The combined stock market value of the so-called Magnificent Seven of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla has hit a new record high of $22.5 trillion, finally passing last October’s peak as investors react a strong set of quarterly results from the six to have reported so far.
Nvidia’s first-quarter earnings are due on 20 May. The companies who provide the vital equipment and services for artificial intelligence, such as computing power or even the construction of data centres, have continued to thrive, even amid doubts about whether the current furious rate of investment by the hyperscalers can truly earn an adequate return.
Earnings get a positive reception
Investors seem happy to abide by the adage, “never mind the quality, feel the width”, judging by the generally positive share price reactions to the latest quarterly earnings from Alphabet, Amazon, Apple, Meta, Microsoft, and Tesla, and the ongoing rise in Nvidia for good measure. All seven are among the 10 largest companies in the world by stock market capitalisation, with Nvidia, Alphabet, Apple, Microsoft, and Amazon forming the top five and Meta and Tesla ranking ninth and 10th, respectively.
The best-ever aggregate earnings quarter for the six to have published certainly helps in this respect.
The combined sales of Alphabet, Amazon, Apple, Meta, Microsoft, and Tesla jumped by 19%, while operating profit rose by a third and net, after tax, profit by nearly 60%. Meanwhile, net income set a new quarterly record across the six combined.
The release of ChatGPT by OpenAI in November 2022 has clearly done much to turbo-charge their profits, which have embarked upon a growth trajectory even faster than the one in evidence before, and it is no mean feat for companies this big to grow their top line by nearly a fifth, when last year’s base for comparison was $473 billion in total between them.
Bulls of the stocks are therefore winning the argument, not least as they can point to further increases in share prices and market capitalisations.
Why cash flow is shrinking
However, the momentum has not been quite so impressive this year, and bears do still cavil about key points, perhaps with some justification, given how three of the Magnificent Seven’s share prices are down in 2026 to date.
Strong as they were on an underlying basis, the numbers from Amazon and Alphabet also benefited from multi-billion-dollar capital gains on their equity holdings. Meanwhile, the quality of Tesla’s numbers in particular was mixed, given another hefty contribution from the sale of regulatory credits, further inventory build, admissions about delays in self-driving taxis and negligible free cash flow.
That issue of shrinking free cash flow will not go away. Capital expenditure across the six to have reported surged by 75% year-on-year to $136.6 billion for the quarter as the spending race on AI continued.
As a result, free cash flow across the sextet fell by more than a sixth year-on-year and ebbed to just 7.9% of quarterly sales – only the fourth time in the past decade that free cash flow has dipped below 10% of quarterly revenues.
This shrinkage is evidencing itself in the companies’ capital returns. Dividend payments continue apace at Alphabet, Apple, Meta, and Microsoft for a consistent run rate of around $15 billion per quarter in total. But Alphabet and Meta have stopped their buyback programmes and those at Apple and Microsoft both shrank in the last three months. Nvidia also reduced its share buyback in the quarter to the end of January.
A shift to more capital-intensive models
Net cash piles are diminishing and, in some cases, net debt is growing, albeit from a low base. In addition, these companies are piling up the fixed assets and thus becoming more capital intensive as a result.
In this respect, formidable as the Mag7 still look in terms of their competitive positions, sales growth and profit momentum, there are questions hanging over some of the facets which make them so attractive to investors.
Namely, they are switching from asset-light to more capital-intensive business models thanks to the AI splurge (with the exception of Apple and Nvidia, as the former declines to play and the latter outsources production to TSMC); their cash flow is drying up and their fortress balance sheets are in some cases taking on debt, which increases risk; and they are starting to compete more directly with each other.
It will be interesting to see if these doubts start to weigh on share prices and valuations again, as they did after the initial launch of DeepSeek’s chatbot, or whether they persuade investors that there are easier, less risky ways to play AI.
The manner in which perceived ‘picks and shovels’ plays on AI are dominating the S&P 500 performance charts in 2026 suggests this shift is already underway. Silicon chip and memory makers, computer providers and construction firms dominate, in the form of SanDisk, Seagate, Intel, Western Digital, Micron, ON Semiconductor and Comfort Systems, while the best performer of the Mag7, Alphabet, ranks just 84th within the index and Microsoft’s 14.5% decline leaves it sat in 410th.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
