Q4 Tech Earnings Preview: Leaders, Laggards Shift

Apple (AAPL) and Microsoft (MSFT) once dominated the race for top dog in terms of market capitalization, trading that title back and forth regularly. Now, the two tech titans find themselves behind AI-driven companies like Nvidia (NVDA) and Alphabet (GOOGL) in market cap as they and a host of others unveil fourth-quarter results over the next two weeks.

Earlier this month, Alphabet's two share classes (GOOGL and GOOG) combined for a market capitalization of $3.88 trillion, putting it ahead of Apple's $3.85 trillion. Microsoft was slightly behind both at $3.59 trillion, while Nvidia took the center podium with $4.6 trillion. While market cap doesn't indicate the future course of a company, the dominance of Nvidia and Alphabet suggests some investors have cast their lot more broadly, with two companies, for now, seen holding commanding positions in the AI market.

While Microsoft is also a leader in AI through its OpenAI partnership, its shares lost ground over the last quarter even as the company's cloud business growth accelerated. Apple saw shares climb last fall on a strong iPhone 17 launch. That rally dissipated over the last month, and Apple and Microsoft finished 2025 with share gains that trailed the S&P 500^® index (SPX), not to mention Alphabet and Nvidia.

Instead, Alphabet led all Magnificent Seven companies on the charts last year amid growing enthusiasm over its Gemini 3 AI assistant—a key competitor of OpenAI. Gemini, analysts told The Wall Street Journal earlier this month, is advanced in a wide variety of applications beyond chat, even though OpenAI's ChatGPT is still the most widely used chatbot.

It's quite a turnaround from a year ago, when many investors and analysts fretted over the future of Alphabet's search engine during a new era when AI increasingly performs search functions once dominated by Alphabet's Google. Instead of fading into the background, Alphabet leaned into the trend, and Google now incorporates AI to a large degree and maintains wide leadership in search.

The background is increasingly where Apple finds itself, fair or not. Last year's delay of a Siri AI voice assistant, which Apple announced in early 2025, put the company well behind its competitors. Though that's shielded Apple to some extent from worries about heavy AI spending that hurt shares of Meta Platforms (META) and Oracle (ORCL) over the last quarter, it puts extra pressure on Apple to impress with the Siri AI launch it's promised for some time in 2026. Analysts expect an update on timing when Apple reports.

Microsoft kicks off the Magnificent Seven lineup on Wednesday, January 28, followed by Apple on Thursday. Meta and Amazon—two of the lesser Magnificent Seven performers last year—share results late Monday, February 2, followed by Alphabet on February 3.

Though semiconductor shares often dominate headlines in today's tech market, the Magnificent Seven companies reporting over the next week aren't chip makers by nature, though some dabble. Instead, they do business in a wide variety of arenas, ranging from groceries to search to cloud, and cloud growth remains a key indicator of health for many. That's why investors are likely to focus on the big-three cloud firms—Amazon, Microsoft, and Alphabet—when they report.

A few quarters ago, investors drilled in on quarterly cloud growth for these three, and it's still an important metric. Overshadowing that to some degree now is the amount of spending they plan to dedicate to data centers, which could have implications for their own margins as well as the future health of chip companies reaping the whirlwind from that huge spending spree. Last quarter, Meta concerned investors when it raised its estimate for total 2025 expenses and said capital expenditures dollar growth would be "notably larger" in 2026 than in 2025, with total expenses growing "at a significantly faster percentage rate."

Meta said the growth in spending is driven primarily by infrastructure costs, including incremental cloud expenses and depreciation, along with employee compensation costs. Meta has added some expensive AI talent over the last year.

Expenditures by Meta, and to a lesser degree Amazon and Alphabet, will likely have a lot to do with what direction its shares move after reporting this time around. Investors will closely watch for any signs that spending growth is slowing or strengthening.

"We expect the set of investments we're making within our ads and organic engagement initiatives next year will enable us to continue to deliver strong revenue growth in 2026, while our progress on AI models and products will position us to capitalize on new revenue opportunities in the years to come," Meta said in its third-quarter earnings release.

As Meta and others detail their spending plans, investors might also be hunting for hints of a top in AI investment. Debate still swirls about whether AI is in its "second inning" or "seventh-inning stretch."

"Mega-cap tech AI spending will be subject to higher investor scrutiny this time around in my view," said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research (SCFR). "If AI Cap-Ex budgets are revised higher again this quarter, investors could interpret this as a glass half-full because it implies the AI secular growth story remains in early innings."

However, it's possible investors will take a glass half-empty view and punish the hyperscalers for overspending just as Wall Street punished Meta for hiking AI spending plans last quarter. "We know that mega-cap tech underperformed last year, primarily in the back half of the year, and concerns around AI overspending was one of the main drivers behind that," Peterson said. The AI-spending subject could be a thin line for companies to walk this quarter.

As earnings approach, keep in mind what the mega-caps forecast from a spending perspective last time. Any material change, especially downward, might hurt the sector or pull the entire market even lower.

Here's what the largest "hyperscaler" cloud companies said about capital spending last quarter, which could serve as a helpful cheat sheet when earnings begin flowing in:

• Microsoft: Capital expenditures were $34.9 billion in Microsoft's fiscal first quarter, and the company expects its capital expenditures growth rate for 2026 to top that of 2025.
• Alphabet: Capital expenditures for 2025 will be between $91 billion and $93 billion, the company said, up from its prior estimate of $85 billion.
• Meta Platforms: 2025 capital expenditures will come in between $70 billion and $72 billion, up from its prior estimate of $66 billion to $72 billion. And it expects 2026 capital spending growth to be "notably larger."
• Amazon: The company plans to spend $125 billion in 2025, focused on AI infrastructure and data centers. It expects capital spending to increase this year.

Spending on its own isn't what concerned investors last earnings season with companies like Meta and Oracle (ORCL). Arguably, the main concern was debt-financed spending. There's no debate that heavy spending is necessary for companies to assert themselves as AI leaders. But turning to debt for that spending can hurt cash flow and expose companies to interest rate fluctuations. With AI "monetization" still not a completely proven concept, investors want to make sure companies aren't building up heavy debt to finance something without a big payoff.

That said, the big spenders seem confident the investments will pay off. And some claim there's plenty of evidence that it may have started to, one example perhaps being strong third-quarter U.S. productivity growth.

"AI models are data-hungry and benefit from scale," wrote Liz Ann Sonders, chief investment strategist at SCFR, and Kevin Gordon, head of macro research and strategy at SCFR, in a report last year. "This tilts the landscape toward dominant incumbents with deep datasets, computational resources, and global distribution networks. Companies like Microsoft, Alphabet, and Meta are able to deploy large language models (LLMs) at scale, integrate them into core products, and monetize them through advertising, subscriptions, and enterprise services. If the market continues to consolidate around a small set of leaders, those with early advantages could continue to enjoy wide moats and outsized returns."

Questions each company faces include:

• By how much can they beat the average Wall Street earnings estimates, if at all?
• What percentage of beat, or level of outperformance, does the market consider good enough to keep supporting their stock prices?

At times in recent quarters, even solid earnings "beats" by big-tech firms weren't enough to excite the market. With spending climbing quickly, impressive earnings can become harder to deliver.

Diving deeper into individual firms ahead of reporting season, Microsoft was among the Magnificent Seven companies that trailed the SPX last year, though only slightly. However, shares had a tough second half, and by mid-January, they were trading well below their 50-day simple moving average. The drop in share price late last year didn't reflect any stumbles in the company's earnings and revenue, both of which topped estimates last time out. Microsoft closed at a record high just before that late-October earnings report.

Microsoft's Azure cloud business grew an impressive 40% year over year in the last quarter it reported, and Microsoft said it expects 37% growth for Azure in the fiscal quarter that just ended. That's a key figure to watch. However, as 2025 ended, investors appeared more concerned about Microsoft's losses from its investment in OpenAI, a company that remains unprofitable. Microsoft's investment in OpenAI took $3.1 billion out of its net income in its fiscal first quarter. Also, Microsoft said last time that its capital expenditures growth rate would rise in 2026, when it previously said it would slow, raising concerns about margins. Microsoft said it expects revenue to be between $79.5 billion and $80.6 billion this time. But exceeding revenue estimates last quarter didn't help the stock.

Some of the heavy spending on data centers depends on resilience in the advertising businesses of companies like Meta and Alphabet. If a slower economy or AI competition hurts ad demand, that could ultimately take a bite out of AI capital expenditures by those firms and likely filter down into AI-chip market growth. That means investors might want to carefully monitor advertising growth at both firms, along with their spending growth. Meta recently announced a venture into nuclear power for its data centers.

Apple's iPhone 17 already gave shares a boost last fall, so that impressive performance might already be incorporated in the current stock price. Earlier this month, Counterpoint Research said Apple took a 20% market share of the global smartphone market last year, just ahead of South Korea's Samsung Electronics, Barron's reported. And Apple's shipments rose 10% in 2025. However, Counterpoint expects the global smartphone market to fall 2.1% this year as rising memory costs drive up manufacturing expenses.

One thing to watch as Apple reports is any update on possible succession plans for CEO Tim Cook, who's been at the helm since the death of Steve Jobs in 2011. Updates on the iPhone 18's introduction and planned improvements are another key element, along with any plans by Apple to raise prices on that phone and other future products. Apple executives might also be asked about a recent Reuters news report that Apple will use Google's Gemini models for its revamped Siri, Apple's voice-activated virtual assistant. This move, Reuters said, deepens the giants' alliance in AI and bolsters Alphabet versus OpenAI.

Consensus is for the S&P 500 information technology sector to post fourth-quarter earnings growth of 24.5%, though that reflects the chip element of the sector too, according to the London Stock Exchange Group (LSEG) Institutional Brokers' Estimate System, or I/B/E/S. That's down slightly from 30.5% in the third quarter. For the major tech firms reporting this week and next, analysts expect the following: 

MSFT: Reporting January 28 after market close. EPS of $3.96, +22.6% year over year, on revenue of $80.3 billion, +15.4% year over year.

META: Reporting January 28 after market close. EPS of $8.20, +2.2% year over year, on revenue of $58.1 billion, +20.0% year over year.

AAPL: Reporting January 29 after market close. EPS of $2.67, +11.3% year over year, on revenue of $138.4 billion, +11.3% year over year.

GOOGL: Reporting February 4 after market close. EPS of $2.63, +22.3% year over year, on revenue of $111.3 billion, +15.3% year over year.

AMZN: Reporting February 5 after market close. EPS of $1.96, +5.4% year over year, on revenue of $211.3 billion, +12.5% year over year.