The most prominent technology companies in the United States have faced significant challenges since the rise of the Chinese AI firm DeepSeek. While the emergence of low-cost, efficient AI startups initially disrupted the industry, major tech firms responded by delivering strong earnings.
Their market performance has contributed to the S&P 500 approaching record levels, reflecting investor confidence in the sector.
Substantial earnings drive market gains
Apple Inc. and Meta Platforms Inc. released earnings reports this week, helping push the S&P 500 higher. The leading tech stocks known as the “Magnificent Seven”—including Microsoft Corp., Amazon.com Inc., Alphabet Inc., and Tesla Inc.—saw mixed performance, with most stocks declining. However, strong shareholder support kept these companies among the market’s top names.
Despite slowing profit growth and high valuations, these firms have remained a key driver of the S&P 500’s performance over the past two years. Investors now look at other companies within the index, expecting them to outperform. Earnings across both tech giants and the broader market have been primarily positive.
Adam Sarhan, CEO of 50 Park Investments, stated that market optimism has been extreme. He emphasized that fundamentals remain solid, supporting the overall market trend. Big Tech is expected to report 26% profit growth for the fourth quarter, exceeding the 22% forecast earlier in the week. Although growth has slowed for the fourth consecutive quarter, it still outpaces the 10% estimate for the rest of the S&P 500.
Meta surges while Microsoft struggles
Meta CEO Mark Zuckerberg reassured investors about the company’s AI strategy and cost management, which boosted confidence in the stock. As a result, Meta shares climbed 6.4% this week, marking ten consecutive days of gains—the longest streak in nearly a decade.
Microsoft, however, reported slower-than-expected growth in its cloud computing business. The stock fell 6.5% as the company faced difficulty scaling its AI infrastructure to meet demand. Despite this setback, Meta and Microsoft have confirmed plans to continue investing in AI technology.
AI infrastructure stocks face pressure
The AI infrastructure sector experienced a downturn after disappointing earnings and growing competition from DeepSeek. Nvidia Corp., a major player in AI chips, saw its stock decline by 16%, wiping out over $500 billion in market value. Other semiconductor companies, including Broadcom Inc. and Micron Technology Inc., also faced losses.
Sarhan noted that rising risks from DeepSeek have led some investors to reduce their holdings in AI infrastructure stocks. He explained that while demand remains high, uncertainty about future growth has increased.
According to Dave Mazza, CEO of Roundhill Investments, DeepSeek’s rise and slowing earnings growth have heightened pressure on tech giants to deliver strong returns on AI investments. With valuations already at elevated levels, companies must prove that AI spending will generate meaningful profits. The price-to-earnings ratio for the Magnificent Seven has risen to 31, significantly higher than the S&P 500’s average of 22.