Whatever volatility there is in equities – perhaps an inevitable sign of a sector in ferment – AI remains a fundamental economic pillar for the next decade, the author argues.

The following article, which addresses the state of equity markets and issues such as concentration risk, is from Khaled Louhichi (pictured below the article), head of research at Mirabaud Wealth Management. The editors are pleased to share these insights; the customary editorial disclaimers apply to views of guest writers. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com
 

The latest earnings season for the “Mag7” (excluding Tesla and Nvidia) presents a paradox: fundamentals are robust, yet market reactions are increasingly sceptical. While the group delivered impressive earnings per share (EPS) growth in the last quarter of 2025, ranging from 11 per cent to 31 per cent, stock price reactions were largely flat or negative, with one notable exception. 

A clear theme has emerged; investors are no longer satisfied with “AI promise.” They are demanding immediate returns on the massive capital expenditures (CapEx) being deployed. The “AI Arms Race” has transitioned into a "Show Me the Money" phase, where the cost of growth is under the microscope.

The CapEx conundrum: growth is not enough
For Microsoft and Alphabet, the message from the market was brutal but clear. Despite posting stellar earnings per share growth of 28 per cent and 31 per cent respectively, both saw their stock prices struggle immediately post-release, Microsoft dropping 10 per cent and Alphabet ending more or less flat.

The culprit? Fears of spiralling AI-related CapEx. As these hyper-scalers continue to pour billions into GPU clusters and data centres to secure their AI future, investors are growing wary of the depreciation drag and the timeline for return on invested capital (ROIC). 

The robust top-line and bottom-line growth were overshadowed by the sheer scale of investment required to maintain their leadership, leading the market to discount the immediate value of their earnings beats. The “AI tax” on valuation is real: massive growth is being treated as “table stakes” rather than a catalyst for multiple expansion.

Meta platforms: the efficiency outlier 
Meta platforms stood alone as the clear winner of the season, surging over 10 per cent following its release. Interestingly, Meta’s EPS growth of 11 per cent was lower than its peers, yet the market rewarded it. 

This divergence underscores a critical lesson: the market favours visibility and efficiency. Meta has successfully communicated a narrative whereby AI investment is directly fuelling core business performance, specifically in advertising efficiency and user engagement, rather than just future theoreticals. By balancing its aggressive AI spend with continued discipline (the enduring legacy of its "Year of Efficiency"), Meta managed to convince investors that its CapEx is not a black hole, but a lever for immediate monetisation.

Apple: the resilient ecosystem 
Apple delivered a "steady as she goes" performance, with 18 per cent EPS growth and a flat-to-positive stock reaction (+0.5 per cent). Unlike the hyper-scalers caught in the CapEx crossfire, Apple’s narrative remains tethered to the resilience of its consumer ecosystem and high-margin services revenue. 

While less directly exposed to the server-side AI buildout fears, Apple benefits from a perception of safety. Its “Apple Intelligence” strategy is viewed as an ecosystem lock-in feature rather than a capital-intensive infrastructure bet, insulating it from the CapEx jitters that plagued Microsoft and Google. The double-digit EPS growth reaffirms the durability of its premium franchise even as the broader tech sector grapples with investment cycles.

Diverging fortunes in 2026 
The table below summarises the stark disconnect between fundamental performance and market reaction this quarter:

Looking ahead: the "proof" phase 
As we move deeper into 2026, the burden of proof has shifted. The initial euphoria of the AI boom is over, and the infrastructure buildout phase is now being scrutinised for capital efficiency. For the Mag7, the next leg of stock performance will likely depend not just on growing AI capabilities, but on demonstrating that these massive investments can generate cash flow margins that justify the spend. 

The divergence between Meta and Microsoft this quarter suggests that investors will mercilessly punish "spending without immediate visibility" while rewarding those who can show that the AI cheque is already in the mail. 

However, this short-term volatility does not signal structural weakness. AI remains a fundamental economic pillar for the next decade. The investment thesis is widening beyond tech giants to physical constraints such as energy and grid infrastructure, making continued exposure, and the patience to weather volatility, a strategic necessity.
 

Khaled Louhichi