By Sheraz Mian
Publication Date: 2026-02-20 17:00:00
Sentiment on the Magnificent 7 and software stocks has been very negative lately, resulting in significant underperformance from these groups. The perceived headwinds for these stocks are tied to developments in the artificial intelligence space, though the nature of those AI connections is different.
The Mag 7 companies are undisputed AI leaders, with market concerns about these stocks centered on their ever-rising capital budgets. We had discussed these capex worries in our note following Q4 results from Amazon AMZN, Alphabet GOOGL, and Microsoft MSFT as follows –
‘The market’s reaction to Amazon is broadly in the same category as Alphabet’s after its quarterly release, with the severity of Amazon’s ‘punishment’ reflecting investors’ shock at learning of management’s AI plans. Amazon plans to spend $200 billion in capital expenditures in 2026, up from $132 billion in 2025 and $83 billion in 2024. Amazon’s operating cash flows modestly exceeded its $132 billion capex outlays in 2025, but the company’s 2026 capex budget will most likely exceed its operating cash flows.
Before we learnt of these lofty spending plans, many in the market expected 2026 to be the capex peak for Amazon (also Alphabet and others). But management’s commentary about the mission-critical nature of these outlays likely means that it may be premature to declare peak capex.’
While the likes of Amazon, Alphabet,…
