Less Magnificent: Why Mega-Caps Limp Post-Results

As Nvidia (NVDA) earnings approach, investors might be excused for feeling less-than-enthusiastic. The last six earnings reports from the so-called "Magnificent Seven" stocks mostly sparked sell-offs, including Alphabet (GOOGL), Tesla (TSLA), Microsoft (MSFT), and Amazon (AMZN).

All told, softness in the Magnificent Seven—including a stretch of eight declining sessions for Amazon after it reported—put the S&P 500^® Index (SPX) into hibernation. A week after the first six, the broad index traded about 1.5% lower for February and barely up for the year, even as less-prominent sectors like materials and energy held together well.

"Recent market breadth strength is good for depth below the surface, but creating and sustaining new all-time highs will likely require tech to take the pole position," said Joe Mazzola, head trading and derivatives strategist at Schwab.

Selling pressure came despite quarterly numbers that, except in Amazon's case, beat analysts' expectations.

And as the year wears on, it might get even tougher for these companies to impress investors. Earnings growth from Magnificent Seven stocks is expected to stabilize this year, even as multiples remain well above average. Firms like Amazon and Apple (AAPL) also face the law of large numbers in many businesses, such as cloud and iPhones, making growth tougher even as they stare down possible margin pressure and growing debt from AI spending. Recently, Alphabet announced a debt sale expected to exceed $30 billion amid plans to spend up to $185 billion on AI this year.

Nvidia could benefit from that spending, but it hasn't escaped the earnings trap. In fact, it's arguably the poster child. Nvidia reports after the market close on February 25. Checking its performance the last four times the company reported, it's not a rosy picture:

• On November 20, 2025, after Nvidia reported the prior night, shares fell 3.1%.
• In late August after Nvidia reported, shares fell more than 10% by the end of the following week.
• Nvidia rose 3.2% the day after last May's earnings, a break from the trend,
• Shares plunged more than 8% last February after Nvidia reported results.

For the overall Magnificent Seven, the post-earnings story is also gloomy. Six of the seven reported during the weeks of January 19 and February 2. Combined, the not-so-lucky seven fell 3% between the day prior to that stretch and February 5. Things were a bit more complex last fall, when shares initially exploded out of the gate on earnings in late October, only to backtrack nearly 7% over the first three weeks of November.

With Nvidia ahead, investors might feel gun-shy, wondering what's caused these post-earnings pullbacks in the market's most well-known tech stocks and whether it might continue.

While not every large tech firm or Magnificent Seven member has crumbled after earnings over the last year, it happens often enough to be a trend. And it's not necessarily the result of balance sheet weakness. The issues are complex and not necessarily going away soon. Here's why.

Advanced Micro Devices (AMD), not a Mag Seven member but a close competitor of Nvidia, saw shares plunge in February despite solid results and guidance in the range of analyst expectations. However, there was apparent disappointment that the quarterly guidance didn't exceed those estimates.

Margins expectations are another data point for which investors have punished companies in recent quarters. Nvidia turned lower after one recent earnings report because its anticipated gross margin fell into the low-70s from the mid-70s (anything that high is normally considered outstanding). Last August, Nvidia took a post-earnings spill—not because overall numbers were short, but because data center revenue rose 56%, missing analyst estimates by a sliver. Any type of miss from these companies draws heavy scrutiny, and selling often flares up even before companies address the issues in their earnings calls.

It's no secret firms like Meta (META), Microsoft, Alphabet, and Amazon are spending hundreds of billions on data centers and AI tools. But when the spending eclipses even Wall Street's high estimates, the stocks tend to get punished. Alphabet, for instance, shocked investors when it reported early this month and said it planned to double capital expenditures this year.

If companies use debt to finance that spending, it tends to hurt shares more. The exception last quarter was Meta, which hiked spending plans but also showed evidence of "monetizing" AI by improving its ad business. If companies want investors to be happy about the spending, it helps to show a quantifiable return on investment.

Microsoft shares sold off after earnings last quarter, despite 39% growth in the company's Azure cloud platform. That sounds hefty but it was down sequentially from previous growth of 40% and just shy of analysts' expected growth measure of 39.4%. Amazon saw pressure last year when cloud growth moderated to the teens after many years of much higher numbers.

The problem with high growth is tough comparisons, which become more difficult as competition hits the market. No company can grow a business 50% or 60% decade after decade, but investors got used to rosy cloud and iPhone growth, and anything even slightly weaker raises concerns.

Nvidia, which posted triple-digit revenue growth earlier this decade, is down to double-digit growth, with shares now trading well below their late-October all-time highs. Another issue is investors have baked in strong earnings growth for Magnificent Seven stocks, evident in their high valuations. That means it takes extraordinary earnings outperformance to move the needle higher.

Sometimes, heavy demand for AI-related technology can be the root of a post-earnings slide. Shares of chip-giant Intel (INTC) cratered when it reported in late January, despite nearly doubling analysts' quarterly earnings per share consensus. The reason was below-expected guidance not related to whisper numbers or falling demand but the inability to deliver the supply it needed. The company needs to expand its production yields, CNBC reported, and Intel said supply would improve by the second quarter.

Supply constraints aren't limited to chipmakers. Another drag is a shortage of memory chips important not just for AI applications but for everything from video games to phones to automobiles. It's another case where these companies are a victim of their own success, as AI demand has gobbled up supplies needed for other things. This surfaced in Tesla's recent earnings call, when CEO Elon Musk said suppliers aren't getting chips to Tesla at needed levels. To address this, Tesla plans to build its own semiconductor manufacturing capacity, Bloomberg reported. Of course, that would cost billions at a time when Tesla, like other Mag Seven firms, already faces dramatic costs. "We're going to hit a chip wall if we don't do fab," Musk said, referring to chip fabrication, according to Bloomberg. Shares of Tesla fell 3.1% on January 29, the day after earnings.

Plenty of ink has been spilled about "circular" spending in AI and worries about it remain a roadblock to rallies. "This structure typically involves a supplier (for example, a chipmaker or cloud provider) investing capital into an AI company (its customer), which then uses that money to purchase the supplier's products or services," according to a recent report by Liz Ann Sonders, chief investment strategist at the Schwab Center for Financial Research (SCFR) and Kevin Gordon, head of macro research and strategy at SCFR. "The primary concern is that it creates a self-reinforcing, potentially unsustainable loop of investment and demand that may obscure genuine market value."

Though Magnificent Seven earnings growth is expected to sequentially improve in the fourth quarter (once Nvidia reports, the full growth rate will become clear), growth for these seven companies might stay sequentially flat year over year in the first and second quarters, according to the London Stock Exchange Group's (LSEG) Institutional Brokers' Estimate System (I/B/E/S).

Though Magnificent Seven year-over-year earnings growth is expected to remain north of the other 493 S&P 500 members, sequential growth for the other 493 is seen rising the next two quarters amid strength in sectors like staples, energy, health care, industrials, and utilities. "The growth rate for the Mag Seven will remain higher than the rest of the index's constituents, but the direction of travel is important as well," according to the report by Sonders and Gordon. "As we often tell investors, 'better or worse often matters more than good or bad.'"

Investors have shifted out of tech and into other sectors for perceived value. "This didn't start in 2026, but money flow is always looking for a place to grow, or looking for alpha, and as the relative outperformance in non-tech areas of the market picked up momentum, this helped exacerbate that outperformance between the Magnificent Seven and the rest of the market," said Nathan Peterson, director of derivatives research and strategy at SCFR. "In other words, the rotation trade was, in part, being funded by the selling of past leaders, such as the Magnificent Seven companies."

Around mid-January, underperformance in software stocks shifted into a higher gear as headlines around AI's ability to replicate incumbent business models began to proliferate. "The near-indiscriminate selling in the software space has degraded investor sentiment and investors' willingness to pay for stocks with lofty price/sales ratios because they now need to factor in the potential of AI competition," Peterson said.

Software company ServiceNow (NOW), for instance, beat estimates, raised guidance, and announced a stock buyback, but shares fell 20% by mid-February from the levels it reported on January 28. Advertising platform AppLovin (APP) delivered solid quarterly results, but the stock still sold off nearly 20% following the results on fears of future AI disruption. "This valuation reset in software can then lead to valuation scrutiny in other areas of tech," Peterson added.

With AI disruption, spending fears, sector rotation, and valuation concerns keeping mega caps and their large-cap tech and communication services brethren on ice this year, investors are exploring different parts of the tech market, especially companies that might benefit if AI investment keeps surging.

These include data storage, memory chip providers, and semiconductor equipment makers. Companies like Western Digital (WDC), Lumentum (LITE), Seagate Technology (STX), Micron (MU), and Applied Materials (AMAT) have easily outperformed the Magnificent Seven companies so far this year.

"Because investors don't know how low the valuation reset will go in areas like software, and they won't have a near-term answer as to how disruptive AI will be, money looks for relative stability or safety," Peterson said. "This has led investors to rotate into AI-infrastructure stocks, because not only will they not get hit by AI disruption but are net beneficiaries of AI investment."

Sonders and Gordon believe the market "could reward AI adopters more than AI enablers, with adopters positioned to benefit by locking in measurable gains in efficiency and innovation."

In addition, Sonders urged investors to focus on quality and not try to time AI-driven sector movements.

"It's kind of a 'sell-first, ask questions, do real research later' kind of backdrop, and I would caution investors not to get overly excited when you have a subsegment of an industry or a sector all of a sudden doing well, or poorly," Sonders said.

Trading on emotion or FOMO amid these quick rotations also doesn't make much sense. "That continues to be one of the reasons why we've had more of a factor focus—investing based on stocks' characteristics—over a more monolithic sector focus, in part because these sector rotations are happening fast and furiously," Sonders added.

Either way, it's going to be an interesting ride as these stocks, currently not so magnificent, remain under a very critical collective microscope.