Markets reacted unevenly to earnings reports from three of the Magnificent Seven on Wednesday evening. Rising costs and high valuations are making investors cautious. Analysts say the next wave of tech growth could come from smaller, lesser-known companies.
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Markets reacted differently to the (NASDAQ:MSFT), (NASDAQ:GOOGL) and (NASDAQ:META) results released last night. fell more than 3.5% after hours, fell 6.5% and rose 6.5%.
Alphabet shares climbed after beating Wall Street expectations for third-quarter sales, driven by steady growth in its main advertising business and cloud division.
The company also raised its full-year capital spending forecast to between $91 billion and $93 billion, higher than previous estimates of around $80.7 billion.
Microsoft also reported better-than-expected profits and revenue, but investors are concerned about its increased capital spending — nearly $35 billion last quarter, mostly for AI projects. The company also warned that these expenses would continue to increase.
Meta faced a massive sell-off even after reporting strong results. The company took on a one-time charge of nearly $16 billion related to U.S. President Donald Trump’s Big Beautiful Bill and said capital spending next year would be much higher than in 2025 because of its increased investments in AI.
Meta has stepped up its efforts in the field of AI. CEO Mark Zuckerberg has led an aggressive recruiting campaign and announced plans to spend hundreds of billions of dollars to build large AI data centers aimed at developing superintelligence.
Investors, however, are increasingly concerned about the rising costs of AI in big tech. Valuations are already high and there is still little evidence that AI adoption significantly improves productivity.
From an investor perspective, this does not mean the end of the AI-driven technology rally. Instead, the market is likely entering a new phase where attention shifts away from the bigger names.
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