Magnificent Seven Face Earnings Reckoning This Week
Meta, Microsoft, Tesla and Apple report Q4 results. AI capex scrutiny intensifies as $600B hyperscaler spending looms over valuations.
Four of the Magnificent Seven report earnings this week, and investors want answers about AI spending.
Meta Platforms, Microsoft, and Tesla release results Wednesday after the close. Apple follows Thursday. Together, these four companies represent roughly $10 trillion in market cap—and the next 48 hours of trading could determine whether that valuation holds.
The Setup
The Magnificent Seven have underperformed since the start of 2026.
Meta and Microsoft have been particularly weak, with Meta down 17% from its 52-week high and Microsoft off 16%. Apple has shed 14% from its December peak. Tesla is 10% below its high. The group that carried the market for two years is suddenly dragging on it.
The weakness isn't about earnings—analysts expect the Mag 7 to post 20.3% year-over-year profit growth for Q4. It's about whether that growth justifies the capital being poured into AI infrastructure.
Microsoft: Azure Under the Microscope
Microsoft reports Wednesday with expectations of $3.88 EPS on $80.2 billion revenue—up 20% and 15% respectively from last year.
The numbers matter less than the Azure commentary. Microsoft's cloud unit has been the clearest beneficiary of enterprise AI adoption, but growth has decelerated from 30%+ to the mid-20s. Traders want to know whether that's a demand problem or a capacity constraint.
Capacity would be bullish—it means customers want more than Microsoft can supply. Demand would be bearish—it suggests AI enthusiasm is cooling.
Microsoft's Rho-alpha robotics announcement last week showed the company expanding its AI footprint beyond cloud. But physical AI is years from material revenue. Azure is what drives the stock.
Meta: Cheapest of the Bunch
Meta enters earnings week trading at roughly 21x forward earnings—the lowest multiple among mega-cap tech peers.
The Street expects $8.15 EPS on $58.4 billion revenue, with earnings essentially flat year-over-year but sales up 21%. That revenue-to-earnings disconnect reflects Meta's aggressive AI spending. The company has telegraphed that 2026 capex will increase substantially as it builds out AI infrastructure.
Investors gave Meta a pass on AI spending through 2025. The question is whether that patience extends into 2026. Meta's Reality Labs division continues burning cash, and the Metaverse thesis that justified those losses has faded from investor attention.
What could move the stock: any signal that AI monetization is accelerating through improved ad targeting or new revenue streams.
Tesla: 40% Earnings Drop Expected
Tesla reports the ugliest expected numbers of the group.
Analysts forecast a 40% year-over-year earnings decline as margin pressure continues. The Q4 delivery numbers missed expectations, marking Tesla's second consecutive annual decline in vehicle deliveries. Price cuts that began in 2023 are still compressing profitability.
The bull case rests entirely on autonomous driving and the robotaxi business. Elon Musk has promised that self-driving technology will transform Tesla's economics, but the recent shift to subscription-only FSD suggests the transition isn't happening as quickly as bulls hoped.
Tesla earnings have beaten Street estimates just once in five quarters, according to Bespoke. But the stock has risen after four of those releases anyway—a dynamic that makes the setup hard to trade.
Apple: Services Over Hardware
Apple closes out the week Thursday with expectations of $2.67 EPS on $138.4 billion revenue.
The iPhone cycle remains the swing factor. Holiday quarter typically delivers Apple's strongest iPhone sales, and any weakness in China or tepid demand for iPhone 17 features would rattle investors.
More interesting might be Services. Apple's higher-margin revenue stream—App Store, iCloud, Apple Music, Apple TV+—has become the growth engine as hardware sales mature. Services now generates over $25 billion quarterly. If that number accelerates, it could offset hardware concerns.
The Raymond James downgrade that opened 2026 cited stretched valuation and priced-in iPhone strength. Apple trades at 29x forward earnings—not cheap for a company growing revenue at 11%.
The AI Capex Question
Across all four companies, the common thread is AI capital expenditure.
Hyperscaler capex for 2026 is forecast to exceed $600 billion, driven primarily by AI infrastructure. That spending benefits Nvidia and semiconductor suppliers, but it pressures the margins of the companies doing the spending.
Investors have tolerated massive AI investment because they believe it will generate returns. But 2026 marks a shift in expectations. The question is no longer whether AI is real—it's whether these companies can turn AI infrastructure into bottom-line profits before investors lose patience.
Microsoft, Amazon, Alphabet, and Meta will face the most direct questions about AI spending. Each needs to articulate how current investments translate into future earnings power.
Trading Considerations
Options markets are pricing significant moves. Implied volatility is elevated across all four names, with straddles suggesting 5-7% moves post-earnings.
For traders, the sequencing matters. Microsoft and Tesla report the same day—their results could set the tone for Apple Thursday. A Microsoft beat might lift the entire group; a Tesla miss might not matter if Microsoft delivers.
The broader market context adds complexity. The S&P 500 fell 0.5% this week, dragged by Intel's 17% collapse and Goldman Sachs weakness. Risk appetite is more fragile than it was a month ago.
Next week will reveal whether the Magnificent Seven can reclaim their leadership role—or whether 2026 belongs to a broader market.