The earnings season for the tech giants known as the "Mag 7" commences on Wednesday, with Microsoft, Meta, and Tesla reporting after the market close, followed by Apple on Thursday; the combined market capitalization of these four companies reaches $10.5 trillion. Rich Prvorotsky, Head of Goldman Sachs' Delta One department, recently stated that this earnings season ultimately revolves around one core question: "Who is cutting spending, and who is increasing it."

Market expectations point to a 20% profit growth for the "Mag 7" in the fourth quarter, which would be the slowest pace since early 2023. Against this backdrop, these companies are under pressure to demonstrate that their promised massive capital expenditures are generating returns in a more significant way. Investor focus on capital expenditure guidance is at an unprecedented high, as this data will directly influence market judgments on the return cycle for AI investments.

One-third of the S&P 500 constituents, by market value, are scheduled to report earnings this week. According to Bloomberg-compiled data, nearly 80% of S&P 500 companies that have reported so far have exceeded analyst expectations. Ulrike Hoffmann-Burchardi of UBS Global Wealth Management said, "We expect strong earnings from tech stocks, but also anticipate that profit growth will broaden out across sectors."

Despite solid earnings, Chris Senyek of Wolfe Research pointed out that companies beating both revenue and profit estimates have seen their stock prices react negatively post-earnings. "In other words, double beats are being punished for solid results," he stated, adding, "We do not believe this trend is sustainable through the earnings season."

Capital expenditures have become the central focus. Morgan Stanley's expectations for various companies' 2026 capital expenditures indicate that tech giants are embarking on an unprecedented investment expansion.

Meta is expected to announce 2026 capital expenditure guidance of approximately $120 billion, with management previously stating that 2026 will be "meaningfully larger" than the $70-$72 billion guidance for 2025. Morgan Stanley analysts noted that Meta's off-balance-sheet leases with companies like Google, CoreWeave, and NBIS equate to an additional ~$50 billion in incremental capital expenditures, theoretically bringing the total to $170 billion.

Recent comments from Microsoft indicate that capital expenditure growth for fiscal year 2026 (ending June) will accelerate compared to fiscal 2025 (over 58%), with Morgan Stanley and market consensus expecting over $140 billion. Guidance for the current quarter suggests capital expenditures will increase sequentially, implying a figure exceeding $35 billion.

Google's expected 2026 capital expenditure is around $135 billion, but given the growth momentum in Google Cloud and the TPU business, it could reach as high as $150 billion. This represents a significant increase from the $91-$93 billion guidance for 2025, with management having already indicated further increases in 2026.

Amazon's capital expenditures are the most opaque, as it does not separate AWS infrastructure spending from its retail business. Morgan Stanley expects infrastructure capital expenditures of $140 billion for 2026, with total capital expenditures at $175 billion, compared to the $125 billion guidance for 2025.

Microsoft: Stuck Between SaaS and OpenAI. JPMorgan analyst Mark Schilsky pointed out that, from an investor's perspective, Microsoft is currently "stuck between SaaS and OpenAI." The only way out is to significantly accelerate Azure growth into the low-to-mid 40% range.

The market expects Microsoft's second fiscal quarter Azure constant-currency revenue growth to be approximately 39%, two percentage points above management's guidance of 37%. If Azure achieves 40% growth this quarter, it would be sufficient to drive the stock price higher. For the third fiscal quarter guidance, investors hope to see around 38% constant-currency growth, suggesting an acceleration in pace.

Schilsky emphasized that the market widely perceives OpenAI as losing ground to Google, and OpenAI needs to prove investors wrong by launching GPT-6. Despite the subdued sentiment across the overall SaaS/software sector, investors will focus on companies showing accelerating revenue growth.

Notably, based on 2026 Bloomberg consensus EPS estimates, Microsoft (at ~26.5x) trades at a lower valuation than Google (~29.5x).

Meta: Cautious Investor Sentiment. Investor sentiment towards Meta has noticeably deteriorated since the Q3 earnings report, when Mark Zuckerberg clearly stated the intention to continue significantly increasing both operating expenses and capital expenditures. To date, investors have seen little tangible evidence that Meta's FAIR lab can produce leading models.

JPMorgan analyst Doug Anmuth stated that investor sentiment is "cautious," with concerns about 2026 expenses/capital expenditures and the AI strategy, despite revenue growth consistently exceeding expectations. The firm expects 2026 capital expenditures of $115 billion (up 61% year-over-year) and GAAP operating expenses of $153 billion (up 30% YoY).

The most critical KPI for Q4 is revenue, with investors expecting around $60 billion (up 24% YoY), slightly above the high end of the $56-$59 billion guidance range. Regarding 2026 operating expense guidance, investors generally believe the Street's expectation of ~$150 billion (up 28% YoY) is too low, anticipating a figure above $155 billion.

Investors want to see some assurance that 2026 operating profit will grow year-over-year. Flat or slightly down figures are unacceptable. Based on recent investor conversations, most buy-side expectations for 2026/2027 GAAP EPS are around $30/$35, compared to Street estimates of $30/$33.50.

Tesla: Musk's Show. Morgan Stanley believes the dispersion of financial KPIs for Tesla's Q4 earnings and 2026 expectations is particularly wide. The stock price reaction will depend on incremental updates regarding the scaling of Robotaxi/Cybercab, the launch of unsupervised FSD, Optimus Gen 3, and AI5.

The firm's 2026 delivery expectation is 1.6 million vehicles (down 2.5% YoY), 9% below market consensus. It forecasts Q4 auto gross margin (ex-regulatory credits) at 14.2%, below the consensus of 14.8%. 2026 free cash flow is projected to be -$1.5 billion, compared to the consensus of +$3.1 billion.

Key points to watch include: the public launch timeline for the Texas Robotaxi, the rollout path for unsupervised FSD, progress on the AI5 chip design, and the initial release date for the Optimus Gen 3 robot (the company previously pointed to Feb/Mar 2026). Tesla's decision to remove Robotaxi safety drivers in Austin might signal the imminent launch of personal unsupervised FSD.

Amazon & Google: Cloud Growth is Key. Amazon remains the most frustrating stock for internet investors. Despite underperforming in recent months (and years), it remains a crowded long position. Investors are betting on: significant acceleration in AWS revenue growth, partly thanks to Anthropic's continued rapid growth; and the stock's cheap valuation, trading at historically low levels on a GAAP P/E basis.

The most important KPI for Q4 is AWS revenue growth. The Street expects approximately 21% year-over-year growth, while most investors anticipate a range of 22%-23%, with specific targets around 22.5%-23.0%. Investors expect AWS growth to continue accelerating into Q1 and Q2. Some Amazon bulls believe AWS revenue growth could approach 30% by year-end.

For Google, investors expect Search revenue growth of 15%-16% YoY (including ~1 point of FX tailwind), above the Street's expectation of 13.5%. Google Cloud revenue is expected to grow 38%-40% YoY, above the Street's 35%, and needs to show significant acceleration in Q1.

JPMorgan analyst Schilsky warned that Google is transitioning from a "quality stock" into the realm of a "lazy long." Buy-side expectations for 2027 EPS are not significantly above the Street's, with investors betting more on continued multiple expansion rather than substantive earnings beats. Notably, Google currently trades at a higher 2026 GAAP P/E than Microsoft, Amazon, and Meta.