Q3 Tech Earnings Preview: Can AI Save the Day?

After struggling earlier in the year, the Magnificent Seven managed to shed their "lag 7" moniker in the third quarter. Aggressive institutional buying, retail ETF inflows, and signs of strong AI demand helped lift the group despite ongoing concerns about long-term returns on record AI-related investments.

However, Wall Street analysts now expect mixed third-quarter earnings results, and multiple headwinds have begun to derail the Mag Seven's rebound. Persistent inflation, rising Treasury yields, geopolitical tensions, and the potential for additional rate hikes have all contributed to a volatile start to the fourth quarter.

Despite the headwind-heavy backdrop, AI demand and monetization will likely be in focus once again this earnings season. Alphabet (GOOGL), Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META), Apple (AAPL), and Tesla (TSLA) are all scheduled to report in the next two weeks. Investors will have to wait until mid-November to parse results from AI bellwether Nvidia (NVDA), but the reports from the first six companies should offer a useful AI temperature check in the meantime.

Rising debt levels and record capital expenditures will also be under the microscope this quarter, with free cash flow (FCF) under pressure at many Mag Seven companies. Hyperscalers' off-balance-sheet commitments may attract attention as well, with long-term AI-related lease and purchase commitments soaring in recent quarters at Meta, Microsoft, Amazon, and Alphabet.

With the Mag Seven facing plenty of headwinds and increasingly skittish investors, this earnings season will be a critical test for AI demand and monetization. Here's what to watch.

Earnings expectations for Mag Seven companies are well below those of the broader tech sector this quarter.

As an equally weighted basket, the Mag Seven are expected to post 33% year-over-year earnings per share (EPS) growth, compared with 65.1% for the S&P 500^® information technology sector, according to FactSet data.

While the outlook for the collective Mag Seven appears strong, forecasts vary widely among the individual companies. Meta and Nvidia are expected to report surging EPS, with Meta's year-over-year comparison getting a boost from a one-time tax charge last year. However, Wall Street's consensus estimates for the rest of the group are far more pedestrian. Here's what analysts* are forecasting:

*Note: Average analyst earnings and revenue estimates are as of October 20, 2026, courtesy of Schwab.com, and are subject to change.

One major issue for Big Tech going forward is the scale of investment required to support the AI infrastructure buildout.

Columbia Business School professor Stijn Van Nieuwerburgh estimated in a September 2026 paper that AI-related data centers, power systems, networking, and infrastructure equipment could require $10.3 trillion in investment between 2025 and 2032.

The Mag Seven are expected to contribute a significant portion of that spending. In 2027 alone, the group's capital expenditures are projected to approach $1.1 trillion, according to estimates from Goldman Sachs (GS) and Morgan Stanley (MS).

Some Mag Seven companies have turned to debt to help fund this spending spree. And with interest rates and Treasury yields rising, issuing new corporate debt has become more expensive.

"Higher interest costs are certainly an important factor in profitability," said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research. "I'm not sure if this will be a problem for this upcoming quarter per se, but given the heavy—and projected—issuance of debt by hyperscalers, interest expense could become important down the line."

On-balance-sheet debt is only part of the story, however. Hyperscalers are also making massive off-balance-sheet commitments for the chips, data centers, and other equipment and infrastructure that they'll need in the years ahead.

Using data from multiple investment banks, the Financial Times estimated that six major tech companies—Alphabet, Microsoft, Amazon, Meta, Oracle (ORCL), and Nvidia—had amassed roughly $1.5 trillion in purchase commitments by the end of the second quarter. That was up from around $1 trillion just three months earlier. Goldman Sachs separately counted roughly $1.5 trillion in lease commitments, about $1 trillion of which hadn't begun.

The numbers were particularly striking at Alphabet and Meta. Alphabet had $811 billion in purchase commitments and other contractual obligations as of the second quarter, while Meta reported $349.3 billion in noncancelable contractual commitments and another $279 billion in lease commitments.

The scale of these off-balance-sheet commitments tied to the AI buildout will be important for investors to watch in the third quarter, with AI spending already weighing on FCF at many Mag Seven companies.

Alphabet reported negative FCF of $5.9 billion in the second quarter, down from a peak of positive $24.6 billion in FCF in the fourth quarter of 2025. Meta's FCF also sank 91% year over year to just $748 million in the second quarter, and Amazon's trailing-12-month FCF fell to negative $7.6 billion from positive $18.2 billion a year earlier.

With significant investment still ahead and companies already committing hundreds of billions of dollars to future AI-related spending, analysts and investors will likely focus on the Mag Seven's forward guidance this quarter. Signs that spending plans are continuing to accelerate could potentially spook investors if AI monetization isn't robust.

Questions about whether the Mag Seven can turn their massive AI spending into sustainable profits remain front and center this quarter. For investors, that means cloud revenues and margins will be in focus once again.

Many Mag Seven companies reported promising results in their cloud divisions in the second quarter. Alphabet's Google Cloud revenue surged 82% year over year to a record $24.8 billion, while its operating margin expanded. Amazon Web Services (AWS) posted 37% year-over-year revenue growth—its fastest in 18 quarters. And Microsoft Cloud's revenues jumped 26% from a year ago, although its gross margins fell slightly.

Analysts are largely optimistic about third-quarter cloud growth given strong AI demand. The Mag Seven are also seeking new ways to profit from the rise of AI beyond cloud revenues.

Apple, Amazon, and Microsoft all announced new devices designed to bring AI into the home ahead of third-quarter earnings season. Agentic AI offerings—such as Meta's Muse—and new consumption-based pricing models for AI products are also meant to generate durable, recurring revenues.

The Mag Seven's earnings reports this quarter could offer a clearer picture of which AI products and services are gaining traction and beginning to generate meaningful returns.

"There's been a lackluster post-earnings reaction in recent quarters, but if hyperscalers can surprise on AI monetization or show accelerated AI adoption for their products, it could help quell investor fears around spending and potentially result in a favorable post-earnings move," said Peterson.

Early earnings season numbers from AI bellwethers have largely offered bullish signals ahead of the Mag Seven's earnings, but there have been a few warning signs as well.

Let's start with the good news. Micron Technology (MU) topped Wall Street's lofty forecasts in its September 30 earnings report. The memory maker's revenues surged 379% year over year to $54.23 billion, and it offered upbeat guidance.

The Dutch giant ASML Holding (ASML)—which makes advanced lithography machines used to produce semiconductors—also beat expectations in its October 14 earnings report. The company's sales rose 55% year over year, while its net profit more than doubled. Management also raised its sales forecast for full-year 2026, with CEO Christophe Fouquet noting that customer demand rose amid a strong outlook for the "size and duration of AI-related investments."

Anthropic reported strong results at an investor event in San Francisco on October 14 as well. The leading AI lab said its revenue surged to $16.8 billion during the third quarter, a 45% sequential increase from the second quarter, and noted that it was profitable on an adjusted basis for the second straight quarter. Finally, Taiwan Semiconductor Manufacturing (TSM) posted a record profit for the sixth straight quarter on October 15 and raised its guidance, citing "extremely robust demand" for chips.

On the other side of the ledger, OpenAI spooked investors after saying its annualized revenue run rate was just $50 billion at the end of September. The figure was about $20 billion lower than earlier reports and investor estimates of roughly $70 billion, though this gap may largely reflect how OpenAI was incorporating gross revenue numbers from partner companies.

Neocloud providers—companies that rent out computing capacity—also plunged in mid-October amid concerns about mounting debt and heavy spending. The main catalyst for the drop was a sudden surge in the bond yields of Nvidia-backed CoreWeave (CRWV), but a social media post from Elon Musk and a Gartner report added to the pressure.

Gartner said it expects 80% of neocloud providers to cease independent operations by 2030. The research and advisory firm also claimed that enterprise and consumer AI revenue will be insufficient to support profitable returns on all planned AI capital expenditures between 2027 and 2030.

Some analysts have pushed back against recent AI spending and ROI fears, however, arguing the rise of agentic AI and physical AI-enabled robots will offer more monetization avenues for businesses moving forward. "The big picture is we're still early. We haven't even started on personalized AI…and physical AI," Gene Munster, Deepwater Asset Management managing partner, argued in a mid-October CNBC interview. "Make the distinction between weather and climate. The weather is pretty choppy right now; the climate still looks really good for the AI trade."

While FCF, capital expenditures, and cloud revenue growth will be in focus this quarter for many of the Mag Seven, investors will also have a slew of major company-specific trends to watch. Here are just a few to keep in mind for the six companies reporting soon:

• Muse early usage and adoption statistics. Meta released its general-purpose AI agent Muse on September 8, and within 10 days, it surpassed ChatGPT to take the top spot in Apple's App Store.
• Long-term debt and FCF trends. Meta's long-term debt surged 190% year over year to $83.66 billion last quarter as FCF plunged.
• Reality Labs pivot to AI glasses. Meta has pivoted from focusing on virtual reality headsets to AI smart glasses and released its Ray-Ban Meta Gen 3 lineup in early September. Reality Labs revenues rose 16% year over year last quarter.

• Outlook for the robotaxi business and the Optimus humanoid robot. Tesla is expanding its Cybercab fleet in Texas, while Optimus is in early, small-scale production.
• Management commentary on lower-than-expected energy storage deployments. Tesla revealed it deployed 13.7 GWh of energy storage in the third quarter, up 10% year over year but well short of consensus estimates for 15.9 GWh.
• Impact of declining vehicle deliveries on revenue and earnings. Total deliveries fell 2.1% year over year in the third quarter, according to Tesla's early October delivery report.

• Core search and ad business resilience. Google Search and other revenue grew 17% year over year in the second quarter, down slightly from 19% in the first quarter.
• Gemini app adoption. Monthly active users hit 950 million in the second quarter, more than double what was seen in the same quarter a year ago.
• Outlook for other income. Alphabet booked roughly $99 billion in "other income" last quarter due primarily to unrealized gains in investments like SpaceX (SPCX) and Anthropic.

• Copilot adoption trends amid rising competition. Microsoft's AI assistant, Microsoft 365 Copilot, reached 30 million paid seats last quarter, up 50% sequentially, but it faces increasing competition from Claude Enterprise, ChatGPT Enterprise, and Gemini Enterprise.
• Updates on usage-based pricing and agentic AI. Microsoft's agentic AI assistant Copilot Cowork and its GitHub Copilot software development tool have both implemented usage-based pricing, which independent research firm CFRA analysts expect will boost average revenue per user.
• Efforts to stabilize the gaming business. Xbox content and services revenue fell 10% year over year in the second quarter.

• Advertising revenue growth. Amazon's ad revenue jumped 26% year over year last quarter to $19.8 billion, its fastest growth in several quarters.
• Custom AI chip adoption. Updates on Amazon's Trainium, Inferentia, and Nitro chips, as the company expands its chip business amid strong AI compute demand.
• Core e-commerce growth. Online store net sales rose 15% year over year to $70.4 billion last quarter, up from 10% growth in the same period a year earlier.

• Gross margins amid rising component and memory prices. Management guided for gross margins of 47% to 48% in the third quarter, down from 50.1% last quarter.
• Updates on Siri AI usage and paid tier. Apple released a beta version of its overhauled Siri personal assistant, now called Siri AI, in September.
• iPhone and hardware demand trends. iPhone sales surged 22% year over year last quarter. Wall Street analysts have flagged signs of lukewarm demand for the iPhone 18 Pro and Pro Max, but Apple reportedly raised orders for its new foldable, the iPhone Duo, by 30% amid signs of strong demand.