A closer look at the Mag 7 earnings picture

Sentiment on the Magnificent 7 and software stocks has been very negative lately, resulting in significant underperformance from these groups. The perceived headwinds for these stocks are tied to developments in the artificial intelligence space, though the nature of those AI connections is different.

The Mag 7 companies are undisputed AI leaders, with market concerns about these stocks centered on their ever-rising capital budgets. We had discussed these capex worries in our note following Q4 results from Amazon (AMZN), Alphabet (GOOGL) , and Microsoft (MSFT) as follows.

‘The market’s reaction to Amazon is broadly in the same category as Alphabet’s after its quarterly release, with the severity of Amazon’s ‘punishment’ reflecting investors’ shock at learning of management’s AI plans. Amazon plans to spend $200 billion in capital expenditures in 2026, up from $132 billion in 2025 and $83 billion in 2024. Amazon’s operating cash flows modestly exceeded its $132 billion capex outlays in 2025, but the company’s 2026 capex budget will most likely exceed its operating cash flows.

Before we learnt of these lofty spending plans, many in the market expected 2026 to be the capex peak for Amazon (also Alphabet and others). But management’s commentary about the mission-critical nature of these outlays likely means that it may be premature to declare peak capex.’

While the likes of Amazon, Alphabet, and Microsoft are seen as overspending on AI infrastructure without clearly articulating how and in what timeframe they expect these investments to be monetized, software companies are seen as at risk of disintermediation by artificial intelligence capabilities. These two narratives converge in the case of Microsoft and Alphabet, as new and emerging AI capabilities are seen as diminishing the long-term profitability of the critical software and services these two Mag 7 players provide.

The chart below shows the three-month performance of Microsoft (purple line, down -15.5%) relative to the Mag 7 group as a whole (blue line, down -2.7%), the Zacks Tech sector (green line, up +1.8%), and the S&P 500 index (red line, up +3.9%).

Nvidia (NVDA) is leading in this three-month performance chart ahead of the chipmaker’s Q4 results after the market’s close on Wednesday (February 25th), also reflecting the last member of the Mag 7 group to report quarterly results. More than any other Mag 7 member, Nvidia is the true AI bellwether, with its chips powering the so-called large-language models that produce offerings like ChatGPT and other generative AI services.

The chart below gives a visual sense of how much Nvidia has benefited from this trend.

Nvidia brought in $16.67 billion in 2021 revenues and is currently expected to bring in $312 billion in revenues next year (fiscal year ending in January 2027).

For Q4, Nvidia is expected to have earned $1.52 in EPS on $65.56 billion in revenues, representing year-over-year growth rates of +70.8% and +66.7%, respectively.

Another way to look at these estimates is that Nvidia is on track to bring in almost four times as much in revenue in a quarter as it did all of 2021. To say that the AI revolution has been good for Nvidia is a gross understatement, leaving no doubt why the company’s CEO has emerged as the biggest AI cheerleader.

These good times will end at some stage, and that is the big question in the Nvidia story. Given the aforementioned capex announcements from Nvidia’s Mag 7 peers, the good times aren’t expected to end anytime soon.

The Mag 7 earnings picture

A notable contributing factor in establishing the Mag 7 group’s leadership status is the group’s enormous earnings power and impressive growth profile. For Q4, the group’s earnings are on track to be up +24.2% from the same period last year on +18.9% higher revenues, which would follow the group’s +28.3% earnings growth on +18.1% revenue growth in 2025 Q3.

The chart below shows the group’s blended Q4 earnings and revenue growth relative to what was achieved in the preceding period and what is expected in the coming three periods.

The chart below shows the Mag 7 group’s earnings and revenue growth picture on an annual basis.

Please note that the Mag 7 group is on track to bring in 25.5% of all S&P 500 earnings in 2025, up from 23.2% of the total in 2024 and 18.3% in 2023. Regarding market capitalization, the Mag 7 group currently carries a 32.7% weight in the index. If this group of mega-cap companies was a stand-alone sector, it would be the second-largest in the S&P 500 index, just behind the Technology sector at 41.8% and above the Finance sector at 12.6%.

Q4 earnings season scorecard

Through Friday, February 20^th, we have seen Q4 results from 427 S&P 500 members or 85.4% of the index’s total membership. Total earnings for these companies are up +12.8% from the same period last year on +8.8% higher revenues, with 75.2% beating EPS estimates and 72.4% beating revenue estimates.

We have more than 700 companies on deck to report results this week, including 53 index members. The week’s line-up includes, besides Nvidia, a number of other Tech players like Salesforce, HP, Dell, and several bellwether brick-and-mortar retailers, including Lowe’s, TJX, and others.

The comparison charts below put the growth rates for these 427 index members with what we had seen from this same group of companies in other recent periods.

The comparison charts below show the Q4 EPS and revenue beats percentages for this group of companies relative to what we had seen from them in other recent periods.

The comparison chart below puts the Q4 net margins for the 427 companies that have reported in a historical context.

The earnings big picture

The chart below shows the Q4 earnings and revenue growth expectations in the context of where growth has been in the preceding four quarters and what is expected in the coming four quarters.

Estimates for the current period (2026 Q1) have inched down in recent days, after consistently moving higher earlier, as the chart below shows.

The chart below shows the overall earnings picture on a calendar-year basis, with double-digit earnings growth expected in 2025 and 2026.