Midterm Report for the Magnificent Seven! AI Spending Continues, Market Closely Watches Microsoft, Amazon, and Meta's Capital Expenditure

The U.S. tech earnings season continues, but strong financial results don't always translate into stock price gains. After Tesla (TSLA-US), Intel (INTC-US), and Alphabet (GOOG-US) released their second-quarter earnings, their stock prices all declined—reflecting a market shift in focus from earnings per se to AI investment returns and capital expenditure levels. Next, the market's attention turns to the upcoming earnings reports from Microsoft (MSFT-US), Amazon (AMZN-US), and Meta Platforms (META-US), which are now the focal points.

Following Tesla's earnings release, its stock price fell to $306, the lowest since August 4, down 39% from its all-time high. Investors were disappointed by its earnings per share (EPS), which missed analyst expectations, and its free cash flow turning negative—factors that weighed on the stock.

Intel delivered strong results, yet its stock retreated to $92.32. The company reported second-quarter revenue of $16.1 billion, the fastest growth in 15 years, with EPS at 42 cents—well above the market's forecast of 21 cents—driven by rising demand for agentic AI. However, with the stock having already priced in much of the good news, profit-taking followed the earnings announcement.

Alphabet also saw a post-earnings pullback, with its stock dropping as low as $319—the lowest since April this year and a 21% correction from its annual peak. The main concern is the company's sharp increase in capital expenditure, with full-year capex now projected at $205 billion, raising investor doubts about the payback period and profitability of its AI investments.

Market focus now shifts to the upcoming earnings from Microsoft, Amazon, and Meta Platforms. Analysts expect Meta's Q2 revenue to reach $60 billion, up 26% year-on-year, with EPS forecast at $7.22. Microsoft's revenue is projected to grow 14.7% year-on-year to $87.67 billion, with EPS rising from $3.65 a year ago to $4.24. Amazon is expected to report revenue of $195.97 billion, up 17% year-on-year.

Analysts broadly expect these three companies to deliver solid revenue and profit performance and possibly raise their quarterly and full-year guidance. However, the market believes the true driver of stock prices remains their AI-related capital expenditure plans.

Currently, Microsoft forecasts full-year capex of $190 billion, Meta plans $145 billion, and Amazon expects to spend $200 billion. If any of these companies further raise their spending outlook, it could deepen market concerns over AI investment returns and pressure their stock prices.

Meta Platforms, in particular, is under special scrutiny. According to a recent Bloomberg report, the company is evaluating the sale of excess computing capacity from its idle data centers to other enterprises, potentially generating billions in new revenue. The market expects CEO Mark Zuckerberg to elaborate on this strategy during the earnings call. If the business model becomes concrete, it could serve as a new catalyst for the stock.

Derivatives markets also signal that investors anticipate significant volatility post-earnings. Options data estimates that at-the-money straddles expiring July 31 imply expected stock moves of approximately 8% for Microsoft, 6.4% for Amazon, and 7.9% for Meta. Notably, in six of the past eight earnings reports, Meta's actual stock movement exceeded the range implied by options markets—indicating its earnings often deliver more volatility than anticipated.