Earnings season shows Magnificent 7 members have big plans for AI

3 weeks ago 13

Since the launch of ChatGPT in 2022, the artificial intelligence (AI) boom has emerged as the most dominant trend across financial markets, pushing some tech stocks to historic heights.

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For months, it didn’t seem possible that anything could disrupt the progress. But earlier this week, as leading companies prepared to report earnings, an open-source model from Chinese AI startup DeepSeek triggered a selloff as investors panicked over the implications for AI stocks.

DeepSeek shocked the industry when it unveiled an AI model built with older, less advanced Nvidia (NVDA) chips. The company highlighted a training cost of just $5.6 million, challenging the claim made by Anthropic CEO Dario Amodei that most AI models cost $100 million to train.

This caused experts to wonder if companies would curb their spending on AI in the coming year.

This week, companies, including several members of the Magnificent 7, have started unveiling their Q4 earnings, and investors are finally learning the answer to that key question.

Big tech’s AI dollars are going toward one thing in 2025

Concerns about AI spending didn’t start with DeepSeek’s rollout. After ChatGPT showed the world the power of large-language models (LLMs), most major companies began doubling down on AI, raising suspicions from experts that they might be spending too much money on it.

As many prominent tech leaders, including several members of the Magnificent 7 prepared to report earnings this week, experts wondered if they would reveal plans to scale back their AI spending for 2025.

“Our primary question is whether these companies plan to continue to spend aggressively or will they seek lower cost alternatives due to the DeepSeek's revelation?” stated JonesTrading chief market strategist Mike O'Rourke.

Not all members of Magnificent 7 have reported earnings yet but several prominent members have. So far, it is clear that these companies remain as focused as ever on AI, specifically toward building data centers. As the New York Times reports:

“In its most recent quarter, which ended on Dec. 31, Microsoft kept up its rapid drive to build data centers to power cloud computing and artificial intelligence. It spent $22.6 billion on capital expenses, almost twice as much as a year earlier.”

Earlier in January 2024, Microsoft (MSFT) had revealed that it plans to invest $80 billion in building AI-enabled data centers in 2025. CEO Satya Nadella’s comments on the earnings call indicate that the company remains fully committed to this goal.

“Our data centers, networks, racks, and silicon are all coming together as a complete system to drive new efficiencies to power both the cloud workloads of today and the next-generation AI workloads,” he stated.

Microsoft isn’t the only Magnificent 7 tech stock that plans to increase its AI spending in 2025.

Meta Platforms (META) CEO Mark Zuckerberg, who predicted in a Facebook post that 2025 will be a “defining year for AI,”setting a target range of $60-$65 billion for the company’s capital expenditures, which includes building a 2GW+ datacenter large enough to cover a significant portion of Manhattan.

In the recent earnings report, Meta revealed a figure of $39 billion in expenditures for the year, a substantial increase from $28 billion it spent in 2023. However, the $60-$65 billion range provided by Zuckerberg shows that the company has no plans to scale back its AI plans and is in fact, focused on increasing them.

Key AI market takeaways from earnings season

These AI updates from Microsoft and Meta make it clear that so far, DeepSeek isn’t scaring big tech leaders into scaling back their spending. That said, it is important to note that other Magnificent 7 members still have yet to report, including Amazon (AMZN) and Google (GOOGL) , which are scheduled for next week.

Apple (AAPL) hasn’t revealed any plans to significantly increase AI spending in 2025. However, the company has a history of spending less on AI than many of its peers so this doesn’t seem like a deviation from their standard means of operation.

Ultimately, the fact that several leading tech companies have reported increases in AI spending should be seen as a bullish indicator for the AI sector in general, according to Wall Street veteran and portfolio manager Chris Versace.

Taking a close look at the Meta and Microsoft earnings reports, Versace reports that his team remains bullish on its chip stock plays, stating:

“Our position has been that we are seeing an AI arms race unfold as companies and other institutions adopt AI and that will continue to drive capacity demands for AI and data center chips, benefitting our positions in Nvidia and Marvell (MRVL) .”

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