Investors have made strong gains by backing smaller companies tied to artificial intelligence. Earnings reports this week from the largest technology firms will help determine whether that trade still makes sense in 2026, Bloomberg News reported Sunday.
The group known as the Magnificent Seven – Alphabet (GOOG) (GOOGL), Amazon (AMZN), Apple (AAPL), Meta (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) – drove much of the stock market’s gains over the past three years. That momentum faded late last year as investors questioned whether massive AI spending would deliver timely returns.
The index tracking the group peaked in late October. Since then, most of the stocks have fallen behind the broader market. Alphabet and Amazon are the only members that have posted gains over that stretch.
As enthusiasm cooled for the megacaps, investors shifted toward companies that supply them. Shares of memory and storage firms have surged, along with power producers and materials companies seen as beneficiaries of rising data center demand and faster economic growth.
This earnings season will be a key test. Microsoft (MSFT), Meta (META) and Tesla (TSLA) report midweek, followed by Apple (AAPL). Alphabet (GOOG) (GOOGL) and Nvidia (NVDA) report in early February, with Amazon (AMZN) close behind. Together, the group is expected to post slower profit growth than earlier in the AI boom, putting pressure on companies to show that heavy capital spending is paying off.
Spending plans remain aggressive. The largest tech firms are expected to invest hundreds of billions of dollars in data centers and related infrastructure over the next two years. Investors are increasingly focused on whether those investments translate into stronger earnings rather than just higher costs.
Cloud computing is one of the clearest areas of AI-driven growth, particularly at Microsoft (MSFT), where demand for computing power continues to exceed supply. Still, the cost of expanding capacity is high, and the market has shown little patience for vague promises of future returns.
Recent market reactions underscore the risk. Shares of companies that outline rising spending without clear profit benefits have come under pressure, signaling a tougher standard for earnings performance.
Despite the pullback, the technology giants remain deeply embedded in major indexes, making them hard for investors to avoid. They also continue to grow profits faster than most of the market, even as the gap narrows.
Valuations aren’t extreme by historical standards, and some leaders trade close to the broader market’s multiple despite sharp gains over the past two years. Still, investors appear to be waiting for clearer evidence that AI investments will drive sustained growth.
This earnings season may not settle the debate, but it is likely to shape expectations for the months ahead, according to Bloomberg News.