Alphabet pulls ahead as the market reprices AI execution

David Faber (Co-Anchor) 00:00.000

The Magnificent Seven stocks, no longer trading as a monolith and the gap, well it could widen in 2026. McKenzie Segalas joins us now and she will explain. McKenzie.

Mackenzie Sigalos (Technology Reporter) 00:10.080

Hey David. So there's roughly a 60 point spread in the Mag 7 year to date with Alphabet leading the pack and Amazon in last place. And that divergence tells you what Wall Street cares about. It's now rewarding companies that show monetization and margin. Leading the pack is

Mackenzie Sigalos (Technology Reporter) 00:24.640

Alphabet. It's pulling ahead because it owns the full stack. AI chips, cloud infrastructure, distribution and search. Bringing chip design in house is margin defense in a world price by Nvidia. And you can see it in the results, Google Cloud grew 34% last quarter with margins

Mackenzie Sigalos (Technology Reporter) 00:39.840

now near 24%. And Nvidia, it is winning too up nearly 40% this year because the AI CapEx wave is still landing on Nvidia silicon with black well ramping and capacity effectively spoken for. Now, at the other end of the scoreboard, Amazon is at the bottom of the pack. It's been

Mackenzie Sigalos (Technology Reporter) 00:57.200

betting on its in-house trinium AI chip to win on cost, but AWS revenue is only just reaccelerating. It's still trailing Azure and Google Cloud on growth rates and behind Microsoft on backlog without a must-use model or consumer AI product pulling workloads onto its stack. Now,

Mackenzie Sigalos (Technology Reporter) 01:14.320

Meta also in the laggard bucket. It had its biggest single day drop in 3 years after raising its CapEx outlook, but without a cloud business to monetize that spend directly, the AI payoff story is mostly about improved ad performance. And then there's Apple, sitting out the arms

Mackenzie Sigalos (Technology Reporter) 01:29.600

race and entirely. But if models converge on quality, it's distribution that wins. So Apple doesn't need to train the models. It just needs to be where people use them. That's the upside case for 2026. And if you want to know where the AI trade is really working, look beyond the

Mackenzie Sigalos (Technology Reporter) 01:44.920

Mag 7. Some of the biggest winners this year have been the boring picks and shovels, memory and storage names like Micron, Western Digital, and Seagate. Guys?

David Faber (Co-Anchor) 01:54.880

Yeah, we've we've mentioned the divergence. And the fact, frankly, as you pointed out, McKinsey that Apple and Meta, obviously Amazon as well, Microsoft, all trading below the return of the S&P this year. So, as as you've indicated as well. Uh and so that it may continue uh next

David Faber (Co-Anchor) 02:11.560

year. We'll see. Obviously, Nvidia's uh one of the outliers and Alphabet, wow, that stock has been incredible.

Mackenzie Sigalos (Technology Reporter) 02:19.000

It really has off the back of its in-house chip program, the TPU has a really strong reputation versus names like Tranium, the Amazon in-house chip, hasn't done as well with some of these uh you know, some of these contracts, which is why you're seeing new business go into

Mackenzie Sigalos (Technology Reporter) 02:33.680

Google Cloud. The other thing I'll say about Meta, it's a very interesting story there. They are spending in the range of what Google and Amazon are are paying, but they don't have a cloud business to justify that spend. So, a lot of that coming back to what they're able to do

Mackenzie Sigalos (Technology Reporter) 02:46.040

with ad optimization. Uh, Lama, they're LLM, not as popular as Gemini. Another one there for Google, part of why it's done so well this year. Gemini's at the top of the scoreboard.

David Faber (Co-Anchor) 02:56.560

Yeah. Now, you you hit it all, of course. Yeah, that Meta thing is fascinating. Again, key being the spend is so similar and yet no cloud business to amortize it over. McCansie, thank you.