Market sentiment toward the Magnificent 7 and software stocks has been weak. Much of this is tied to AI concerns. For the Mag 7, investors are focused on rising capital spending. For software firms, the worry is that AI could replace parts of their products. Amazon plans to spend $200 billion on capital expenditures in 2026. That is up from $132 billion in 2025 and $83 billion in 2024. In 2025, Amazon’s operating cash flow was slightly higher than its $132 billion capex. In 2026, capex is expected to be higher than operating cash flow.

Market Performance And Upcoming Catalysts

Over the last three months, Microsoft is down 15.5%. That compares with the Mag 7 at -2.7%, the Zacks Tech sector at +1.8%, and the S&P 500 at +3.9%. Nvidia reports Q4 results after the market closes on Wednesday, February 25th. Nvidia revenue was $16.67 billion in 2021 and is expected to reach $312 billion next year (fiscal year ending January 2027). For Q4, estimates call for EPS of $1.52 on $65.56 billion in revenue. That would be up 70.8% for EPS and 66.7% for revenue year over year. For Mag 7 Q4, earnings are expected to rise 24.2% on 18.9% higher revenue. This follows 2025 Q3 growth of 28.3% in earnings and 18.1% in revenue. The group is forecast to produce 25.5% of S&P 500 earnings in 2025, up from 23.2% in 2024 and 18.3% in 2023. The group makes up 32.7% of the index by weight; Technology is 41.8% and Finance is 12.6%. By Friday, February 20th, 427 S&P 500 firms (85.4%) had reported results. Earnings were up 12.8% on 8.8% higher revenue. Of those companies, 75.2% beat EPS estimates and 72.4% beat revenue estimates. More than 700 companies report this week, including 53 index members.

Volatility And Investor Positioning

With Nvidia reporting in two days, markets are tense. There is also a clear split inside the Magnificent 7. Heavy AI spending at companies like Microsoft and Amazon is worrying investors, and that has driven their recent underperformance. In this setting, Nvidia’s results on February 25th are a key event for the whole tech sector. Implied volatility for Nvidia options expiring this week has jumped above 120%. This suggests traders expect a very large move up or down. Strategies like straddles or strangles may benefit from big moves, but premiums are high, so these trades are expensive. The VIX, a common measure of market fear, has risen from 14 to above 18 over the last two weeks, showing broader anxiety. The main issue is still the size of AI infrastructure spending. Investors are worried about how long it will take to earn a return on these projects. Last week’s hotter-than-expected Producer Price Index (PPI) added pressure, because higher financing costs make multi-billion dollar projects even harder to justify. This echoes the late 1990s, when companies spent heavily on infrastructure well before profits showed up. Because option premiums are expensive, some traders may prefer vertical spreads to limit risk and reduce upfront cost. If you are bearish on the biggest spenders, put spreads on an index like QQQ could help hedge against a negative move that spreads from the Magnificent 7. The put-to-call ratio on the tech-heavy index has risen to 1.15, which points to a more defensive stance among traders. Even if Nvidia reports strong results, it may not ease deeper worries about profits at its biggest customers. Recent downward revisions to Q1 2026 earnings estimates suggest concerns are already moving past last quarter’s results. As a result, any rally after a positive Nvidia surprise may be seen as a chance to add hedges against ongoing capex risks. Create your live VT Markets account and start trading now.

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