Magnificent 7 Earnings, Part 2: Massive AI Capex

Last week, OPTO dived into the earnings of the first four ‘magnificent seven’ stocks to report this season: Apple [AAPL], Meta Platforms [META], Microsoft [MSFT], Tesla [TSLA]. 

This week, we’ll unpack the latest batch — Alphabet [GOOGL] and Amazon [AMZN] — and look ahead to Nvidia’s [NVDA] call. 

Alphabet: $185bn is a Lot of Money

The Google parent reported on February 4.

It beat expectations on both earnings and revenue in Q4 and flagged a sharp acceleration in artificial intelligence (AI) investment next year. EPS came in at $2.82 versus $2.63 expected, while revenue reached $113.83bn, ahead of forecasts for $111.43bn.

Google Cloud revenues rose to $17.66bn, comfortably ahead of estimates, while YouTube advertising grew nearly 9% to $11.38bn but missed expectations. Traffic acquisition costs were slightly higher than forecast at $16.59bn. Total advertising revenue climbed 13.5% year-over-year to $82.28bn.

The Gemini app has reached 750m monthly active users, underscoring strong adoption and allaying concerns that AI-powered search could erode Google’s dominance. 

Waymo took a $2.1bn stock-based compensation charge after raising fresh funding at a $16bn valuation, with most of the cost booked to R&D. The autonomous driving unit ended 2025 having completed 15 million trips across five US cities and began operations in Miami in January.

The headline, however, was spending. Alphabet guided 2026 capital expenditure of $175bn–185bn, more than double its 2025 outlay and well above peers such as Meta Platforms, which expects to spend $115bn–135bn in 2026. 

The stock only dipped slightly after the results, losing 3% after the market close. This has become a common pattern. Other magnificent seven stocks lost ground despite reporting impressive numbers, as we saw last week, while two other tech stocks that reported on the same day as Alphabet — Qualcomm [QCOM] and Arm [ARM] — both lost more than 9%.

What does this say about investor expectations?

One possible read is that investors have become so used to big tech stocks smashing expectations that it no longer moves the needle.

Another read relates to the vast quantities earmarked for AI development. Amid growing doubts around an AI investment bubble, investors may see such levels of capex as a serious risk. 

But if they were worried about $185bn…

Amazon: $200bn is Even More Money 

On February 5, Amazon delivered a mixed Q4 report and sharply raised its spending outlook. Earnings narrowly missed expectations at $1.95 a share, versus $1.97 forecast, while revenue beat estimates, coming in at $213.39bn compared with $211.33bn.

AWS once again did the heavy lifting, generating $35.58bn in revenue, ahead of expectations, while advertising sales rose to $21.32bn, also slightly above forecasts. Net income increased to $21.19bn from $20bn a year earlier, reflecting continued margin discipline despite heavy investment.

The market reaction was driven less by the quarter and more by spending guidance. Amazon said capital expenditures would climb to around $200bn in 2026 as it ramps up investment in data centers and infrastructure to meet surging AI demand. That compares with roughly $131bn spent in 2025 and an analyst consensus closer to $146.6bn.

“With such strong demand for our existing offerings and seminal opportunities like AI, chips, robotics [and] low earth orbit satellites, we … anticipate strong long-term return on invested capital,” said CEO Andy Jassy in a statement.

During a conference call, Jassy said that the money would “predominantly” go to AWS whose non-AI workloads are “growing at a faster rate than we anticipated.” 

For the current quarter, Amazon guided to revenue of $173.5bn–178.5bn, implying growth of 11% to 15%, broadly in line with expectations.

The results come as Amazon continues to cut costs elsewhere. The company recently announced plans to lay off around 16,000 corporate employees, following a further 14,000 job cuts in October. Is there a trade-off between aggressive AI investment and workforce reductions?

AMZN stock fell more than 8% after the earning call and Wall Street turned more cautious. D.A. Davidson downgraded the stock to ‘neutral’, flagging concerns over the scale of planned investment and the risk that AI-driven initiatives could dilute returns in the core retail business.

JPMorgan cut its price target to $265 from $305, warning that the sharply higher capex outlook is likely to translate into meaningful free cash flow burn over the course of the year. 

However, JPMorgan analysts argued that, although cash flow headwinds are unavoidable at this level of investment, the spending is strategically justified given strong customer demand, particularly in AI and cloud infrastructure.

Elsewhere, sentiment is more supportive. For instance, Cantor Fitzgerald reiterated an ‘overweight’ rating and a $270 price target, citing Amazon’s solid fundamentals, scope for retail margin expansion and a favorable growth outlook for AWS. Across Wall Street, the consensus price target stands at roughly $280, implying meaningful upside from current levels despite elevated near-term uncertainty.

Nvidia: Where All That Money Goes 

The chip giant will be the last of the magnificent seven to report, on February 25. NVDA stock has been climbing recently, suggesting investors are becoming more confident that Nvidia’s growth cycle still has room to run.

Part of this growth is related to the mighty capex predictions made by other members of the magnificent seven. 

As noted, Amazon has guided to more than $200bn of capex for 2026, largely directed at AI data centers, while Microsoft and Alphabet continue to scale GPU-intensive workloads across cloud platforms and enterprise AI. At the same time, corporate customers are moving beyond pilots to full deployments, sharply increasing demand for compute.

That dynamic plays directly into Nvidia’s hands. Its GPUs are no longer discretionary upgrades but foundational infrastructure for training and running large language models. As AI adoption broadens and deepens, Nvidia remains one of the most direct beneficiaries of the spending cycle. Markets are increasingly treating Nvidia as the cleanest proxy for the global AI infrastructure boom.

Heading into the earnings call, expectations are already elevated. Consensus points to revenue growth still running above 200% year-over-year, gross margins holding above 75%, and sequential gains across data center, networking and inference. 

After Q3’s outsized beat, analysts are treating strong numbers as the starting point rather than the upside. The focus will instead be on management’s commentary around order visibility, supply constraints and whether demand continues to exceed available capacity.

On conventional metrics, Nvidia looks expensive, trading at a trailing P/E of about 46. The current valuation reflects a belief that the AI capex cycle will extend through 2027–28, that Nvidia will remain the default compute platform for advanced AI workloads, and that growth will broaden beyond GPUs into networking, inference and full-stack enterprise AI systems. 

On that basis, several long-term projections referenced by Nasdaq suggest Nvidia could revisit a $5trn market capitalization by the end of 2026 if earnings continue to compound at anything close to the current pace.

That optimism, however, comes with clear risks. Any meaningful slowdown in hyperscaler AI spending would hit demand assumptions. Competitive breakthroughs in alternative AI chips could challenge Nvidia’s dominance. Regulatory or export restrictions remain a persistent overhang, while margins would come under pressure if pricing power begins to erode. 

Here are how the three stocks compare in terms of fundamentals.

Source: Yahoo Finance

Conclusion

The earnings of Amazon and Alphabet foreground the extent to which AI is reshaping capital priorities, with both aggressively ramping up spending for 2026. Nvidia sits at the center of this surge, as GPUs and AI infrastructure become essential. Together, the earnings may suggest that AI-driven capex — not just near-term profits — is shaping the next phase of tech growth.