“Mag 7 are AI ‘cash machines” – why US tech giants are not in a bubble

“Mag 7 are AI ‘cash machines’ – IG’s Chris Beauchamp on why US tech giants are not in a bubble”

“This week’s earnings from Microsoft, Amazon, Apple, Meta and Alphabet will show why the tech giants aren’t in a bubble. Microsoft expects 14% revenue growth with Azure up 36%, Amazon guides for up to $179.5 billion in quarterly sales, and Meta projects $49.4 billion with 39% operating margins.

These are cash machines converting AI investment into actual results. Unlike the dotcom era when companies burned cash with no business model, today’s heavy spending (Amazon eyeing $118 billion, Meta up to $72 billion) funds infrastructure for already-profitable operations.

“The key difference is tangible progress. Microsoft’s Copilot is moving into paid subscriptions, Meta’s AI tools are driving advertising revenue, and AWS and Azure are locking in multi-year contracts worth billions.

These firms fund AI ambitions from existing cash flow, with Meta still managing 39% operating margins. This week’s results should show whether enterprise adoption is accelerating and cloud backlogs are converting into revenue. If the numbers stack up, it reinforces the case that valuations reflect genuine competitive moats rather than irrational exuberance.”

Meta, Microsoft, and Alphabet earnings preview – eToro

Meta’s earnings

Lale Akoner, global market analyst, says: “Meta reports earnings this week, and investors expect another strong quarter. The parent of Facebook and Instagram has been riding a wave of advertising growth, helped by smarter AI tools that make it easier for brands to target users and measure results. Time spent on Instagram continues to climb, showing that Meta is still winning the attention battle even as new video apps like Nano Banana and Sora 2 try to grab market share.

“Investors will be watching to see whether Meta can maintain its double-digit growth streak and deliver upbeat guidance heading into the holiday season, which is typically its strongest period. The company’s tight cost control and focus on efficiency have boosted confidence that profits can keep expanding, even as it pours money into AI and virtual reality.

“That said, rising ad competition and mounting regulatory scrutiny remain risks that could challenge Meta’s momentum in the quarters ahead.”

Microsoft’s earnings

Lale Akoner, global market analyst, says: “Microsoft reports earnings this week and investors will focus primarily on three areas: cloud/AI momentum, margin trajectory, and capital intensity. With its AI-infrastructure build-out accelerating, investors will gauge whether Azure and its SaaS layers maintain double-digit growth and begin translating into higher monetisation per client. On the margin side, the heavy capex tied to data-centres and AI clusters raises concerns; any sign of margin erosion may offset strong top-line growth. Finally, guidance for the next quarter will be crucial: sustained demand across enterprise software and cloud infrastructure will validate the premium valuation.

“Overall, we think that Microsoft remains the best-positioned “AI utility” in the market, its early infrastructure advantage and deep enterprise ties set it apart from peers. Still, any sign of margin pressure from its massive AI buildout could spark short-term volatility. Long-term investors, however, may see dips as buying opportunities, as the company’s scale and first-mover lead in AI make its growth story one of the most durable in tech.”

Alphabet’s earnings

Lale Akoner, global market analyst, says: “Alphabet reports its third-quarter results this week, and we expect a mixed update. The company continues to benefit from resilient digital ad spending, with its AI-powered tools like Performance Max helping advertisers improve targeting and conversion. Google Cloud should also post another solid quarter as enterprise demand for AI infrastructure remains strong.

“However, the focus will be on what’s next, not just what’s been delivered. Google’s push to integrate AI directly into search is a bold move that could redefine its core business, but it also carries short-term risks. In our view, the company is walking a fine line between innovation and disruption, as AI-generated answers could temporarily weigh on ad revenue before unlocking new monetisation opportunities.

“We think investors should brace for some volatility. Competition from OpenAI and Meta remains fierce, and regulatory scrutiny isn’t easing. Still, Alphabet’s scale, data advantage, and leadership in AI infrastructure give it staying power in what’s shaping up to be the next major shift in online search.”

Big Tech will smash earnings this week, power markets higher into year-end: deVere CEO

Big Tech is likely to deliver blockbuster earnings this week and drive a powerful rally through the remainder of the year, predicts Nigel Green, CEO of global financial advisory giant deVere Group.

Apple, Amazon, Alphabet, Microsoft and Meta Platforms are all scheduled to report third-quarter results in the coming days.

Futures linked to the Nasdaq and S&P 500 advanced ahead of the releases, as investors positioned for stronger profits from the world’s largest technology firms.

Nigel Green comments: “I expect these earnings to come in ahead of forecasts.”

“Revenue momentum from AI, cloud computing and digital advertising appears to be building again.

“With inflation cooling faster than anticipated and policy easing in sight, conditions now look the best they’ve been for these firms in several years.”

He adds that this week’s earnings may set the tone for global markets into year-end.

“If Big Tech delivers, I expect the rally to broaden rapidly. These companies remain the heartbeat of global growth — they are not just weathering a higher-rate environment; they’re emerging stronger from it.”

US inflation data released last week came in softer than expected, fuelling expectations of a Federal Reserve rate cut at its October 29 meeting.

Market pricing currently shows around a 95-to-98% probability of a reduction of about 25 basis points, which would take the target range toward 3.75 to 4%.

Nigel Green says such a move would add fuel to the momentum. “If the Fed cuts as the market expects, I anticipate liquidity will return quickly to growth assets. These companies are first in line to benefit.

“They have fortress balance sheets, global reach, and exposure to every structural growth theme that matters, such as AI, automation, cloud and digital infrastructure.”

He predicts that strong earnings could trigger a rapid rerating of the sector.

“If results outperform, the rotation back into technology could be swift and intense.”

Nigel Green expects a ripple effect across regions and asset classes. “Positive surprises from Big Tech tend to lift sentiment far beyond Silicon Valley. Semiconductor and component suppliers in Asia, especially Japan, South Korea and Taiwan, would likely see inflows as investors reposition for expanding demand across the tech supply chain.”

He believes this optimism could also extend to digital assets. “Bitcoin’s climb above $115,000 reflects improved sentiment toward growth-linked assets. If Big Tech earnings and a Fed rate cut reinforce each other, I expect Bitcoin and other alternatives to gain further as investors diversify across risk assets.”

Looking ahead, the deVere CEO forecasts that Big Tech will carry the broader market to fresh record highs before year-end.

“My projection is that both the Nasdaq and S&P 500 will end the year at new peaks. If guidance from these firms is as strong as I anticipate, their combined market capitalization could expand considerably.”

He says this next phase is being built on solid foundations. “Over the last two years, these companies have cut costs, streamlined operations and invested heavily in AI efficiency.

“This discipline is now translating into higher margins. I expect forward guidance to reflect that strength.”

Nigel Green concludes: “My prediction is that Big Tech will exceed expectations this week, will rally further towards the close of the year, and with them will push global indices to new highs by the end of 2025.”

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