Strong Numbers, Lukewarm Response: Magnificent 7 Earnings, Part 1

The ‘magnificent seven’ are a group of seven US mega-cap tech stocks that have dominated equity market returns in recent years: Alphabet [GOOGL], Amazon [AMZN], Apple [AAPL], Meta Platforms [META], Microsoft [MSFT], Nvidia [NVDA] and Tesla [TSLA]. 

Together, they represent the most influential companies in the S&P 500 by market cap, cash generation and investor attention.

As of January 2026, the magnificent seven account for roughly 35% of the S&P 500’s total market capitalization. This level of concentration is historically elevated and has fueled ongoing debate around diversification risk and index construction.

During the week of January 26, four of the seven reported earnings. Magnificent seven reports are often taken as a bellwether for the broader tech space, not to mention the stock market more broadly. Now that the dust has settled, let’s unpack their respective performances. 

Microsoft: Revenue Beat Can’t Outshine Exposure Risk 

Microsoft, Meta and Tesla all reported on Wednesday, January 28 after markets closed. 

Microsoft delivered a strong quarter, with revenue of $81.3bn, up 17% year-over-year and nearly $1bn ahead of expectations. EPS came in at $4.14, a 24% increase and $0.22 above consensus, while net income surged 60% to $38.5bn, the fastest growth line in the report.

Profitability remains robust, though margins edged lower as Microsoft stepped up investment, particularly in artificial intelligence (AI) infrastructure. Cash generation stayed solid. 

The balance sheet headline is Microsoft’s $625bn backlog — future revenue already contracted. On the surface, this underlines exceptional demand visibility. Dig deeper, however, and concentration risk emerges. Roughly $281bn of that backlog is tied to OpenAI, Microsoft’s strategic AI partner and the creator of ChatGPT.

If OpenAI continues to scale successfully, Microsoft’s cloud and AI revenues remain locked in for years. But if OpenAI runs into trouble — whether operationally, financially or regulatorily — Microsoft could see a material portion of its “guaranteed” future revenue come under pressure. 

This exposure may have spooked investors. MSFT stock fell 10% after the earnings, one of its largest same-day drops ever. The slide has continued, and the share price is now approaching the dismal levels seen during the early part of 2025, when tariff uncertainty pushed the stock market into the doldrums. 

Meta: AI Spend Drags on Projected Income 

Meta’s Q4 update underlined powerful top-line momentum. Revenue jumped 24% year-over-year to $59.9bn, comfortably ahead of consensus expectations of $58.5bn, while EPS of $8.88 also came in well above forecasts. The beat was driven by both pricing and volume, reinforcing Meta’s re-established growth credentials.

Underlying platform health remains strong. Daily active users across Meta’s apps rose 7% year-over-year to 3.58bn, while engagement and user growth drove an 18% increase in ad impressions in the quarter. That combination continues to translate directly into accelerating advertising revenue.

Management’s near-term outlook is equally robust. At the midpoint, Q1 revenue guidance implies 30% year-over-year growth. Even stripping out an expected 4% foreign exchange tailwind, growth would still run at 26%, representing an acceleration from Q4.

However, this momentum is coming at a clear cost. Meta is deep into an aggressive AI investment cycle. Costs and expenses rose 40% year-over-year in Q4, compressing operating margin from 48% to 41%. As a result, EPS growth slowed to 11%, less than half the pace of revenue growth.

The investment drag extends beyond the quarter. Despite strong revenue guidance, management only expects 2026 operating income to be “above” 2025 levels. Capital expenditure is guided at $115bn–135bn for the year, up from $72bn in 2025, alongside $162bn–169bn in expenses, highlighting how heavily Meta is leaning into AI at the expense of near-term profitability.

META stock spiked after the earnings dropped, but has since pared those gains.

Tesla: Pivot from EVs to Robots Fails to Wow

Tesla’s Q4 results slightly beat expectations on earnings, though revenue fell modestly year-over-year. Revenue came in at $24.9bn, just below the $25.1bn analysts had expected, representing a 2.4% decline from Q4 2024. Adjusted EPS of $0.50 topped forecasts of $0.45, and operating income rose to $1.41bn, above the $1.32bn consensus. Gross margin exceeded expectations at 20.1% versus 17.1%, reflecting continued operational efficiency despite lower volumes.

Vehicle deliveries, however, were down. Tesla shipped 418,227 units in Q4, a 15% decline from the prior year, and full-year deliveries fell 8% to 1.64 million vehicles, marking the second consecutive annual drop. Management highlighted that production ramps for the Tesla Semi, Cybercab and next-generation Roadster will begin in the first half of 2026, alongside six new production lines across its vehicle lineup.

Beyond automotive, Tesla remains focused on AI and robotics. Optimus V3 is slated for a Q1 2026 reveal, with production starting before year-end and a planned capacity of 1 million units annually. While electric vehicle volumes are under pressure, Tesla’s operational efficiency, new production ramps and robotics initiatives position the company for potential growth outside traditional automotive metrics, signaling a diversification of its revenue base that investors will watch closely.

TSLA stock saw some gains off the back of earnings, which it quickly pared. 

Apple: iPhone’s Best-Ever Quarter 

On January 29, Apple reported a record-breaking fiscal Q1 2026, with revenue of $143.8bn, up 16% year-over-year, and EPS of $2.84, a 19% increase, both surpassing expectations. Growth was broad-based, reflecting strength across hardware, software and services.

The iPhone segment delivered its best-ever quarter, with unprecedented demand across all regions, while services posted a 14% increase, marking another all-time revenue record. Apple’s installed base now exceeds 2.5 billion active devices, indicative of both market penetration and customer loyalty.

Profitability remained robust, generating nearly $54bn in operating cash flow, enabling the company to return almost $32bn to shareholders through dividends and share buybacks. The board declared a $0.26 quarterly dividend, payable February 12, 2026.

Apple’s performance illustrates the strength of its ecosystem. 

High-margin services, combined with hardware sales, continues to drive both revenue and cash flow growth. Despite macroeconomic headwinds, record device demand and a growing global installed base underpin sustainable expansion. The results reaffirm Apple’s ability to scale profitably while maintaining customer engagement at unprecedented levels.

Cash generation, record EPS growth and strong operational execution position Apple well for both near-term shareholder returns and long-term strategic initiatives.

AAPL stock climbed on the report and has carried on climbing. It is currently up 21.81% in the past 12 months; far more than its three peers who also reported that week. It’s interesting to note that Apple had previously been criticized for failing to invest enough in AI. Maybe slow and steady really does win the race. 

Here’s how the stocks compare in terms of fundamentals.

Source: Yahoo Finance

Conclusion

The four reports show strong top-line growth but diverging margins. Meta and Apple excelled in revenue, while Tesla faces volume pressures and Microsoft carries AI concentration risk. Subsequent share price moves suggest investors are inclined to reward growth and innovation, but are wary of margin compression and operational dependencies. 

Right now, in short, it seems that wariness might be outweighing enthusiasm for innovation. 

Stay tuned for the second part of this article, coming next week, in which we’ll dive into the next tranche of two, and look ahead to Nvidia’s upcoming report.