditure plans.

Collectively, these four companies are projected to invest over $300 billion in infrastructure this year, with a significant portion allocated to data centres and high-performance computing equipment essential for training and deploying advanced AI models. This spending boom is set to benefit Nvidia, which remain central to the AI hardware stack.

Consumer-Facing Tech Under Pressure

Consumer technology appears increasingly fragile. Apple has been hit by declining iPhone sales in China, where shipments dropped 9% year-over-year in the first quarter. The company remains the only top five smartphone vendor to post a contraction in China.  

Tesla faces similar challenges. Its automotive gross margins have eroded, as aggressive pricing strategies persist amid intensifying global competition. Both companies will be tasked with defending their volume outlooks and cost structures amid slowing discretionary spending and geopolitical headwinds.

Outlook for the Second Half of 2025

This earnings season could turn out to be an inflection point for the Magnificent Seven. The group’s collective dominance remains intact, but the underlying narratives are diverging. While enterprise demand and AI infrastructure investment continue to support companies like Microsoft, Nvidia, Amazon, and Meta, Apple and Tesla are going through soft consumer demand, margin pressure, and geopolitical complications.

The second half of 2025 will likely be defined by this divergence. Investors will be evaluating whether the Magnificent Seven can continue to outperform, or whether the leadership baton will begin to pass to a broader group of beneficiaries across the tech and industrial ecosystem.

The group of tech giants is likely to continue to benefit from their size, strong balance sheets, and early-mover advantage in AI, but their earnings growth relative to other leading companies may slow and investors may start to look to other stocks in search of gains. According to FactSet, by the first quarter of 2026, earnings growth for the rest of the S&P 500 could match that of the tech giants.

Investors are no longer satisfied with just strong revenue beats. They are also seeking visibility into margin durability, capital discipline, and future AI monetization. As a result, commentary during earnings calls will carry significant weight in influencing both short-term price action and longer-term positioning.

Alphabet, Amazon, Meta, Microsoft, and Nvidia are in good financial health, while Apple and Tesla lag behind. From a valuation perspective, only Alphabet and Amazon are trading at or below fair value, while Tesla, Meta, Microsoft, Nvidia and Apple are seen as overvalued.

As the earnings season unfolds, the market will likely reward firms effectively integrating AI while punishing those with weak growth outlooks and overextended valuations.

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