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

Summary

WSJ What’s News Episode Summary: “What’s News in Earnings: How Magnificent Can the Magnificent Seven Get?”
Release Date: August 5, 2025

The Wall Street Journal’s podcast, What’s News in Earnings, hosted by Spencer Jacob, delves into the latest earnings season with a focus on the "Magnificent Seven" (Mag Seven) companies. In this episode, released on August 5, 2025, Spencer Jacob engages in a comprehensive discussion with Asa Fitch, a street writer and co-author of the Journal's new AI newsletter. They explore the financial performances, strategic investments, and future prospects of these leading tech giants.

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1. Introduction to the Magnificent Seven and AI Investments

Spencer Jacob opens the discussion by highlighting the ongoing earnings season and the significant financial moves by the Mag Seven—Amazon, Meta, Microsoft, Google (Alphabet), Apple, Nvidia, and one more yet to be discussed. He underscores the massive capital expenditures these companies are making, particularly in artificial intelligence (AI).

• Quote: “[...] the four hyperscalers, that's Amazon, Meta, Microsoft, and Google, whose parent is Alphabet, that are investing the most in AI infrastructure... 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?”
  — Spencer Jacob [00:03]

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2. The Shift from Capital Light to Capital Intensive Investments in AI

Asa Fitch responds by explaining the paradigm shift in the tech industry from being capital light to capital intensive, primarily driven by the imperative to invest heavily in AI to stay competitive.

• Quote: “Those days are gone. Today, the watchword is who can spend the most money on AI... you can't afford to not spend money on AI, and you can't afford to spend perhaps less than your competitor on AI...”
  — Asa Fitch [01:08]

He elaborates on the unprecedented scale of these investments, using Google’s increased capital expenditure from $50 billion to $85 billion as a case study to illustrate the "spending bonanza" in AI.

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3. Nvidia’s Pivotal Role in the AI Investment Race

Spencer Jacob brings attention to Nvidia, the only Mag Seven company yet to report earnings, noting its critical role as the primary supplier of chips necessary for AI infrastructure.

• Quote: “Is it odd that the first company to cross the 4 trillion mark... is the arms dealer here and the others are shoveling money into its coffers?”
  — Spencer Jacob [02:31]

Asa Fitch draws parallels with historical tech booms, suggesting that companies providing essential hardware during such periods often achieve rapid valuation growth. He cites Cisco during the dot-com era as a similar example.

• Quote: “If you look at past tech transitions... it's quite typical for the providers of the basic hardware and technology during a boom to run up faster.”
  — Asa Fitch [03:03]

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4. Amazon's AWS Performance and Investor Expectations

The conversation shifts to Amazon, specifically its AWS (Amazon Web Services) division, which saw a 17.5% growth in the last quarter. While this growth met expectations, it lagged behind competitors like Microsoft and Google, leading to investor disappointment.

• Quote: “Maybe they should be concerned... AWS grew at 17.5%... whereas Microsoft's cloud business was up 39% and Google was up 32%... so Amazon, it doesn't look that good.”
  — Asa Fitch [03:36]

Spencer Jacob notes the market’s reaction, highlighting a significant drop in Amazon’s stock following the earnings report.

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5. Apple’s Performance: Strong Sales Amid AI Adoption

Apple is identified as a relative laggard in AI adoption but delivered strong financial results, particularly in iPhone sales.

• Quote: “If you believe Apple, not much of this growth has to do anything with tariffs... the growth in the sales of iPhone, phones and other things, that's clearly outstripping any of these sorts of impacts...”
  — Asa Fitch [05:34]

Asa Fitch discusses the impact of tariffs on Apple, noting that while there was some effect, the company’s revenue growth primarily stemmed from robust product sales rather than AI-driven features.

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6. Dominance and Future Challenges of the Magnificent Seven

The episode further explores the substantial influence of the Mag Seven, whose combined capital investments this year are equivalent to about 1% of the US GDP. This dominance raises concerns about the sustainability of meeting high expectations and the challenges posed by nimble competitors.

• Quote: “If you're an investor in these companies looking at them, they've set very high bars for themselves... the rich get richer in this AI boom, but also the rich become more vulnerable to potentially shocks.”
  — Asa Fitch [06:55]

He highlights the vulnerability of these tech giants to disruptions despite their massive investments, emphasizing that while high entry costs protect them, unforeseen technological breakthroughs by smaller competitors could pose significant threats.

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7. Conclusion and Future Outlook

Spencer Jacob wraps up the discussion by reflecting on the intricate dynamics of the Mag Seven's investments and market influence. He acknowledges the remarkable dominance of these companies in driving market narratives and the critical role of AI in shaping their future trajectories.

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Key Takeaways:

• The Magnificent Seven are heavily investing in AI, with expenditures expected to reach nearly $400 billion in the next 12 months.
• Nvidia stands out as a crucial supplier in the AI arms race, drawing historical parallels with key tech providers during previous booms.
• Amazon’s AWS growth, while meeting expectations, pales in comparison to Microsoft's and Google's, leading to investor concerns.
• Apple demonstrates strong sales growth, driven more by product demand than AI features, despite being slower in AI adoption.
• The sheer size and investment capacity of the Mag Seven place high expectations on their performance, making them both leaders and vulnerable targets in the tech industry.

This episode provides a deep dive into the financial strategies and market positions of the Mag Seven, offering listeners valuable insights into the current state and future prospects of these tech giants.

Transcript

[Spencer Jacob]

Hey, listeners, it's Tuesday, August 5th. I'm Spencer Jacob for the Wall Street Journal, and this is what's News 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 of the street writer Asa Fitch, who also co authors 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 Max 7, 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?

[Asa Fitch]

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, in 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 into 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 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 this spending bonanza, it's running.

[Spencer Jacob]

It's running. Yeah. They definitely did not seem shy. Well, only One of the Mag 7 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 4 trillion mark, very much the dean right now of the MAG7 is the arms dealer here and the others are shoveling money into its coffers?

[Asa Fitch]

I would say it's not necessarily odd. If you look at past tech transitions where we've seen a rush in 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.

[Spencer Jacob]

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 7Amazon 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?

[Asa Fitch]

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's 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 its 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. And investors really punished Amazon for that, even though broadly their results were actually quite good.

[Spencer Jacob]

And another company, another member of the Max 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 buying the phones or buying MacBooks because they have AI features built into them?

[Asa Fitch]

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 1 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 an impact on Apple. But if you look at these numbers, the growth in the sales of iPhone, phones and other things, that's clearly outstripping any of these sorts of impacts from the latest news around tariffs and things like that.

[Spencer Jacob]

One thing that's so remarkable to anyone watching these companies really dominate the discussion among investors and dominate markets is just how big 7 out of the 500ish 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.

[Asa Fitch]

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.

[Spencer Jacob]

Asa, thanks so much for that fascinating discussion. That was really interesting. And that was what's News in Earnings? Today's show is produced by Zoe Kulkin and Pierre Bienname with supervising producer Michael Cosmodes. 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.