For the past couple of years, the Magnificent Seven stocks have had an amazing run. However, there have been a handful of challenges facing these companies in 2025 that could threaten their dominance.
The reality is, this year has brought a new set of challenges for Alphabet, Inc. (GOOG), Amazon.com, Inc. (AMZN), Apple, Inc. (AAPL), Meta Platforms, Inc. (META), Microsoft Corporation (MSFT), NVIDIA Corporation (NVDA) and Tesla, Inc. (TSLA). From headlines about AI competition (DeepSeek) to tariff threats, the waters for the Magnificent Seven have been choppy so far.
The good news is this…
Judging by Apple’s, Meta Platform’s and Microsoft’s statements last week (which we covered in last Saturday’s Market 360), these companies are largely unbothered by the DeepSeek news. They all seem to be in the camp that this is a good thing for tech, opening a window for more advancements in AI.
Time will tell, of course. But we did hear from Alphabet and Amazon this week. So, I want to use today’s Market 360 to review the latest reports, including what they had to say about the DeepSeek. Then I’ll share if these stocks are good investments right now.
Alphabet Inc.
On Tuesday, Alphabet reported fourth-quarter earnings per share of $2.15, an increase of 31.1% compared to earnings of $1.64 per share a year ago. This also beat analysts’ earnings expectations for $2.13 per share. Revenue climbed 11.8% year-over-year to $96.5 billion, up from $86.3 billion in the same quarter a year ago. Analysts had called for $96.7 billion.
Aside from the revenue miss, the important number to note in this report is Google’s Cloud sales. As you can see in the chart below, Cloud revenues increased 30% year-over-year to $11.9 billion but missed expectations for $12.1 billion.
Digging a little deeper… YouTube ad revenue came in at about $10.5 billion, besting analysts’ estimates for $10.2 billion and growing 13.8% year-over-year.
Now, CEO Sundar Pichai did address DeepSeek during the earning call. He said:
The cost of actually using it is going to keep coming down, which will make more use cases feasible, and that’s the opportunity space. It’s as big as it comes, and that’s why you’re seeing us invest to meet that moment.
On that note, Google also unveiled a new Gemini AI model: 2.0 Flash, which Pichai said are “some of the most efficient models out there, including comparing to DeepSeek’s V3 and R1.”
Translation: Pichai doesn’t seem to think DeepSeek is a major threat, also noting that there is plenty of room for new use cases for AI.
He also said that Google Cloud customers use eight times the computing capacity for training and inferencing than they did a year and a half ago.
That may sound like good news, but it also helps explain why the company will be investing roughly $75 billion in capital expenditures for the year. This is not only up 43% from last year, but also well above Wall Street’s projections for $59 billion.
So, while the numbers weren’t terrible, investors were disappointed to hear that the company has no plans to slow down its massive AI investments. That sent GOOG down nearly 8% on Wednesday.
Amazon.com, Inc.
On Thursday, Amazon reported results that bested expectations for its fourth quarter. The company reported that earnings increased 86% year-over-year to $1.86 per share. Analysts were expecting earnings of $1.48 per share. Revenue rose 10.5% year-over-year to $187.8 billion, topping estimates for $187.2 billion.
Unfortunately, Amazon’s closely-watched (and highly profitable) cloud computing unit, Amazon Web Services (AWS), disappointed Wall Street. For the quarter, AWS brought in $28.7 billion in revenue – a growth of 19%, just shy of expectations of $28.8 billion.
Meanwhile, advertising revenue jumped 18% to $17.3 billion but also fell short of expectations for $17.4 billion.
Turning to the earnings call, CEO Andy Jassy shared that he, like many others, was impressed with DeepSeek. But he dismissed predictions that it will lead to lower revenue for Amazon’s AI cloud services:
What happens is companies will spend a lot less per unit of infrastructure, and that is very, very useful for their businesses. But then they get excited about what else they could build that they always thought was cost prohibitive before, and they usually end up spending a lot more in total on technology once you make the per unit cost less.
In other words, Amazon, like much of the rest of Big Tech, seems unfazed by DeepSeek. In fact, it plans to continue ramping up spending just like the rest of its peers, announcing a planned $100 billion in capital expenditures next year. Most of that, Jassy said, will go towards AI for AWS.
On the note of looking ahead, I should mention that Amazon also issued weak guidance for its first quarter in a range of $151 billion and $155 billion. Analysts were expecting projections of $158 billion.
So, despite the earnings and revenue beats, the AWS miss combined with the capital expenditure plans weighed on investors. As a result, AMZN was down nearly 4% in Friday trading, as of this writing.
To Buy or Not to Buy?
Now that we’ve reviewed their earnings, the big question is this: Are Alphabet and Amazon good buys right now?
Let’s take a look at what my Stock Grader (subscription required) has to say…
As you can see, both Amazon and Google receive a B-rating for their Total Grades, making them a “Buy.” And given that they also hold A- and B-ratings for their Quantitative and Fundamental Grades as well, we know that they boast solid fundamentals as well as institutional buying pressure.
That being said, there is a group of stocks that is poised to deliver even stronger returns this year.
I’m talking about small-cap stocks. As I discussed in a previous Market 360, there are three reasons I’m bullish on small caps…
- The U.S. is an oasis in a world of chaos. This is especially good for small-cap stocks, as these businesses tend to be more domestic in nature;
- A strong U.S. dollar benefits small-cap stocks;
- And finally, small-cap stocks disproportionally benefit from key interest rate cuts.
In addition, due to the law of large numbers, small-cap stocks are more likely to have significant upside than their large-cap peers.
Finding Strong Small-Cap Stocks
So, where can you find a group of small-cap stocks that you can feel confident investing in?
My Breakthrough Stocks service is the perfect place to find fundamentally superior small-cap stocks.
As we are in the heart of earnings season, my Breakthrough Stocks remain “locked and loaded,” with 22% forecasted average sales growth and 138.2% forecasted average earnings growth. So, this group of stocks is well positioned to benefit from wave after wave of earnings surprises for the rest of this announcement season.
Just take Celestica, Inc. (CLS) for example. After posting quarterly results that topped analysts’ expectations, the stock surged more than 10% last Thursday. And this is just a taste of what’s to come…
In fact, I just added three new buys in today’s Breakthrough Stocks February Monthly Issue. One of which has seen analysts revise their earnings estimates up by 127.9% in the last three months. Another reported third-quarter earnings that rose 120.6% higher… and the last one is expected to deliver 340% earnings growth.
Go here now to view my latest research and learn how to get the latest issue of Breakthrough Stocks.
Sincerely,
Louis Navellier
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
