It’s difficult to speak of a classic speculative bubble, as the valuation ratios of most tech giants are not entirely detached from their profits. However, the first cracks are starting to appear.
The technology boom in the United States, now lasting nearly three years, has been fueled mainly by the artificial intelligence revolution and massive investments in AI development. Since October 2022, the S&P 500 index has surged by around 70%, driven primarily by the so-called MAG7 group of tech titans — Amazon, Alphabet, Apple, Meta, Microsoft, Nvidia, and Tesla. In 2025, the rally gained further strength, supported by expectations of Federal Reserve rate cuts and consistently strong corporate earnings.
“Earnings season for the MAG7 is the climax of the quarter, as all investors focus on their reports,” said Mikołaj Sobierajski, an equity market analyst at XTB, in an interview with MarketNews24. “It’s a macroeconomic event comparable to central bank decisions on rate hikes or cuts.”
These dominant technology firms benefit from global scale, high profit margins, and strong competitive advantages rooted in intellectual property. As a result, stock indices that are supposed to reflect the overall economy are increasingly becoming barometers of sentiment toward a few giants rather than indicators of broad market performance.
The valuations of most major tech companies are still largely supported by earnings, so it has been difficult to describe the situation as a classic speculative bubble — at least until recently. Yet cracks in the growth narrative are starting to emerge. Several large companies are struggling to monetize their AI-driven solutions, free cash flow is beginning to shrink, and capital expenditures are rising as if they were an end in themselves.
As the MAG7 publish their quarterly results, a key question arises: what exactly is the market pricing in? Is it still about the gradual improvement in efficiency driven by current large language model (LLM) implementations, or is it increasingly about the anticipation of AGI — artificial general intelligence — a scenario closer to science fiction than to present technological reality?
Among the MAG7, some companies have successfully translated their technological advantage into higher infrastructure utilization and fees for computing power, better advertising performance, and new services in search and communication. For these players — notably Google, Nvidia, and Meta — revenue growth is correlated with customer adoption, and usage-based billing allows for scalable growth.
On the other hand, some companies face the risk of cannibalizing existing services or lack a clear path to higher profitability. Large-scale investments in infrastructure without a corresponding transformation in business models raise questions about return on capital. This group includes Amazon, Microsoft, and Apple. The market is likely to scrutinize the pace of real-world AI adoption and monetization capabilities, comparing chip manufacturers and advertising platforms with companies emphasizing research but showing limited revenue acceleration. While this does not necessarily imply dramatic sell-offs, those unable to demonstrate breakthroughs may soon lag behind their competitors.
Apple and Amazon are both on track to reach new all-time highs. Amazon, viewed in recent quarters as a laggard due to slower AWS growth compared to Google Cloud and Microsoft Azure, as well as sensitivity to cautious U.S. consumers, now expects cloud revenue growth of 22% year-on-year. The company also reported positive results from its AI investments. Amazon’s market capitalization jumped by nearly USD 240 billion following its Q3 report, with earnings per share up 36% and total revenue up 13% year-on-year. Shares rose almost 10% in after-hours trading.
At Apple, positive signals were balanced by disappointments. Sales in the Americas missed expectations. Earnings per share came in at USD 1.85 versus USD 1.77 expected, and revenue reached USD 102.47 billion compared with a forecast of USD 102.19 billion. iPhone sales grew by 6.1% year-on-year to USD 49 billion. iPad revenue slightly missed projections, but Mac sales exceeded estimates.
Meta Platforms reported a significant decline in net profit, mainly due to one-off tax charges and rising AI investment costs. Microsoft, despite solid results in its cloud division, saw its share price dip amid heavy spending to expand its partnership with OpenAI, even though overall revenue rose 18%.
Alphabet posted better-than-expected results, with Q3 net income of nearly USD 35 billion and revenue surpassing USD 100 billion. Its shares have climbed more than 45% in 2025, reaching new record highs. Alphabet proved that the AI race does not necessarily entail cannibalizing its traditional business lines. For the first time, quarterly revenue topped USD 100 billion, with all major segments showing double-digit growth. The star performer was Google Cloud, which increased revenue by 34% to USD 15.2 billion and boosted operating income by 85%.
We are now at the peak of a nearly three-year-long tech rally, powered mainly by the seven largest technology companies. Their dominance — especially in artificial intelligence — and record-breaking valuations, such as Nvidia’s market capitalization surpassing USD 5 trillion, are setting new benchmarks for the global market.
Tesla reported record revenue and free cash flow (FCFF), driven by rising vehicle deliveries and expanding energy storage deployments. The company continues to generate substantial cash reserves. Management remains optimistic, emphasizing that current production lays the groundwork for monetizing AI-based service offerings. After its quarterly report, Tesla shares fell 1.3% in after-hours trading to USD 433 per share.
“The Magnificent Seven now account for 35–40% of the S&P 500’s total market capitalization,” Sobierajski noted. “That shows how concentrated investor interest has become. The optimism surrounding these companies is immense — and that’s also a risk. It’s getting harder for them to meet ever-growing expectations. An even greater risk is that investors might start fearing the end of the tech bull market. That’s why upcoming quarterly results will be watched more closely than ever.”
Source: CEO.com.pl
