WSJ What’s News - What’s News in Earnings: How Magnificent Can the Magnificent Seven Get?

Episode Date: August 5, 2025

Bonus Episode for Aug. 5. Six of the so-called Magnificent Seven companies have reported quarterly earnings, with only Nvidia, the most-valuable of them all, yet to release its results. Heard on the Street’s Asa Fitch talks about how much better it can get for the stocks harnessing AI-mania to propel the stock market. Asa, who also writes the Journal’s new AI newsletter, says that the hyperscalers show no sign of slowing their furious pace of capital investment in infrastructure, but he cautions that continuing to top investors’ lofty expectations is becoming more of a challenge. Markets AM writer Spencer Jakab hosts this special bonus episode of What's News in Earnings, where we dig into companies’ earnings reports and analyst calls to find out what’s going on under the hood of the American economy. Sign up for the WSJ's free Markets A.M. newsletter. Sign up for the WSJ's free WSJ AI & Business. Learn more about your ad choices. Visit megaphone.fm/adchoices

Business is evolving fast and hearing how others are adapting can make all the difference. Hear perspectives from global executives as they share what's working, what's changing, and what they think lies ahead on the Executive Insights podcast, available on all major podcast platforms. Hey, listeners. It's Tuesday, August 5th. I'm Spencer Jacob for The Wall Street Journal, and this is What's New in Earnings, our look at the broad themes that stood out in the latest earnings season. So earnings season continues, but six of the companies that have been on everyone's minds,

the Magnificent Seven, have shown us how they did in the last quarter and more importantly what they're planning to do with some of those billions of dollars in cash flow. Heard on the street writer Asa Fitch, who also coauthors the journal's new AI newsletter, is here to shed some light on their results and the capital expenditure bonanza. So Asa, if my math is correct, the four hyperscalers, that's Amazon, Meta, Microsoft,

and Google, whose parent is Alphabet, that are investing the most in AI infrastructure, all of them members of the Mag7, plan to invest more than $300 billion this fiscal year, and close to $400 billion in the coming 12 months, mostly on AI stuff. What happened to being capital light? Those days are gone.

Today, the watchword is who can spend the most money on AI stuff. What happened to being capital light? Those days are gone. Today the watchword is who can spend the most money on AI because AI is the thing that's going to drive forward these businesses in the near future and the long future, at least in the minds of many of the leaders of these tech companies. So you can't afford to not spend money on AI and you can't afford to spend perhaps less than your competitor on AI because first of all, you have the money. These tech companies are minting money. It's not like they're sort of going to the piggy bank, borrowing tons of money, getting

big into debt because they want to splurge on AI. They're getting money out of their business. They're spending that money largely on AI. So there's a bit of comfort in the ability of these tech companies to continue to spend on AI and continue to continue to spend on AI and continue to ramp up spending on AI, it has been, nonetheless, pretty insane. If you look at the numbers, as you mentioned, these numbers are huge. Just look at the trajectory.

Google last year spent $50 billion or so in capital expenditures, much of that on AI. At that point, that was a large amount of money. This year, they're talking about spending $85 billion on this stuff. That's up from a previous plan of $75 billion. So it's a ton of money. And people tend to be blinded by these figures. What's another 10 billion? What's another 100 billion?

This is a ton of money that's being thrown at AI because these companies believe it's just an indispensable critical technology that's going to drive their futures. So the spending bonanza, it's running. It's running. Yeah, they definitely did not seem shy. Well, only one of the Mag7 is yet to report, which is NVIDIA, and it's the prime beneficiary of this arms race selling the chips that they all really need. I mean, they're not the only one, but that they all need to power these data centers

and run these models. Is it odd that the first company to cross the four trillion mark very much, the sort of the dean right now of the Mag-7 is the arms dealer here and the others are shoveling money into its coffers? I would say it's not necessarily odd. If you look at past tech transitions where we've seen a Russian investment, most notably of course prior to the dot com bubble crashing, it has been the picks and shovels companies that have garnered the biggest valuations.

At one point Cisco was the largest company in the world for a very brief moment, not like Nvidia in this run up. But if you look at historically, it's quite typical for the providers of the basic hardware and technology during a boom to run up faster. And then maybe assuming the trajectory continues and the technology actually pans out, the others come up behind it. So you've noted expectations are extremely high. You really need to clear the bar by a lot for the numbers to be counted as good.

And at least one of the Mac 7 Amazon looked briefly like the lag 7. It fell a lot on Friday after reporting its earnings on Thursday evening. The specific source of disappointment was its AWS operation. That's the part that runs data centers, not the retailer part of it. Should investors be concerned or are their expectations getting unrealistic? Maybe they should be concerned. If you look at how big Amazon's AWS is growing, they grew at 17.5% in the last quarter, and that's in line with expectations. It's not some crazy disappointing number, as you alluded to earlier.

The thing is, Microsoft's cloud business was up 39%, and Google was up 32%. So if you're sitting there at 17.5%, you don't look too great. Now Amazon in its defense, its CEO Andy Jassy in a call with analysts after a report, essentially said that we're a bigger business, so it's harder for us to grow. Amazon Web Services makes over $100 billion a year. Microsoft is around $75 billion a year. Google's is less. So it's maybe a fair point.

You're coming from a larger base. You wouldn't expect to get the kinds of jumps that these others are getting. But especially when you look at Microsoft and it's Azure cloud service, it growing at 39% off a revenue base of $75 billion. Currently that's a lot of growth and that's a big base. So Amazon, it doesn't look that good. Investors really punished Amazon for that, even though they're broadly, their results were actually quite good And another company another member of the mag-7 we haven't spoken about yet is Apple

Which is a relative laggard in adopting AI it had a blowout quarter iPhone sales were surprisingly strong How much of that was just demand being pulled forward? How much of that is people? How much of that was just demand being pulled forward? How much of that is people buying the phones or buying MacBooks because they have AI features built into them? If you believe Apple, not much of this growth has to do anything with tariffs. They said revenues rose 10% in the most recent quarter. They said about one percentage point of that

was related to basically people saying, I got to get my iPhone now because there's going to be tariffs later. They say that tariffs will cost them about $1.1 billion in their current quarter. They made that forecast, not the previous one. They already cost about $800 million in the most recent one. So tariffs are having impact on Apple. But if you look at these numbers, the growth in the sales of iPhones and other things, that's clearly outstripping any of

these sorts of impacts from the latest news around tariffs and things like that. One thing that's so remarkable to anyone watching these companies really dominate the discussion among investors and dominate markets is just how big seven out of the 500-ish companies in the S&P 500 are in terms of driving the dialogue. The fact that their capital investment alone this year is going to be equivalent to about 1% of US GDP, which is a very large number.

Is there concern about how large they are and just the difficulty of meeting expectations given their size? There are a lot of nimble competitors around them that would like a piece of that action and some of that valuation too. If you're an investor in these companies looking at them, they've set very high bars for themselves. Once they start routinely beating expectations for earnings and giving very, very bullish forecasts, they set themselves up for a scenario where you basically can't afford to miss. So the rich get richer in this AI boom, but also the rich become more vulnerable to potentially

shocks. The other aspect of this is just that they are targets, and tech is always an area where there's disruption of some sort. With the AI boom so far, they've largely understood that they're vulnerable and that's one of the reasons that they're spending so much money. They don't want a perplexity or an inception AI or whatever it is, one of these startups to come, of course they haven't done this yet, but to come and eat their lunch. So they buy these companies or they find ways to invest even more in

these companies. The thing for the big tech companies in this boom is that it's harder for smaller companies to come up and eat their lunch because of the high cost of doing this stuff. So if the entry fee for leading edge AI is hundreds of billions of dollars, these tech companies basically protected themselves from competition. But there's always somewhere far behind some competitor that could come up with some crazy technology that changes the game and then leaves them out of the race. Asa, thanks so much for that fascinating discussion. That was really interesting. And that was What's News and Earnings.

Today's show was produced by Zoe Kolkin and Pierre Bienamé with supervising producer Michael Kosmodis. In the show's notes, we left a link for you to sign up to ACE's AI and Business Newsletter and to my Daily Markets AM newsletter. Later today, we'll have the PM edition of What's News out for you as usual, and we'll be back later this earnings season diving into another industry. Until then, I'm Spencer Jacob. Have a great day.

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