Tech giants' earnings reports explode one after another! Can the $11 trillion "four super giants" continue to write the myth of S&P's all-time high?

According to the Zhitong Finance APP, the benchmark index of the US stock market—the S&P 500 index—has recently been frequently breaking historical records, reaching new highs multiple times in the past few trading days. This index, along with the "Nasdaq 100 index," which is also a barometer for global technology stocks and has recently reached new highs, will face a critical test this week: four major technology giants with a combined market capitalization of $11.3 trillion will release earnings reports that global investors are focusing on within two days.

Undoubtedly, the start of this earnings season for US stocks has been good, but almost all attention is focused on Microsoft (MSFT.US) and Facebook's parent company Meta Platforms (META.US), which will announce their results after the market closes on Wednesday Eastern Time, as well as Apple (AAPL.US) and Amazon (AMZN.US), which will report earnings on Thursday. These four tech giants account for nearly 20% of the S&P 500 index and the Nasdaq 100 index. Additionally, Tesla and Google, which have already reported earnings, along with Nvidia, the "A-chip leader," which will report earnings at the end of August, collectively account for over 35% of the S&P 500 index, making them the core driving force influencing the bullish trend of the US stock market.

The earnings data from these four major tech giants this week will provide investors with the most critical clues regarding the health of core businesses that global investors are focusing on, such as consumer electronics, AI application software, cloud computing, and e-commerce.

The so-called "Magnificent Seven" of the US stock market, which occupy a significant weight (about 35%) in the S&P 500 index and the Nasdaq 100 index, includes: Apple, Microsoft, Google, Tesla, Nvidia, Amazon, and Facebook's parent company Meta Platforms. They are the core driving force behind the S&P 500 index's repeated new highs.

Looking at the entire US stock market, the seven tech giants have been the strongest engine leading the entire market since 2023. They attract a flood of global capital with their strong market advantages, robust revenue driven by AI, solid fundamentals, sustained strong free cash flow reserves over the years, and expanding stock buyback programs. However, the historically high valuations of these seven giants have made Wall Street increasingly cautious—six of the seven tech giants are expected to have price-to-earnings ratios far exceeding 25x, which is the valuation of the S&P 500 index, while the benchmark valuation of the US stock market—the S&P 500 index—is also near historical highs.

For the "Magnificent Seven," meeting or slightly exceeding expectations is no longer sufficient.

To maintain the upward momentum of the S&P 500 index, which has been reaching new highs since April, the four tech giants this week must deliver impressive earnings reports. The performance of semiconductor giants like Texas Instruments has already shown that merely meeting expectations is not enough to drive the market higher; they must significantly exceed expectations. Goldman Sachs pointed out that this earnings season presents a clear negative asymmetry, especially in the semiconductor, cloud computing, and internet sectors, where good news leads to moderate increases or even declines, while bad news triggers significant stock price drops. For example, Texas Instruments' stock plummeted over 13% after its earnings report—simply because its outlook met expectations rather than significantly exceeding them The latest statistics show that the four members of the "Magnificent Seven" account for about one-fifth of the market capitalization-weighted S&P 500 index. In addition, Meta and Microsoft are the top three contributors to the S&P 500 index's gains this year, second only to Nvidia's impressive 30% increase since the beginning of the year. As valuations continue to rise, the market is not only focused on whether their actual performance in the second quarter can significantly exceed expectations but also on whether their performance outlook for the next few quarters can similarly surpass expectations.

"The bar for exceeding expectations is already quite high," said Michael Arone, Chief Investment Strategist at State Street Global Advisors. "Especially for the seven tech giants, if they want to sustain this upward momentum, they must now deliver on the extremely high expectations set by the market."

Large tech stocks like Nvidia drive the S&P 500 index to new highs multiple times

So far this year, American companies seem to have successfully navigated the negative impacts of tariffs imposed by the Trump administration. However, analysts are concerned that the effects of tariffs may gradually become apparent in the second half of the year. After about one-third of the S&P 500 index constituents have reported earnings, approximately 82% of companies exceeded earnings expectations. According to Bloomberg Intelligence statistics, if this trend continues, it will be the best quarterly performance in nearly four years. This impressive performance has helped the benchmark index rise about 2% since the earnings season for U.S. stocks began two weeks ago.

However, Wall Street analysts have previously downgraded earnings expectations over the past few months due to concerns about the impact of tariffs on U.S. consumer spending and profit margins starting in the second half of the year. Although forecasts for large tech stocks have also been lowered, the surge in stock prices keeps overall expectations high.

The RBC strategy team, led by top Wall Street strategist Lori Calvasina, stated that preliminary trends show that American companies have demonstrated resilience against the new round of trade wars initiated by Trump. However, RBC indicated that its survey revealed that several executives from large U.S. companies warned that the impact on earnings will become more pronounced in the second half of this year. "It is still too early to assume that tariffs will not create inflationary pressures," the RBC strategy team stated. "If U.S. companies' profit outlooks for the second half of the year and 2026 are not as optimistic as investors have always anticipated under the heavy burden of tariffs, this will also pose a significant risk of correction for the repeatedly hitting new highs in the U.S. stock market."

According to Bloomberg Intelligence statistics, the combined year-on-year profit growth rate of the seven tech giants (Magnificent Seven) in the second quarter was 16%, lower than the 19% that analysts had expected before Trump announced large-scale tariffs at the end of March. Nvidia, the last company to report earnings in this group, will disclose its results at the end of August

Second quarter earnings expectations were lowered ahead of the busy earnings report season

In contrast, the overall expected annual earnings growth for the S&P 500 is 4.5%, significantly lower than the 7.5% predicted by analysts in March. Therefore, the downward revision of earnings expectations is also a factor contributing to the optimistic number of earnings reports exceeding expectations in the U.S. stock market this season.

The high valuations and optimistic earnings expectations given by the market undoubtedly increase the pressure on large technology companies. Anthony Saglimbene, Chief Market Strategist at Ameriprise Advisor Services, believes that many companies need to provide very optimistic outlooks to justify their valuations. "They are likely to indicate a positive outlook for the second half of the year or the next quarter, either reaffirming previous optimistic earnings expectations or raising earnings expectations," he stated.

Amid the AI boom, tech giants diverge, will the "fire of stock price differentiation" burn even brighter during earnings season?

As artificial intelligence once again becomes the dominant theme influencing global stock market winners and losers, some tech companies among the "seven tech giants" have not aligned with the strong AI monetization expectations set by the market this year. This has led investors to bet that the AI losers among the seven giants may continue to underperform the S&P 500 index—such as Apple, Tesla, and Amazon.

Meta, Microsoft, and Nvidia contributed nearly half of the S&P 500 index's gains this year, while the three tech giants—Apple, Tesla, and Amazon—have seen their stock prices weaken due to difficulties in the AI monetization path.

This differentiation was particularly evident last week, as Google's strong earnings driven by better-than-expected AI revenue boosted its stock price, while Tesla's stock price plummeted due to bleak electric vehicle sales prospects and unclear AI monetization prospects.

Jamie Cox, a senior analyst at Harris Financial, believes that this dramatic AI differentiation is inevitable, as the seven tech companies are in different core tracks, and the market is now identifying the true AI winners and laggards. Goldman Sachs pointed out that as the U.S. earnings season reaches its peak, Apple has become the "largest short" target among the seven giants.

Apple's AI strategy has been repeatedly questioned. Last year, Apple launched its edge-side AI feature—Apple Intelligence—but progress has been significantly slower than expected. The revamped, fully integrated version of Siri with the most advanced AI models may not be available until the end of 2026, and recently, Apple has lost several talents in the field of AI models. Dan Ives, a senior analyst at Wedbush, described Apple as "sitting on the sidelines, watching the AI revolution rush by."

In a report, Dan Ives from Wedbush wrote that Apple, Tesla, and Amazon no longer seem so "cool" in the AI race. Ives emphasized that the brightest spotlight in AI is undoubtedly on Nvidia, the "AI chip powerhouse"—the world's first company with a market value exceeding $4 trillion, with its stock price tripling in two years The global demand for AI computing power continues to surge, coupled with the increasingly large AI infrastructure investment projects led by the U.S. government, and the tech giants' ongoing massive investments in building large data centers. This indicates that for long-term investors who are fond of Nvidia and the AI computing power industry chain, the sweeping "AI faith" around the world has not yet concluded its "super catalysis" on the stock prices of computing power leaders. The stock prices of companies in the AI computing power industry chain led by TSMC and Nvidia will continue to demonstrate a "bull market curve." The market value of Nvidia, the "overall leader in AI," has officially set sail on its journey to reach a market value of $5 trillion, and one Wall Street investment firm even sees the potential to hit $6 trillion.

Meta, Microsoft, and Google have also significantly benefited from AI, mainly due to the explosive revenue growth brought by AI applications based on their vast user ecosystems. Amazon's stock price has only risen 5% this year, significantly underperforming the Nasdaq 100 and S&P 500 indices, primarily affected by the uncertainties brought about by the aggressive trade policies led by the Trump administration. However, the positive revenue growth from AI cloud computing driven by heavy investment in Anthropic is continuously emerging.

Investors will closely monitor capital expenditure plans closely related to AI. Many companies have significantly increased their spending on AI infrastructure, making leaders in the AI computing power industry chain such as Nvidia, TSMC, Super Micro Computer Inc, Dell, and Broadcom the best-performing global stock themes so far this year, without exception.

All signs indicate that this trend of "AI crazy spending" will continue. According to Bloomberg Intelligence, analysts expect Microsoft, Google, Amazon, and Meta to collectively invest $317 billion in capital expenditures in the current fiscal year—meaning it will be 35% higher than the already strong AI spending in 2024, with analysts averaging an expectation of $350 billion by 2026.

Goldman Sachs stated that the capital expenditure data from tech giants will undoubtedly validate whether the logic of AI computing power investment themes remains flawless, emphasizing that the next data point investors need to focus on is the capital expenditure expectations to be announced by Microsoft, Meta, and Amazon this week.

Waiting for AI Returns

In recent months, investors have received positive returns from this aggressive AI investment, especially Meta, whose stock price has risen about 22% so far this year. However, Gabriela Santos, Chief Strategist for the Americas at JPMorgan Asset Management, stated that ultimately investors must see actual AI monetization returns.

"Investors are increasingly straightforward, saying, 'Please show me the real money,'" she said in an interview. "At the current valuation levels, especially for large tech stocks, we need to see profits being realized continuously, not just promises for some point in the future."

The overall valuation of the "seven tech giants" has rebounded significantly since the sell-off low caused by tariffs in April, but it is still below its peak. The overall expected price-to-earnings ratio for the "seven tech giants" is 28x, down from the peak of 34x in December last year, but higher than the expected price-to-earnings ratio of about 25x for the S&P 500 "Although the expected price-to-earnings ratios of large tech stocks appear high on the surface, many of them still have investment appeal when considering performance growth, substantial free cash flow, strong stock buyback expectations, and robust returns on invested capital," wrote Tony DeSpirito, head of U.S. fundamental equities at asset management giant BlackRock