AI frenzy: Will it continue or start to change? The Mag 7 earnings report will reveal the answer tonight.

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How much longer can the AI-driven tech stock frenzy last? The answer may become clear tonight.

On April 29, Alphabet, Microsoft, Amazon, and Meta will all release their Q1 earnings, followed by Apple later in the week on Thursday. Together, these four companies make up 18% of the S&P 500's market capitalization, and their capital expenditure guidance is seen as a key indicator of enthusiasm for AI computing power investments.

Ahead of the earnings releases, market optimism regarding AI capital expenditures has already been put to the test. According to The Wall Street Journal, OpenAI has failed to meet both its revenue and user growth targets, and there are doubts about whether it can fulfill its commitment to invest up to $1.5 trillion in computing power. This news has put the brakes on enthusiasm for AI capital spending, and U.S. tech stocks came under pressure overnight, with the Nasdaq technology index down more than 1.3%.

Against this backdrop, Wall Street's focus has moved beyond short-term income statements. The core question is: how much longer can capital expenditure expansion continue? To what extent can revenue growth be converted to profit?

After $600 Billion in Capital Expenditures: AI Narrative at a Crossroads

Market consensus expects that Amazon, Microsoft, Meta, and Alphabet will collectively spend up to $600 billion in capital expenditures by 2026, rising above $800 billion by 2027. According to Goldman Sachs estimates, by then, almost all the "Magnificent Seven's" free cash flow will be consumed by capital spending—Meta and others may no longer generate positive cash flow.

Goldman trading chief Rich Privorotsky puts forth a rather ironic assessment: in an industry widely seen as one with insufficient computing power supply, in reality, it is the demand side that has been distorted. He calls this phenomenon "token maximization"—engineering teams are racing to consume as much compute as possible, since under-spending is seen as a career risk. This distorted incentive system has driven a great deal of inefficient capital spending.

Privorotsky also points to a structural contradiction: semiconductor stocks are the direct beneficiaries of increased capital expenditures, so they're happy to see continued spending growth. But for shareholders of hyperscale cloud operators (Amazon, Microsoft, Google, Meta), recent quarters' rising capital expenditures have not been rewarded by the market, since the return on AI investments remains hard to quantify. "Last week we heard from the vendors, but as spenders, hyperscale cloud operators tell a much fuzzier story."

In his view, the real key issue is not the strength of demand, but whether capital spending can keep rising. "If capital expenditures stop growing, that's a problem for the entire narrative. In a backdrop of rising input costs, flat spending is essentially a slowdown."

With crowded positioning, what to watch in Big Five earnings?

Technically, large tech stocks have been dramatically repriced in recent weeks. The RSI of Goldman’s Mega Tech Basket dropped below the oversold threshold of 30 on March 30 and shot up to 74 (overbought) by April 17, crossing from one extreme to the other in just three weeks. After the rally, the degree of crowded positioning rose sharply, with Goldman’s proprietary data showing the long-short ratio at the 88th percentile of its three-year range, a historical high.

With such crowded positioning, Wall Street is eyeing signals from tech giants’ earnings. JPMorgan trader Brian Heavey ranks crowding from high to low: Amazon, Meta, Alphabet, Apple, Microsoft. Goldman differs, seeing Alphabet as the most crowded long position.

Amazon (most crowded): JPMorgan rates “Overweight,” target price $280. Markets are watching whether capex guidance can support AI compute demand and whether AWS revenue growth continues to benefit from AI workloads shifting to its platform. AWS grew 24% last quarter, AI services are already over $15 billion annualized, and tonight it needs to hold the line. If growth slips below 20%, it could become a turning point in the season's market sentiment.

Meta (second most crowded): JPMorgan “Overweight,” target $825. Goldman estimates show that at current capital spending levels, Meta will no longer generate positive cash flow. The market is focused on capex pressure on free cash flow, and whether AI recommendation algorithms boost ad revenue. $135 billion in annual capex means Zuckerberg has to explain the plan every quarter. Any mention of "continuing to evaluate" etc. is interpreted as wavering; recent quarters show any hesitation leads to poor aftermarket reactions.

Alphabet (third, viewed by Goldman as most crowded): JPMorgan “Overweight,” target $395. Market is watching if search ads are being impacted by AI chatbots, and how much the cloud business benefits from AI compute demand. Google Cloud is expected to grow 49.6%, but Gemini’s commercialization has yet to provide clear financial numbers. If Cloud beats estimates but monetization is vague, market reaction may be muted.

Apple (fourth most crowded): target $325. The market is watching how it copes with rising memory costs and the impact of leadership changes. Q2 FY2026 iPhone revenue rose 27% YoY to $59.5 billion with a 48.5% margin; Q3 guidance shows $50.1 billion in iPhone sales with a 47.6% margin. Investors are focusing more on margin resilience.

Microsoft (fifth, least crowded): JPMorgan “Overweight,” target $550. Privorotsky notes Microsoft is likely to comment on FY2027 capex, which will provide key reference for assessing hyperscalers’ medium- and long-term investment. Also, the market is watching Azure Cloud’s growth and AI’s contribution to revenue. Consensus for Azure is 38% growth, but the real focus is whether Copilot’s enterprise sales generate measurable revenue. Q2 guidance below 36% is negative; above 40% would be a surprise for the upside.

The final suspense as Big Tech all reports on the same day: will surprises be shared, or will shocks be contagious? The AI narrative stands at a crossroads, awaiting tonight’s direction.

Risk Warning and DisclaimerThe market has risks, and investments should be made cautiously. This article does not constitute personal investment advice, nor does it consider a user's particular investment objectives, financial situation, or needs. Users should consider whether any opinions, views, or conclusions in this article suit their circumstances. Investments made accordingly are at your own risk. ```