76report

January 29, 2026

MAG7 MONITOR: META Jumps as MSFT Cloud Miss Brings Down Market

If you’re going to spend, you better grow. That was the clear message the market sent today after two critical Mag 7 earnings reports.

Meta Platforms (META) and Microsoft (MSFT) each released quarterly results last night, producing sharply different responses.

The two tech giants continue to spend heavily on AI. This has been a persistent source of worry for investors and a headwind for the stocks, both of which had meaningfully lagged the broader market over the last three months.

But even though META actually lifted its capital expenditure guidance for next year to a whopping $125 billion at the midpoint, the shares rallied more than 10% today. META demonstrated that this enormous investment in AI is actually accelerating growth.

META shareholders were rewarded after the company handily exceeded consensus analyst forecasts across key revenue and operating profit metrics.

MSFT shares, meanwhile, were severely punished today, trading down 10%. The main concern was that growth in its Azure cloud segment, while a healthy 39%, fell short of expectations and was now facing capacity-related bottlenecks.

Along with NVIDIA (NVDA) and Apple (AAPL), MSFT is among the three largest market cap stocks in the world. It represents about 6% of the S&P 500.

MSFT’s pain rippled across the entire stock market today and weighed heavily on sentiment, although shares recovered over the course of the day. The S&P 500 ended the day marginally down.

Expectations are everything, especially when it comes to growth stocks.

Heading into earnings results last night, the contrast between the two stocks was notable. MSFT was trading at 30x 2026 earnings, with META far behind at 22x.

As we have so often seen with Mag 7 names, depressed expectations, sustained underperformance and negative sentiment can set the stage for strong returns once a company starts to deliver. Elevated expectations, on the other hand, can turn modest disappointments into painful routs.

MAG7 MONITOR Coverage Universe

META’s recovery

META has had a tough stretch in recent months, irritating investors with aggressive spending on AI, but appears ready to make a comeback.

Through yesterday, META was the cheapest stock among the Mag 7 (relative to 2026 expected earnings). It was also last in terms of one-year stock performance.

On January 15, we sent an update to American Resilience Model Portfolio subscribers, adding META to the portfolio and eliminating another technology name. Since then, the shares have returned approximately 19%.

As we explained in that note, the decision to include META was based on several compelling factors, including:

(1) Mispriced quality

META combines one of the most profitable core businesses in global technology with durable growth, yet was trading at less than 21× 2026 consensus earnings—below both the median Mag 7 multiple (~30×) and even the broader S&P 500.

This discount existed despite operating margins near 40%, strong free cash flow generation, and mid-20% advertising revenue growth.

(2) AI monetization at scale

META has already been translating AI investment into tangible financial returns. Its LLaMA AI models are improving ad targeting, creative optimization, and content recommendations across Facebook, Instagram, and WhatsApp, driving measurable increases in advertiser Return on Investment (ROI).

Given META’s scale—over $50 billion in quarterly revenue—even modest AI-driven improvements generate billions of dollars in incremental revenue. This is likely only beginning, with significant additional upside in the future as AI agents become embedded within messaging, commerce, and business tools.

(3) Strategic and financial flexibility

While META’s current earnings are somewhat depressed by elevated AI infrastructure spending and ongoing losses in Reality Labs (its virtual reality initiative), these investments are largely discretionary.

Management retains the ability to moderate capital expenditures or further reduce non-core initiatives if returns do not justify spending levels. This flexibility provides a margin of safety for investors, while preserving substantial upside should META’s AI strategy deliver as expected.

In light of the strong fourth quarter financial results, we continue to view META as a highly attractive long-term AI beneficiary.

META uniquely combines frontier AI leadership with unmatched global distribution and immense financial firepower. Despite the recent upside, we still believe the current valuation does not adequately reflect the durability of META’s cash flows or the long-term potential of its AI strategy.

META, along with NVDA, is now one of two Mag 7 stocks included in the growth-oriented American Resilience portfolio, which currenlty includes 14 other stocks across multiple industry sectors.

META earnings highlights

Fourth quarter revenue rose 24% year over year to $59.9 billion, driven primarily by 24% growth in advertising revenue across Facebook, Instagram, WhatsApp, and Threads. Despite heavy spending on AI and infrastructure, META delivered an impressive 41% operating margin, underscoring the strength and scalability of its core advertising business.

Management emphasized that AI is no longer a future promise—it is actively improving results today. Better recommendation systems and ad-ranking models are increasing engagement, boosting conversion rates, and improving advertiser returns.

Looking ahead, CEO Mark Zuckerberg described 2026 as a year when AI adoption accelerates further. The company is focused on rolling out more personalized experiences, expanding AI-powered business messaging, and developing AI agents that can help users and businesses complete real tasks.

While capital spending will rise significantly to support AI infrastructure ($115 billion to $135 billion in 2026), management emphasized that it expects to generate more total operating income in 2026 than in 2025.

Overall, the earnings call reinforced META’s view that near-term investment pressure is laying the groundwork for sustained growth, stronger monetization, and improved efficiency over time.

Our world-class recommendation systems are already driving meaningful growth across our apps and ads business, but we think that the current systems are primitive compared to what will be possible soon. Today, our systems help people stay in touch with friends, understand the world, and find interesting and entertaining content. But soon we'll be able to understand people's unique personal goals and tailor feeds to show each person content that helps them improve their lives in the ways that they want. - Mark Zuckerberg (1/28/2026)

MSFT: Key takeaways

Although MSFT fell short of the market’s expectations, AI-driven growth remains robust. A big issue facing MSFT this quarter was supply constraints on data center capacity, much of which the company noted was being consumed internally.

Revenue rose 17% year over year to $81.3 billion, while operating income increased 21%, with operating margins expanding to 47% despite heavy AI-related investment. The Microsoft Cloud surpassed $50 billion in quarterly revenue for the first time, growing 26% year over year, driven by rapidly expanding AI services.

Management emphasized that AI adoption is still in the early stages but already materially impacting results. Azure revenue grew 39%, supported by strong demand for AI workloads, even as management acknowledged that demand continues to exceed available capacity.

MSFT is investing aggressively to close this gap, adding significant data center capacity while prioritizing efficiency through improved system design and flexible infrastructure.

While capital expenditures remain elevated as MSFT builds out AI infrastructure ($37.5 billion in the most recent quarter), management stressed that much of this capacity is already contracted and tied to long-term demand.

Overall, the call reinforced MSFT’s position as a central platform for enterprise AI adoption, with strong visibility into sustained growth across cloud, productivity, and AI services.

MAG 7 — Valuation

MAG7 — Performance

Click HERE to learn more about our Model Portfolio subscription plans.

Disclaimer

FOR SUBSCRIBER USE ONLY. DO NOT FORWARD OR SHARE.