Magnificent 7 Earnings Ahead: 3 ETFs To Ride The Wave
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Jan 28 2025
0mins
Source: Benzinga
Earnings Season and Magnificent 7: The fourth-quarter earnings season highlights the "Magnificent 7" tech stocks (Apple, Microsoft, Alphabet, Amazon, NVIDIA, Tesla, Meta), with ETFs focusing on these companies gaining popularity as they prepare to report earnings growth of 18% in 2025.
Challenges and Opportunities: While Tesla faces delivery challenges and mixed fortunes, Microsoft and Meta show promise with significant AI investments. Apple struggles with sales momentum, Alphabet contends with antitrust issues, and Amazon continues to thrive in e-commerce and cloud computing.
Trade with 70% Backtested Accuracy
Stop guessing "Should I Buy MSFT?" and start using high-conviction signals backed by rigorous historical data.
Sign up today to access powerful investing tools and make smarter, data-driven decisions.
Analyst Views on MSFT
Wall Street analysts forecast MSFT stock price to rise
34 Analyst Rating
32 Buy
2 Hold
0 Sell
Strong Buy
Current: 416.030
Low
500.00
Averages
631.36
High
678.00
Current: 416.030
Low
500.00
Averages
631.36
High
678.00
About MSFT
Microsoft Corporation is a technology company. The Company develops and supports software, services, devices, and solutions. The Company’s segments include Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. The Productivity and Business Processes segment consists of products and services in its portfolio of productivity, communication, and information services. This segment primarily comprises: Office Commercial, Office Consumer, LinkedIn, and Dynamics business solutions. The Intelligent Cloud segment consists of server products and cloud services, including Azure and other cloud services, SQL Server, Windows Server, Visual Studio, System Center, and related Client Access Licenses (CALs), and Nuance and GitHub; and Enterprise Services, including enterprise support services, industry solutions and Nuance professional services. The More Personal Computing segment primarily comprises Windows, Devices, Gaming, and search and news advertising.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
Microsoft's Azure Revenue Potential Significantly Underestimated
- Data Center Expansion: Microsoft's data center capacity is projected to grow from approximately 5 gigawatts in fiscal 2024 to around 20 gigawatts by fiscal 2028, laying the groundwork for a significant revenue surge and demonstrating the company's robust positioning in the cloud computing sector.
- Revenue Forecast Increase: Morgan Stanley analysts estimate that Microsoft's cloud ecosystem currently generates about $20-30 million of annualized revenue per megawatt of data center capacity, with forecasts suggesting a decline to the high teens by FY28, yet overall revenue is expected to grow substantially.
- AI Platform Integration: Analysts note that Microsoft's data centers will not only support Azure but also enhance a unified cloud and AI platform across M365 Commercial Cloud, Dynamics 365, and LinkedIn, thereby increasing market competitiveness.
- Optimistic Investment Rating: Morgan Stanley has assigned an Overweight rating to Microsoft with a price target of $650, indicating analysts' positive outlook on the company's future growth potential in cloud computing and AI.
See More
Analysis of Investment Potential in U.S. Mega Cap Growth ETF
- High Market Concentration: The CRSP U.S. Total Market Index comprises 3,498 companies, yet the top 59 account for 70% of total market capitalization, indicating extreme wealth concentration that may lead to concentrated investment risks.
- Strong ETF Performance: The Vanguard Mega Cap Growth ETF has delivered a compound annual return of 13.6% since its inception in 2007, significantly outperforming the S&P 500's 10.3%, highlighting its robust performance in long-term investments.
- AI Revolution Driving Growth: Companies like Nvidia, Apple, Alphabet, and Microsoft have driven a median return of 236% through innovations in AI, underscoring their significance within the ETF and attractiveness to investors.
- Need for Risk Management: Despite the Vanguard ETF's strong performance, its high concentration in just 59 stocks necessitates that investors consider incorporating it into a diversified portfolio to mitigate potential downside risks.
See More
Amazon Capitalizes on AI Boom with AWS Innovations
- Cloud Business Growth: Amazon's cloud division, AWS, accounted for 60% of operating income in the latest quarter, indicating strong performance in the AI market and expected to further enhance overall profitability.
- In-House Chip Strategy: AWS is designing its own CPUs and AI-specific chips like Trainium, projected to save tens of billions in capital expenditures annually, which not only meets diverse customer needs but also strengthens its market competitiveness.
- AI Agent Transition: Amazon is transitioning to the era of AI agents, with AWS's Trainium and Graviton chips offering unparalleled advantages in AI and CPU workloads, suggesting a solid foundation for future growth in this domain.
- Market Competitive Advantage: Despite competition from cloud providers like Microsoft, AWS's unique in-house chip portfolio and collaboration with Nvidia provide a significant competitive moat in the AI market, indicating strong growth potential for multiple quarters ahead.
See More
Vanguard Mega Cap Growth ETF's Market Performance
- Portfolio Concentration: The Vanguard Mega Cap Growth ETF holds 59 of America's largest growth companies, with its top four positions (Nvidia, Apple, Alphabet, and Microsoft) valued over $17 trillion, representing a staggering 45.8% of the entire portfolio, highlighting extreme wealth concentration that may increase investment risks.
- AI-Driven Growth: Since the early 2023 surge of OpenAI's ChatGPT application, which amassed over 100 million users, the AI boom has provided significant growth momentum for the Vanguard ETF, with the top four companies delivering a median return of 236%, making them a key source of upside for the ETF.
- Long-Term Return Performance: Since its inception in 2007, the Vanguard Mega Cap Growth ETF has achieved a compound annual return of 13.6%, comfortably outpacing the S&P 500's 10.3% during the same period, indicating its potential in long-term investments while also emphasizing the need for careful risk management.
- Diversification Recommendation: Despite the Vanguard ETF's strong performance, its high concentration in tech stocks suggests that investors should consider including it in a diversified portfolio to mitigate potential downside risks, especially given the uncertainties facing the tech sector.
See More
Amazon Web Services Leads in AI Market Growth
- Revenue Growth Momentum: Amazon Web Services (AWS) boasts an annual revenue run rate of $150 billion, indicating strong market demand that is expected to further enhance the company's profitability and reduce costs over time.
- Chip Design Advantage: AWS not only offers top Nvidia GPUs but also designs its own Trainium and Graviton chips to meet diverse customer needs while lowering capital expenditures, potentially saving tens of billions annually.
- Market Competitiveness: As the world's largest cloud service provider, AWS has established a competitive moat with its unique chip portfolio and strong customer base, positioning itself for long-term growth despite challenges from competitors like Microsoft.
- AI Agent Transformation: AWS is at the forefront of the transition to AI agent software, leveraging both CPU and GPU strengths, which is expected to further solidify its dominant position in the AI market and drive significant growth in the coming quarters.
See More
ByteDance Develops Custom CPUs to Meet AI Infrastructure Needs
- Custom CPU Development: ByteDance is developing its own central processing units (CPUs) to meet the growing demands of its AI infrastructure, aiming to enhance internal operational efficiency by reducing reliance on external suppliers.
- Intensifying Market Competition: As AI models increasingly demand higher CPU performance, ByteDance's initiative aligns it with tech giants like Google, Amazon, and Microsoft, who are also developing custom CPUs to cut costs and optimize performance.
- Dual Architecture Strategy: ByteDance is exploring two chip architectures based on Arm and the open-source RISC-V instruction set to determine which design best suits its long-term data center needs, thereby mitigating future manufacturing risks.
- Price Pressure: With CPU prices from Intel and AMD rising by 10% to 35% in recent months, ByteDance is accelerating its in-house chip development to address challenges posed by supply shortages and escalating costs.
See More
Microsoft's Azure Revenue Potential Significantly Underestimated
- Data Center Expansion: Microsoft's data center capacity is projected to grow from approximately 5 gigawatts in fiscal 2024 to around 20 gigawatts by fiscal 2028, laying the groundwork for a significant revenue surge and demonstrating the company's robust positioning in the cloud computing sector.
- Revenue Forecast Increase: Morgan Stanley analysts estimate that Microsoft's cloud ecosystem currently generates about $20-30 million of annualized revenue per megawatt of data center capacity, with forecasts suggesting a decline to the high teens by FY28, yet overall revenue is expected to grow substantially.
- AI Platform Integration: Analysts note that Microsoft's data centers will not only support Azure but also enhance a unified cloud and AI platform across M365 Commercial Cloud, Dynamics 365, and LinkedIn, thereby increasing market competitiveness.
- Optimistic Investment Rating: Morgan Stanley has assigned an Overweight rating to Microsoft with a price target of $650, indicating analysts' positive outlook on the company's future growth potential in cloud computing and AI.
See More
Analysis of Investment Potential in U.S. Mega Cap Growth ETF
- High Market Concentration: The CRSP U.S. Total Market Index comprises 3,498 companies, yet the top 59 account for 70% of total market capitalization, indicating extreme wealth concentration that may lead to concentrated investment risks.
- Strong ETF Performance: The Vanguard Mega Cap Growth ETF has delivered a compound annual return of 13.6% since its inception in 2007, significantly outperforming the S&P 500's 10.3%, highlighting its robust performance in long-term investments.
- AI Revolution Driving Growth: Companies like Nvidia, Apple, Alphabet, and Microsoft have driven a median return of 236% through innovations in AI, underscoring their significance within the ETF and attractiveness to investors.
- Need for Risk Management: Despite the Vanguard ETF's strong performance, its high concentration in just 59 stocks necessitates that investors consider incorporating it into a diversified portfolio to mitigate potential downside risks.
See More
Amazon Capitalizes on AI Boom with AWS Innovations
- Cloud Business Growth: Amazon's cloud division, AWS, accounted for 60% of operating income in the latest quarter, indicating strong performance in the AI market and expected to further enhance overall profitability.
- In-House Chip Strategy: AWS is designing its own CPUs and AI-specific chips like Trainium, projected to save tens of billions in capital expenditures annually, which not only meets diverse customer needs but also strengthens its market competitiveness.
- AI Agent Transition: Amazon is transitioning to the era of AI agents, with AWS's Trainium and Graviton chips offering unparalleled advantages in AI and CPU workloads, suggesting a solid foundation for future growth in this domain.
- Market Competitive Advantage: Despite competition from cloud providers like Microsoft, AWS's unique in-house chip portfolio and collaboration with Nvidia provide a significant competitive moat in the AI market, indicating strong growth potential for multiple quarters ahead.
See More
Vanguard Mega Cap Growth ETF's Market Performance
- Portfolio Concentration: The Vanguard Mega Cap Growth ETF holds 59 of America's largest growth companies, with its top four positions (Nvidia, Apple, Alphabet, and Microsoft) valued over $17 trillion, representing a staggering 45.8% of the entire portfolio, highlighting extreme wealth concentration that may increase investment risks.
- AI-Driven Growth: Since the early 2023 surge of OpenAI's ChatGPT application, which amassed over 100 million users, the AI boom has provided significant growth momentum for the Vanguard ETF, with the top four companies delivering a median return of 236%, making them a key source of upside for the ETF.
- Long-Term Return Performance: Since its inception in 2007, the Vanguard Mega Cap Growth ETF has achieved a compound annual return of 13.6%, comfortably outpacing the S&P 500's 10.3% during the same period, indicating its potential in long-term investments while also emphasizing the need for careful risk management.
- Diversification Recommendation: Despite the Vanguard ETF's strong performance, its high concentration in tech stocks suggests that investors should consider including it in a diversified portfolio to mitigate potential downside risks, especially given the uncertainties facing the tech sector.
See More
Amazon Web Services Leads in AI Market Growth
- Revenue Growth Momentum: Amazon Web Services (AWS) boasts an annual revenue run rate of $150 billion, indicating strong market demand that is expected to further enhance the company's profitability and reduce costs over time.
- Chip Design Advantage: AWS not only offers top Nvidia GPUs but also designs its own Trainium and Graviton chips to meet diverse customer needs while lowering capital expenditures, potentially saving tens of billions annually.
- Market Competitiveness: As the world's largest cloud service provider, AWS has established a competitive moat with its unique chip portfolio and strong customer base, positioning itself for long-term growth despite challenges from competitors like Microsoft.
- AI Agent Transformation: AWS is at the forefront of the transition to AI agent software, leveraging both CPU and GPU strengths, which is expected to further solidify its dominant position in the AI market and drive significant growth in the coming quarters.
See More
ByteDance Develops Custom CPUs to Meet AI Infrastructure Needs
- Custom CPU Development: ByteDance is developing its own central processing units (CPUs) to meet the growing demands of its AI infrastructure, aiming to enhance internal operational efficiency by reducing reliance on external suppliers.
- Intensifying Market Competition: As AI models increasingly demand higher CPU performance, ByteDance's initiative aligns it with tech giants like Google, Amazon, and Microsoft, who are also developing custom CPUs to cut costs and optimize performance.
- Dual Architecture Strategy: ByteDance is exploring two chip architectures based on Arm and the open-source RISC-V instruction set to determine which design best suits its long-term data center needs, thereby mitigating future manufacturing risks.
- Price Pressure: With CPU prices from Intel and AMD rising by 10% to 35% in recent months, ByteDance is accelerating its in-house chip development to address challenges posed by supply shortages and escalating costs.
See More
