ETFs in the Crosshairs Ahead of Microsoft & Meta Earnings
The AI narrative has moved beyond speculative software to capital-intensive physical infrastructure. With the infrastructure race in full swing, hyperscalers are increasingly investing in the buildout of the compute capacity required to train and operate the next generation of AI models. As capital expenditures into AI infrastructure continue to compress cash flows, investors are increasingly demanding results from hyperscalers this earnings season.
Key Takeaways
- Microsoft and Meta report earnings after the market close on July 29, with Microsoft projected to deliver 16.44% EPS growth, while Meta’s EPS growth is expected to remain flat.
- Tech heavy ETFs such as the ALPS O’Shares Global Internet Giants ETF (OGIG) maintain significant exposure to the big four hyperscalers — Microsoft, Meta, Google, and Amazon — making these funds highly sensitive to their performance.
- Following a 4.24% after-hours decline in Alphabet stock due to increased capex guidance in Q2 earnings, immense pressure is on Microsoft, Meta, and Amazon to prove, in their upcoming earnings reports, that their massive AI infrastructure investments will deliver tangible, near-term returns.
Hyperscaler Exposure in ETFs
As investor concerns over AI capex mount across mega-cap tech, the ALPS O’Shares Global Internet Giants ETF (OGIG) finds itself right in the crosshairs. OGIG, which tracks high-growth global internet leaders, holds massive concentrated exposure to the key AI infrastructure spenders. With the funds top two holdings, Microsoft (MSFT) and Meta (META), set to report earnings after the closing bell today, OGIG stands at a critical inflection point.
The performance of the recently launched Defiance AI Hyperscale Leader ETF (AIHY) will also depend heavily on second quarter earnings results, with the big four hyperscalers, Microsoft, Meta, Alphabet Inc. (GOOGL), and Amazon (AMZN), accounting for nearly 80% of the fund’s holdings.
Additionally, hyperscalers represent large allocations in large-cap indexes such as the S&P 500 and Nasdaq-100. In the State Street SPDR Portfolio S&P 500 ETF (SPYM), the top four hyperscalers account for over 15% of portfolio allocations. Within the Invesco QQQ Trust Series I (QQQ), tracking the Nasdaq-100 index, the big four hyperscalers comprise over 18% of the total portfolio weight.
Google Capex Under Fire
Hyperscalers have seen increasing investor scrutiny regarding AI capex. Alphabet fell 4.24% in after-hours trading following guidance that the company would raise its full-year spending plan by an additional $15 billion, despite beating Wall Street expectations on top and bottom lines.
For the second quarter, Alphabet reported EPS of $9.11 and revenue of $119.8 billion, beating analyst expectations of $2.95 and $116.9 billion respectively, according to Yahoo Finance. The company raised its anticipated capex for the year to $195 billion to $205 billion, up from prior estimates of $180 billion to $190 billion, with management signaling spending will increase significantly into 2027. With Alphabet facing declines as a result of higher spending, immense pressure is on upcoming reports from Microsoft and Meta to prove their surging capital investments can deliver near-term returns.
Big Tech’s Spending Test
Microsoft announced last quarter expected capex for the year of approximately $190 billion as the company races to build data centers. Wall Street now expects spending to grow 20% to 30% this quarter, raising expected full year capex to near $220 billion, according to Yahoo Finance. As investors become increasingly skeptical of these investments, Microsoft will have to deliver strong Azure cloud growth and Copilot adoption to calm concerns over elevated spending.
The company is expected to announce EPS of $4.25 and revenue of $87.7 billion. These numbers reflect anticipated EPS growth of 16.44% and revenue growth of 14.79% year-over-year. Microsoft was down roughly 17% at the start of the year, making this earnings release a critical moment for the company to prove its fundamental strength and restore investor confidence.
Simultaneously, Meta is set to announce second quarter earnings. Wall Street expects Meta to report EPS of $7.14 on revenue of $60.23 billion, according to Bloomberg analyst consensus estimates. These numbers would represent flat EPS growth and revenue growth of 26.77%, compared to the same period last year. In Q1, Meta announced full year capex guidance of $125 to $145 billion.
Now that Alphabet has significantly raised its full year spending expectations, investors are increasingly anticipating that an increase in forward capex guidance could be on the table for Meta, according to Yahoo Finance. Meta has faced nine straight days of declines, marking the longest losing streak in the stocks history, and bringing the company’s year to date return down to -9.48%.
Amazon’s Turn in the Spotlight
On Thursday, just one day after Meta and Microsoft announce earnings, Amazon will report second quarter results. Analyst consensus expects Amazon to deliver EPS of $1.82 and revenue of approximately $195.9 billion, marking EPS growth of 8.33% and revenue growth of 17.41% from the same period last year. Amazon currently plans to spend approximately $200 billion in capex in 2026, with many investors expecting this number could go higher next earnings.
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VettaFi LLC (“VettaFi”) is the index provider for OGIG, for which it receives an index licensing fee. However, OGIG is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of OGIG.
