In this analysis of the technology sector’s leading companies—Microsoft (NASDAQ:), Meta (NASDAQ:), Alphabet (NASDAQ:), and Apple (NASDAQ:)—there is a singular, unifying theme: a historic and capital-intensive investment to artificial intelligence.
This transition is the most critical strategic challenge these firms have faced in a decade. It’s fundamentally reshaping their financial models, competitive dynamics, and long-term growth prospects. The following analyses will delve into the specifics of how each company is navigating this landscape, detailing their individual investment strategies, early monetization successes, and the unique risks they face. What I’ve laid out is a look into how each of these titans is attempting to secure its future in an era that will be defined by AI.
Let’s do a deep dive on their fundamentals and the main key points from the recent earnings reports.
This is the next series of fundamental updates for the “Magnificent 7” and other stocks featured in the Weekly Compass. The upcoming update will cover Tesla (NASDAQ:), Palantir (NASDAQ:), and Amazon (NASDAQ:). If this post receives 50 likes, the analysis will be published this Monday. Additionally, one lucky free subscriber who likes the content will receive a one-month access pass. I will announce in notes her/his name as transparency report.
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Let’s begin with the context and we will continue with the charts in today’s market update.
Microsoft
Microsoft has evolved from a PC-focused software company into a diversified “cloud-first” technology leader. Its primary growth driver is the Intelligent Cloud segment, powered by its Azure platform, which is the second-largest public cloud provider in the world.
Alongside its cloud business, Microsoft operates two other core segments: Productivity and Business Processes, which includes Office 365, and More Personal Computing, which covers its Windows operating system, Xbox consoles, and Surface devices.
Microsoft Corporation continues executing its strategy centered on Cloud and Artificial Intelligence, delivering strong quarterly results that demonstrate momentum across key business segments.
Key Performance Drivers
Azure and Microsoft’s expanding AI portfolio serve as primary growth catalysts. The cloud division reported 39% growth in constant currency during the most recent quarter, exceeding consensus forecasts. This performance is supported by large enterprise cloud migrations and enhanced capacity from new platform deployments.
The company shows progress in monetizing its AI investments, with the Office division demonstrating accelerating Average Selling Price (ASP) attributed to M365 Copilot adoption. This supports the potential for AI applications to drive sustained growth. Microsoft’s AI strategy encompasses infrastructure services on Azure—hosting over 1,800 AI models—through application-layer Copilots, enhanced by its strategic OpenAI partnership.
Exceptional Financial Performance
Microsoft demonstrates remarkable financial discipline with operating income growing23%, on 18% revenue growth, expanding operating margins to an impressive 44.9%. This operational leverage persists despite historic capital expenditures for AI infrastructure buildout, with Q1 capex guided above $30 billion and full-year FY2025 estimates near $64.5 billion.
This elevated investment signals strong demand backed by significant backlog, with AI revenue growth now outpacing capex growth—indicating improving ROI on these substantial investments.
Investment Analysis:
AI & Cloud Position: Microsoft benefits from AI trends across both infrastructure (Azure) and applications (Office/Copilot), creating diversified growth opportunities.
Monetization Progress: Accelerating Office ASP and AI revenue outpacing CAPEX provide evidence of developing monetization capabilities and improving investment returns.
Operational Performance: The company demonstrates margin expansion while maintaining record investment levels, with operating margins approaching 45% indicating strong operational control.
Financial Position: Substantial cash from operations (estimated $136 billion in FY25) supports aggressive capex while maintaining balance sheet strength. Long-term debt-to-capitalization ratio is projected to decline to 8.8%.
Risk Considerations
Key risks include slower-than-expected AI adoption relative to current capital spending plans, potentially impacting earnings. Rising compute costs or oversupply could pressure profitability, while tariffs or macroeconomic deterioration might negatively affect gaming and PC segments.
Educational Segment
The financial figures for the companies studies highlight the consistent annual revenue growth, a vital indicator because it shows increasing demand for a company’s products or services. This signals a healthy, expanding business that can reinvest for future growth. A constant increase in operating income is equally important, as it shows the company is not only growing its sales but also managing its expenses efficiently.
Together, these metrics paint a picture of a well-run, profitable, and growing business. Investors view this as a low-risk, high-reward opportunity, which drives up demand for the stock. This increased demand, coupled with the company’s strong financial performance, leads to a higher stock price. Essentially, consistent growth in revenue and operating income fuels investor confidence, making the stock more attractive. MSFT, META, and GOOG present sustained growth year on year, in the case of AAPL the number have been flat as you will see.
You may have heard a lot about capital expenditures (CapEx) and AI is crucial for a company’s long-term health and growth. CapEx refers to the funds a company uses to acquire, upgrade, or maintain physical assets like property, equipment, and technology. AI investment is a specific type of CapEx that involves building the necessary infrastructure to develop and deploy artificial intelligence.
Capital expenditures are the foundation of a company’s ability to grow. They allow a company to expand its production capacity, improve efficiency, and stay competitive. For example, a manufacturing company that invests in new machinery can produce more goods at a lower cost. Without this kind of investment, a company’s operational capacity would stagnate and eventually decline.
Investing in AI is a strategic necessity in the modern economy. AI can automate routine tasks, analyze vast datasets for insights, and create entirely new products and services. For instance, a retail company using AI can offer personalized shopping recommendations, improving customer satisfaction and sales. Tech giants like Google, Microsoft, and Meta are spending tens of billions on AI infrastructure like data centers to fuel their development and maintain a competitive edge.
The risks of not investing in CapEx and AI are significant and can ultimately lead to a company’s decline.
Loss of Competitive Advantage: A company that fails to upgrade its equipment or adopt new technologies like AI will quickly fall behind its competitors. Their rivals will be able to produce goods more efficiently, innovate faster, and offer better customer experiences, eroding the non-investor’s market share.
Stagnant Growth and Reduced Profitability: Without CapEx, a company’s ability to expand is severely limited. It can’t increase production to meet demand or enter new markets. Ignoring AI means missing opportunities to reduce costs and create new revenue streams, which will eventually lead to stagnant or declining profits.
Obsolescence: In the fast-paced tech world, a lack of investment in AI can quickly make a company’s products and services obsolete. AI technology is evolving rapidly, and companies that don’t keep up risk being left behind entirely.
You will notice that AAPL presents a constant CapEx, different from the other giants that are in the A.I. race. With the time we will learn what was the right proportion, but for sure not investing in A.I. is risky.
META
Meta Platforms has the world’s largest social media network, with over 3 billion monthly users across its various apps. The company makes most of its money—over 95%—from digital advertising. The rest comes from payments and other services. Roughly half of Meta’s revenue comes from North America, with the other half coming from international markets.
AI-Fueled Growth and Margin Expansion Drive Performance
The company continues advancing its AI strategy, delivering strong second-quarter performance that exceeded expectations and demonstrates progress on its multi-year investment initiative. The results highlight accelerating growth driven by AI implementation, significant operating leverage, and developing monetization pathways across its platform ecosystem.
Q2 Performance & AI Integration
Second-quarter results demonstrated AI’s measurable impact on operations. Revenue of $47.5 billion surpassed Street estimates, supported by 22% ex-FX growth in advertising revenue. This performance reflected an 11% increase in ad impressions combined with a 9% rise in average price per ad. AI-powered tools like Advantage+ have generated a revenue run rate exceeding $20 billion. GAAP EPS reached $7.14, beating forecasts.
The strong financial performance supports a substantial investment cycle. The company achieved notable operating leverage, expanding operating margins by approximately 500 basis points year-over-year to around 43% in Q2, despite record spending levels. Capital expenditures in Q2 totaled $17.0 billion (+108% YoY), with full-year 2024 guidance set at $66-$72 billion. Investment is expected to continue, with 2025 expense guidance of $114-$118 billion (+20-24% growth), as Meta pursues long-term AI development objectives.
Financial Projections and Valuation Analysis
Meta forecast sustained growth, projecting sales increases of 19% in 2025, 15% in 2026, and 12% in 2027, positioning Meta to outpace the broader digital advertising market.
Key Performance Indicators
AI Advertising Engine: Combined double-digit growth in ad impressions (+11%) and pricing (+9%), alongside Advantage+’s $20+ billion revenue run rate, demonstrates AI’s operational impact.
Investment Strategy: Strong financial results support substantial multi-year spending (FY24 Capex $66B-$72B) focused on AI leadership and product scaling.
Operational Efficiency: Despite record investment levels, Q2 operating margins expanded ~500 basis points to ~43%.
Monetization Opportunities: Growth supported by Family Daily Active People (DAP) base of 3.48 billion users. Monetization channels include enhanced advertising, expanded platform engagement (Threads at 350M users), business messaging, Meta AI (1B+ monthly actives), and future AI devices.
Risk Considerations
Key risks include potential macroeconomic slowdown, possibly from tariff impacts, that could constrain enterprise budgets and reduce digital advertising spending during Meta’s aggressive investment phase. Additionally, capital spending significantly exceeding current elevated expectations could pressure profitability metrics.
The constant growth in revenue and operating income sustain the bullish formation analyzed for META in the latest weekly compass.
Alphabet Inc. operates in 190 countries and territories, offering its technology in over 100 languages. As a technology conglomerate, its main businesses include search technologies, digital advertising, operating systems, enterprise solutions, and consumer hardware. The company’s revenue primarily comes from online advertising, but it also earns money from digital content sales on Google Play and hardware products.
Alphabet (GOOGL): Core Business Performance During AI Transition
Alphabet demonstrates operational stability while executing its AI strategy amid competitive pressures. Core Search metrics remain resilient, Google Cloud drives growth, and substantial capital investment supports long-term AI development.
Market Position
July data shows Google’s traffic grew 0.2% month-over-month versus ChatGPT’s 2.5%. Google added 15 million mobile DAUs to reach 2.0 billion, while ChatGPT added 20 million to reach 244 million. Crucially, Google maintained 89.5% global search market share, suggesting AI tools are expanding the overall market rather than displacing Google’s position.
Segment Performance
Search: 12% Q2 growth with AI Overviews driving longer sessions and 10% usage increases in key markets.
YouTube: 13% Q2 growth with combined revenue exceeding $50 billion, led by Connected TV adoption.
Google Cloud: 32% Q2 growth with operating margins expanding from 11% to 21% year-over-year. Forecast to grow from 12% of total sales in 2024 to 20% by 2027.
Investment Strategy
Planned capital expenditures of $85 billion in 2025 (+60% increase) focus on AI infrastructure while targeting 32%-34% operating margins through 2027. Projected Free Cash Flow of $70B+ in 2025 supports continued shareholder returns.
Key Metrics
Google’s 89.5% search share and stable traffic indicate market resilience. Cloud’s exceptional 32% growth and margin expansion (11% to 21%) positions it as a primary growth driver. AI integration shows positive engagement results, with Gemini reaching 450 million monthly active users.
Risk Considerations
Regulatory risks include ongoing DOJ search proceedings with remedy ruling expected in August. Substantial capital investment creates execution risk in achieving projected returns during the competitive AI transition.
Apple
Apple Inc. generates revenue primarily from its iPhone sales, with additional income coming from services, Mac computers, iPads, and wearable devices. The company’s business strategy is based on a tightly integrated technology ecosystem.
This ecosystem connects its hardware products with proprietary operating systems (iOS, Mac OS, TvOS, and Watch OS) to create a seamless user experience. Apple’s model combines designing and manufacturing consumer electronics with developing software platforms and delivering digital services.
Services Growth and Margin Performance During Strategic Transition
Apple demonstrates Services business stability while navigating AI development and regulatory challenges. App Store growth and resilient margins support substantial capital return capabilities.
Services Performance
App Store revenue for fiscal Q4 2025’s first 35 days grew 12.1% year-over-year to $3.3 billion, outpacing 2.4% download growth. This improved monetization to $0.95 per download (+9.5%). Games category revenue share decreased to 46% as Productivity and Entertainment categories gained share, indicating ecosystem diversification.
Financial Results
June quarter sales grew 10% to $94.0 billion with strong segment performance:
•iPhone: $44.6 billion (+13.5%)
•Services: $27.4 billion (+13%), now 29% of total revenue
•Geographic: China returned to growth (+4%) after two years, Japan (+13%), Asia Pacific (+20%)
Margins and Capital Returns
Gross margins maintained 46%-47% range despite $1.1 billion tariff impact, supported by Services’ 75.6% margin. Planned in-house modem transition offers future margin upside. Free Cash Flow projected above $100 billion in FY25 with $100 billion buyback authorization, potentially reaching $1 trillion in total shareholder returns by 2025 year-end.
Key Metrics
Services demonstrate 12.1% growth with enhanced $0.95/download monetization and reduced gaming dependency (46% revenue share). Operational resilience shown through margin maintenance amid external pressures. China’s 4% growth recovery and strong regional performance indicate hardware demand stability. Apple Intelligence development continues as part of AI strategy.
The Market Today:
Apple announced a new $100 billion investment plan to be spent on U.S. companies and suppliers over the next four years. This new commitment, which is in addition to the $500 billion announced in February, includes a $2.5 billion investment for a major expansion with Corning (NYSE:), the company that produces iPhone glass in Kentucky.
Apple stated that this spending is intended to encourage more overseas companies to purchase American-made parts. The stock soared +5% during market hours, fueling the tech sector and the market in general.
Let’s analyze the technicals for SPX, MSFT, META, GOOG, and AAPL, and the updated price for 40+ securities among the S/R levels for this week and month.
SPX – The Daily Chart looks bullish, the McClellan oscillator shared on Sunday in the Chat was spot on anticipating a bounce. The move has been stronger than expected, but it has not invalidated the weekly bearish setup, and the following timeframe suggests caution: