Concerns Around DeepSeek Shift Focus to Magnificent 7 Earnings

Meta, Microsoft, and Tesla are set to release their earnings reports after the market closes on Wednesday. These tech giants have been the driving force behind a two-year surge in U.S. stocks. Wednesday afternoon was already expected to be eventful for the stock market, with the Federal Reserve set to announce its interest rate decision, followed by Fed Chair Jerome Powell’s press conference. However, investors may look past the Fed and focus on the potential fireworks after the close when three of the “Magnificent Seven” tech companies—Meta Platforms Inc., Microsoft Corp., and Tesla Inc.—report their financial results and hold earnings calls with Wall Street analysts to discuss their performance and outlook.

These briefings now carry even higher stakes due to DeepSeek. U.S. tech giants are under increasing scrutiny over their AI spending and the modest profits they generate from the technology, especially as nearly all of Wall Street tries to figure out how the Chinese AI newcomer seemingly caught up overnight with minimal costs.

“While the fundamental impact of DeepSeek’s impressive and shocking entry into the AI race may not be felt immediately, it will inevitably be a topic in management discussions,” wrote Michael Casper and Gina Martin Adams of Bloomberg Intelligence in a report on Tuesday.

The implications for tech earnings are significant, with hundreds of billions of dollars invested, yet profits remain elusive. The impact is also massive on the stock market, which has surged almost entirely on AI promises over the past two years. In the last 12 months alone, the group of seven tech giants—including Apple Inc., Alphabet Inc., Amazon.com Inc., and Nvidia Corp.—has added over $5 trillion in combined market value, rising by 66%. Meanwhile, the rest of the U.S. stock market has gained $8 trillion. These tech behemoths have accounted for more than half of the S&P 500’s 24% rally during this period.

The gap between Big Tech stocks and the rest of the market was strikingly evident this week. On Monday, a tech-driven selloff dragged the S&P 500 down by 1.5%, despite 359 of the index’s companies posting gains. On Tuesday, a tech rebound pushed the index up by nearly 1%, even though 349 companies in the S&P declined.

“Between Microsoft, Meta, and Tesla, you’ll get a real perspective on AI’s potential and how big of a revelation DeepSeek has made by proving it can be done cheaper,” said Michael O’Rourke, chief strategist at JonesTrading. “What kind of threat does this pose to the massive investments made in the AI space?”

There are already differing bets on the impact. While Nvidia has lost more than $300 billion in market value this week, Meta’s stock continued its rally for a seventh consecutive session on Tuesday, fueled by expectations that the company is well-positioned to turn its massive AI spending into profit growth. Microsoft’s market performance was mixed, as its AI fate is closely tied to ChatGPT’s parent company, OpenAI.

Then there’s Tesla, whose stock has nearly doubled since its last earnings report, mainly due to Elon Musk’s growing political influence. While the company’s AI efforts fall into a different category than DeepSeek’s generative model, investors don’t always trade with that distinction in mind, often grouping Tesla into AI-driven rallies.

“This should shake up many fundamental expectations for future developments,” O’Rourke said. “These companies are so large and expensive that we could easily see a 10% or 20% drop over time.”