Q1 Tech Earnings Preview: Cloud, AI, War in Focus

If the "Mag 7" are now the "Lag 7," as some market observers say, that raises a question: How much do their earnings still influence general action on Wall Street?

The answer might emerge this week when five of the Magnificent 7 firms report quarterly results, beginning Wednesday afternoon with Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), and Meta (META), followed by Apple (AAPL) on Thursday.

Tesla (TSLA) has already reported, and Nvidia (NVDA) won't share results until late May. This puts focus squarely on the technology side of the Magnificent 7 companies—including cloud devices, AI, and other businesses—while leaving out the world's biggest chip maker, Nvidia. That said, Amazon's retail component, Meta's social media metrics, and the ad spending climate for Meta and Alphabet still represent significant parts of their businesses and will factor into their results and guidance.

In the first quarter, the Mag 7 generally lagged the broader S&P 500^® Index, hurt by concerns about heavy AI spending and its impact on free cash flow. Fears that AI competition could hurt demand for legacy software also posed a headwind that hasn't stopped blowing despite the arrival of spring flowers.

Apple's struggles to improve its Siri technology also appeared to continue, though its earnings report could provide an update, and Meta shares dove in late March after a jury found the company liable in a social media addiction trial.

Another issue that may come up for the Mag 7 this earnings season is the Middle East conflict. Though investors may not immediately associate these companies with oil prices, chips require helium to manufacture, and the war is restricting supply of that key component. This could exacerbate rising chip prices already in place due to memory-chip shortages. In addition, the Mag 7 names with major retail and manufacturing operations—like Apple and Amazon—depend quite a bit on low energy prices for both manufacturing and shipping.

Earnings give these five firms a chance to make their case that AI spending is justified, cloud growth is trending the right way, social media won't be muzzled, and consumers remain excited to snatch up the next device Apple releases. Even so, shares of all seven fight a growing reputation for disappointing performance following recent earnings reports.

Last time out, six of the seven reported during the weeks of January 19 and February 2, 2026. Combined, they fell about 3% between the day before that stretch and the day after. Last autumn, the combined seven stocks initially surged on earnings, only to backtrack nearly 7% over the following few weeks.

"One reason we're seeing recent underperformance on the part of a cohort like the Mag 7 is not that their earnings growth rate is now subpar to the rest of the S&P 500, but the earnings growth rate has been decelerating from more than 60% annual growth a year and a half to two years ago, down to more like 20%," said Liz Ann Sonders, chief investment strategist at the Schwab Center for Financial Research (SCFR), in a recent podcast. "The rest of the market has actually been accelerating. It's still lower growth in an absolute sense, but it's that direction of travel that matters a lot as well."

In other words, many non-Mag 7 stocks are growing their earnings relatively quickly compared to those seven, which now seem less magnificent by comparison. That's hurt their valuations somewhat, as money rotates into other tech stocks and other sectors where investors think they'll see opportunities for accelerating earnings growth.

Some fundamental factors slowing stock gains for these seven include guidance that's sometimes failed to meet optimistic market "whisper numbers," supply constraints, rising memory chip prices, worries about "circular" spending on AI, and general concerns that AI might not live up to promises and reward large investments.

Capital spending remains a major focus heading into earnings amid growing concerns that these companies may have far less dry powder, or readily available funds, than they once did to invest or buy back shares.

Until recently, capital spending was primarily financed from company cash flow and equity appreciation. It wasn't financed on the debt side.

"That is shifting now," Sonders said. "That's something to be mindful of."

Looking back a year or two, the free-cash-flow growth for the Mag 7 ran near 65% to 70% annually. However, in the last two or three consecutive quarters, that growth has turned slightly negative.

Free cash flow represents the companies generate after accounting for expenses. For example, two years ago analysts expected Amazon's free cash flow to be $76 billion to $105 billion by now, Barron's recently noted. Today, consensus for 2026 is $11 billion—not of free cash flow, but of cash burn.

This shift reflects Amazon's massive spending on AI, which prompted the company to raise its capital expenditure expectations for this year to $200 billion. It anticipates "strong long-term return on invested capital," the company said in its last earnings press release.

That may be true, but investors seem to have doubts, judging from Mag 7 shares' first-quarter performance. Amazon dropped about 10%. Apple, despite very little AI spending, fell 7% in the first quarter, and Microsoft suffered a dismal quarter, down 23%. Meta fell 13%.

In sum, Morgan Stanley (MS) expects the world's largest technology companies to lay out more than $700 billion in capital expenditures in 2026, up 69% from 2025.

Earnings and free cash flow aren't the same thing, and the final quarter of 2025 saw generally strong earnings growth across these five companies. However, the law of large numbers and tough comparisons have whittled down gains.

As earnings growth and stock performance slow, trading interest also declines. The big upward movers in tech now are typically chip names, though Nvidia has traded mostly sideways during the last six months. Instead, chip rallies often include Intel (INTC), Micron (MU), and various companies involved in manufacturing of semiconductors and components used in AI.

Firms like Micron got some of their recent traction from rising memory chip prices during a shortage, which is arguably good news for the memory industry, but bad news for firms like Meta, Apple, and Microsoft, all of which have massive chip demand.

While FactSet sees S&P information technology sector earnings growth of 45.1% in the first quarter versus 13.2% for all S&P 500 stocks, that sector includes chip firms like Nvidia and Micron, where earnings growth has outpaced the type of growth seen at Meta, Apple, and other Mag 7 firms.

Year-over-year earnings growth for the semiconductor and semiconductor equipment industry is seen at 95% in the first quarter, FactSet said earlier this month. Software—a major part of Microsoft's business—is seen at 18% earnings growth, while communication services is at 13%. If chip stocks were removed from the tech equation, earnings growth for the sector would fall to 20.3% from 45.1%.

In the fourth quarter, the Mag 7 companies reported actual earnings growth of 27.2%, above their 18.4% third-quarter earnings growth. Six of seven reported a positive earnings surprise, according to FactSet. Even so, it wasn't enough to push their shares higher. Investors focused instead on spending, guidance, and competition concerns.

While Microsoft remains a leader in AI through its OpenAI partnership, its shares lost more ground last quarter, caught like other software stocks in a sharp downturn amid concerns that AI could make legacy software less necessary. Recent losses sent shares to 10-year lows in terms of valuation as some bearish investors think AI could lead to lower profit margins.

However, Microsoft could also benefit from AI because its products span such a vast number of categories, Barron's argued in a report last month. Microsoft could face questions about AI's impact on its software products. As Barron's noted, Microsoft's Intelligent Cloud will soon overtake business software as Microsoft's main revenue source.

Apple, which lags far behind in AI according to Wall Street analysts, saw shares climb last fall on a strong iPhone 17 launch. That rally dissipated in the first quarter, despite sales rising 16% in its fiscal first quarter on surprisingly firm iPhone demand. China and Taiwan iPhone growth impressed analysts, so they'll likely want to see if that trend lasted into the second fiscal quarter when Apple reports this week.

Overall, iPhone revenue of $85.27 billion came in well above the $78.65 billion market expectation last time out, but that may be hard to keep up, considering the launch of iPhone 17 was roughly six months ago. Apple predicted revenue for the March quarter to rise between 13% and 16%, driven in part by services revenue similar to the 14% it reported for the December quarter.

At the same time, Apple is one of the only Mag 7 companies not spending huge sums on AI. Its capital expenditures in the December quarter were $2.37 billion, down from $2.94 billion a year earlier. Research and development costs rose, however. Investors may want to see where these numbers went in the March quarter, especially now that Apple has said it would partner with Alphabet's Google to use Gemini models for an AI-powered Siri.

Apple plans to open Siri to outside AI assistants as part of a Siri overhaul in its upcoming iOS 27 operating system update, Bloomberg reported late last month. The company is developing new tools to allow AI chatbot apps installed via the App Store to integrate with the Siri assistant, enabling users to send queries to services like Google Gemini or Anthropic PBC's Claude.

All these developments appear to highlight Apple's attempts to catch up in AI and could be detailed more fully in the company's earnings call. Investors may also want to hear from executives about anything they might expect from Apple's Worldwide Developers Conference that starts June 8.

Another thing to listen for as Apple reports is any further detail on the changing of the guard. Late last Monday, the tech giant reported that CEO Tim Cook, who's been at the helm since the death of Steve Jobs in 2011, would be stepping down. Slated to take the reins on September 1 is John Ternus, currently senior vice president of hardware engineering and a 25-year veteran of Apple. Updates on iPhone 18's introduction and planned improvements are another key element, along with any plans to raise prices on that phone and other future products. Last, Apple may face higher costs as chip prices rise, so analysts may ask the company about plans to address that. It was likely one factor in the stock's post-earnings decline last time out.

With Amazon, Microsoft, and Alphabet, cloud growth looms large. Google Cloud, which is home to most of Alphabet's AI services and products, rose 48% in revenue year over year in the fourth quarter, while advertising revenue climbed 13.5%. Investors will want to see if the company grew those figures in the first quarter.

Alphabet said it expects 2026 capital expenditures of $175 billion to $185 billion. Any change in that estimate might raise margin concerns. Another metric investors should watch is monthly active users of the Gemini AI app, which rose to 750 million last time out from 650 million the prior quarter.

Amazon, which competes in cloud with Microsoft and Alphabet, saw annual cloud computing growth of 24%, which the company said was its fastest in 13 quarters. While slower than cloud growth at competitors, Amazon starts from a larger base as the cloud leader. Advertising revenue is also a growing contributor, rising 23% year over year last time out.

Daily active social media users are a key component at Meta, rising to 3.58 billion last time out. Meta also said it expects total 2026 expenses of between $162 billion and $169 billion. Though investors seemed worried about Meta's spending late last year, its recent announcement of a $21 billion expansion of its AI infrastructure deal with CoreWeave (CRWV) sent shares higher. Additionally, Meta is countering heavy AI spending through headcount reduction, as the company plans to lay off 10% of its global workforce starting May 20.

Another recent boost came from the unveiling of Muse Spark, the first in the Muse family of models developed by Meta Superintelligence Labs. Meta described Muse Spark as "a natively multimodal reasoning model with support for tool-use, visual chain of thought, and multi-agent orchestration." The question is how quickly Meta can monetize this new product.

Microsoft's closely watched Azure cloud computing platform saw revenue growth of 39% in its most recent quarter, but that was below the 39.4% consensus. Shares tumbled 10% the day after its earnings and haven't recovered since. In fact, they had their worst quarter in years and now trade down 33% from the all-time high recorded late last July. Investors will likely be tracking Microsoft's Copilot adoption when it reports results. While Copilot may not yet be in full deployment mode according to some analysts, the company reported 15 million paid Copilot seats in its last earnings report.

As Meta and others detail their spending plans and discuss possible return on investment (ROI), investors might also be hunting for hints of a top in AI investment. Debate still swirls about whether AI is in its "second inning" or "seventh-inning stretch."

"Investors still appear to be relatively forgiving toward rampant AI infrastructure spending, but the days of treating Mag 7 as a bullish monolithic trade appear to be over," said Nathan Peterson, director of derivatives research and strategy at SCFR.

"Investors have been more discerning over the past six months as they attempt to identify those mega-cap tech companies that are monetizing AI, or appear to have an AI advantage or moat over potential competitors. If uncertainty persists around the potential for ROI from the Mag 7 cohort, investors may continue to redirect their investing dollars toward the AI infrastructure plays where earnings are perceived as more stable."

As tech earnings approach, keep in mind what the mega-caps' forecast from a spending perspective was last time they reported. Any material change, especially downward, might hurt the sector or even pull the entire market lower.

The biggest "hyperscaler" spenders still seem confident their investments will pay off.

"We are only at the beginning phases of AI diffusion and already Microsoft has built an AI business that is larger than some of our biggest franchises," said Satya Nadella, chairman and chief executive officer of Microsoft, in the company's January earnings release. "We are pushing the frontier across our entire AI stack to drive new value for our customers and partners."

For the major tech firms reporting this week, analysts expect the following:

• MSFT: Reporting April 29 after the close with an earnings per share (EPS) consensus of $4.06 and revenue consensus of $81.4 billion.
• AMZN: Reporting April 29 after the close with an EPS consensus of $1.64 and revenue consensus of $177.3 billion.
• GOOGL: Reporting April 29 after the close with an EPS consensus of $2.62 and revenue consensus of $106.6 billion.
• META: Reporting April 29 after the close with an EPS consensus of $6.78 and revenue consensus of $55.4 billion.
• AAPL: Reporting April 30 after the close with an EPS consensus of $1.95 and revenue consensus of $109.7 billion.