Earnings Season. Is Mag7 AI Spend Finally Paying Off?

Two numbers define the print: AI annual revenue run-rate passed $37B, up 123% YoY, and Commercial RPO hit $627B, up 99%. Microsoft 365 Copilot paid seats reached 20 million, with seat adds growing 250% YoY.

Street focus: the $190B 2026 capex guide (~$35B above Visible Alpha consensus, of which CFO Amy Hood attributed ~$25B to higher component prices); a 67.6% gross margin (narrowest since 2022); the OpenAI deal revision ending Azure exclusivity but keeping IP through 2032.

Pichai on the call: "Enterprise AI solutions became our primary Cloud growth driver for the first time." Backlog nearly doubled sequentially to over $460B. Gemini Enterprise paid MAUs grew 40% QoQ. Pichai also said: "We are compute-constrained in the near term. Our cloud revenue would have been higher if we were able to meet the demand."

Street focus: the capex re-raise to $180–190B and 2027 flagged to "significantly increase" — and the fact that nobody sold it, because the backlog justified the raise. Also: the $37.7B non-cash unrealized equity gain inflating EPS to $5.11 (operating EPS is lower; read separately).

AWS re-accelerated to +28% YoY, fastest in 15 quarters. Amazon's custom-silicon revenue run-rate (Graviton + Trainium + Nitro) crossed $20B, growing triple-digit percentages. OpenAI committed to ~2GW of Trainium capacity (ramping from 2027) and Anthropic up to 5GW. 2.1M+ AI chips landed in the past 12 months (>half Trainium).

Street focus: TTM FCF collapsed 95% YoY, driven by a $59.3B YoY rise in PP&E purchases. CFO Olsavsky confirmed it's "primarily tied to AWS and generative AI." Jassy: "In times of very high growth, where capex meaningfully outpaces revenue growth, the early years, free cash flow is challenged."

The ad platform is in genuinely rare shape: impressions +19%, pricing +12%, revenue +33%. Meta Superintelligence Labs released its first model. But capex guidance was raised again — by $10B on both ends — citing "higher component pricing" and "additional data center costs to support future year capacity."

Street focus: the contrast with Alphabet was immediate. Alphabet raised capex and the stock jumped; Meta raised capex and the stock fell ~7%. As one strategist put it: "The market is questioning Meta's spend, while Alphabet's is accepted because it has $460B of backlog behind it." Meta does not sell cloud — no contracted order book to justify AI infrastructure build.

GAAP gross margin stepped up almost 5 percentage points YoY to 21.1%. Tesla's training compute footprint (Cortex 2) is running at >130k H100-equivalent GPUs, and the AI5 inference chip design completed in April. Unsupervised Robotaxi launched in Dallas and Houston; paid Robotaxi miles nearly doubled sequentially.

Street focus: the gap between the narrative (robotaxi, Optimus, custom silicon, Dojo 3) and the P&L (op margin 4.2%, non-GAAP EPS $0.41). Services revenue +42% YoY is a real but small offset to softer energy deployments.