Investors have recently reaped significant gains by focusing on niche stocks within the artificial intelligence sector. This week, financial results from some of the world's largest technology companies could provide a crucial basis for investors to decide whether to continue employing this strategy into 2026. Over the past three years, the "Tech Giants"—Alphabet Inc. (GOOGL.US), Amazon.com Inc. (AMZN.US), Apple Inc. (AAPL.US), Meta Platforms Inc. (META.US), Microsoft Corp. (MSFT.US), NVIDIA Corp. (NVDA.US), and Tesla Inc. (TSLA.US)—have largely driven the stock market's upward trajectory. However, this trend reversed by the end of 2025, as Wall Street grew increasingly skeptical about the hundreds of billions of dollars these companies are pouring into AI development and when these investments might yield returns. An index tracking the group closed at a record high on October 29, 2025; since then, five of the seven member companies have seen their stock prices decline, underperforming the S&P 500 index. During this period, Alphabet's stock price surged nearly 20%, and Amazon also recorded gains, making them the only winners in the group.

Consequently, traders have been flocking to companies that are receiving substantial financial backing from the tech giants. Since the "Tech Giants" index retreated from its historic peak, the stock price of memory chip maker Sandisk Corp (SNDK.US) has soared over 130%, Micron Technology Inc. (MU.US) has climbed 76%, and Western Digital Corp. (WDC.US) has advanced 67%. Stock prices for power producers and generator manufacturers have also risen, and even materials companies have outperformed, buoyed by expectations of accelerated economic growth and the appeal of lower valuations. "Tech stocks have entered a phase where they must be justified by their actual performance," stated Darrell Cronk, Chief Investment Officer for Wells Fargo Wealth & Investment Management, which oversees $2.3 trillion in assets. "If the large tech companies can continue to deliver satisfactory results, I believe capital will flow back into tech stocks."

Microsoft, Meta Platforms, and Tesla are scheduled to report their earnings on Wednesday, with Apple following on Thursday. Alphabet, last year's top performer among the "Tech Giants," will report on February 4th, the second-best performer, NVIDIA, is set for February 25th, and Amazon is scheduled for February 5th. These results will offer a glimpse into the health of numerous industries, ranging from cloud computing and electronic devices to software and digital advertising. Data indicates the group is projected to see a 20% profit growth for the fourth quarter, which would be the slowest pace since early 2023. As a result, these companies are under pressure to demonstrate that their promised massive capital expenditures are beginning to yield more significant returns. "We are no longer in an environment where companies can outperform by just 1% to 2%, continue investing in capex, and still get rewarded," said Chris Maxey, Managing Director and Chief Market Strategist at Wealthspire Advisors, which manages $580 billion in assets. "They need to prove they are accelerating growth and surpassing expectations by a fairly noticeable margin."

The growth attributable to AI is most evident in cloud businesses like Microsoft's Azure, which rents out computing power and is benefiting from a surge in demand from corporate clients for training AI models and running services. In Microsoft's first fiscal quarter ending in September, Azure revenue grew 39%, with demand consistently outstripping supply. Wall Street anticipates Azure revenue will grow 36% in the second fiscal quarter. Expanding computing capacity is costly. Microsoft, Amazon, Alphabet, and Meta are projected to have capital expenditures of approximately $475 billion in 2026, compared to $230 billion in 2024. Unsurprisingly, investors are eager to start seeing returns on these investments. According to Clayton Allison, a portfolio manager at Prime Capital Financial, which manages $40 billion, failure to deliver could result in punishment. "If they miss their growth targets, they will be hit hard," Allison stated. "If we start to see returns on investment rise, and profitability improve even as capital expenditures increase, that would help alleviate some of the concerns."

Investors got a taste of this punishment on October 29, 2025. On that day, Meta Platforms forecasted that its 2026 capital expenditures would "increase significantly" but did not clarify how this spending would lead to profits. The following day, its stock price fell 11% and remains down 17% from its August peak. Analyst forecasts predict the Facebook parent company's fourth-quarter earnings per share will grow less than 2% year-over-year to $8.16, with revenue expected to increase by 21%. Of course, even if investors wanted to avoid the tech giants, it would be difficult because of their substantial weighting in the S&P 500 index. Including Alphabet's dual-class share structure, the group occupies eight of the nine largest weightings in the index, collectively accounting for over one-third of it. Furthermore, given that the group's profitability far exceeds the rest of the market, many shareholders may not want to divest at all. Excluding the "Tech Giants," the remaining 493 companies in the S&P 500 are projected to achieve a mere 8% earnings growth for the fourth quarter, significantly lower than the expectations for the large tech firms.

Additionally, these stocks are not historically expensive. Data shows the Tech Giants index trades at a forward price-to-earnings ratio of 28, below previous peaks and roughly in line with its average over the past decade. For instance, while NVIDIA's stock price has skyrocketed 1,184% since the end of 2022, its forward P/E ratio is 24, only slightly above the S&P 500's ratio of 22. That said, investors are still waiting for these stocks to break out of their slump. To achieve this, the companies need to deliver on their growth promises sooner rather than later. "I'm not sure this quarter is the moment when all those questions must be answered," said Wells Fargo's Cronk. "But the market will view this earnings season as a significant milestone for progress."