Four of the world’s most powerful companies report results as AI spending concerns dominate the mood
The biggest earnings night of the year
Wednesday night delivered one of the most consequential earnings sessions in recent memory. Alphabet, Amazon, Meta Platforms, and Microsoft, four of the so-called Magnificent Seven tech companies, reported results after the closing bell, with options traders pricing in more than $800 billion in combined market cap movement across all four names in either direction.
Nasdaq futures edged up 0.4% ahead of the open, but the broader mood on Wall Street was cautious going into the reports. The day before, news that OpenAI had missed internal sales and user targets rattled the tech sector, with semiconductor stocks leading the group lower. Analysts at Wolfe Research noted that markets were already in a vulnerable position after a sharp rally off recent lows, and that any negative surprise from the evening’s reporters could trigger a meaningful pullback.
AI spending is the central question
The question hanging over every one of these reports was capital expenditure. Investors and analysts were watching closely to see whether any of the four companies would signal further increases to their already massive infrastructure spending plans, which have raised persistent concerns about the pace of returns on AI investment.
Those concerns were not hypothetical. Data compiled across the four companies showed that their combined capital expenditure plans for the year have now reached as much as $725 billion, with the bulk of that going toward AI data center equipment. Alphabet and Meta both raised their full-year guidance for capital spending following their results. Microsoft gave its first estimate for spending through the end of December, landing at $190 billion, matching Alphabet’s figure. Amazon was the only one of the four to keep its capital expenditure outlook unchanged at $200 billion, though the company reported a surge in spending during the March quarter that cut into its free cash flow.
Peter Corey, chief market strategist at Pave Finance, offered a broader perspective on what this moment represents for markets. He pointed out that semiconductors now account for nearly 15% of total U.S. stock market capitalization, which is double their share at the height of the dot-com era. His view was direct. The rally will pull back. The only meaningful debate, in his view, is what conditions look like on the other side of that correction.
How analysts were positioned heading in
Going into the reports, the analyst community was broadly constructive on three of the four names, with Microsoft being the notable exception.
Truist analysts expected Alphabet to post top-line growth of 17%, which would be the second-highest growth rate since the first quarter of 2022, driven by resilient performance in Search and roughly 45% growth in its Cloud business.
Bank of America analysts expected Meta to deliver a beat, forecasting first-quarter revenue of $56 billion against a Wall Street estimate of $55.4 billion. The main concern flagged heading in was macro uncertainty around the second-quarter outlook, which analysts identified as the key near-term risk for the stock.
Jefferies analysts saw Amazon positioned for upside, with the thesis centered on acceleration in AWS cloud revenue and resilient retail demand. Their anchor estimate was for AWS to grow roughly 25% on a year-over-year basis.
Stifel analysts took a more cautious stance on Microsoft, writing that Street revenue and earnings per share estimates heading into the report remained too high.
Options flows leaned bullish across the board
Despite the cautious macro backdrop, options market activity going into earnings leaned bullish across all four names. Call volumes and premiums outpaced puts, and flows showed more demand for upside exposure than for protection against a selloff.
Amazon drew particular attention from options traders Wednesday morning, with a handful of large call buyers spending significant sums to secure upside exposure ahead of the results. One trader spent $616,000 buying calls expiring the following Friday. Another spent $731,000 targeting calls expiring in September. Even in Microsoft, which analysts viewed as the weakest setup of the four, bullish positioning was notable in mid-June calls, with nearly $3 million in trades concentrated around a single strike price early in the session.
The combination of elevated implied volatility, massive capital expenditure commitments, and an AI investment narrative that still needs to prove its return on investment set the stage for a night that markets will be processing for some time.