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The market reaction to Alphabet's (GOOGL - Free Report) Q2 results has significantly raised the bar for its Magnificent Seven peers that are on deck to report results this week, namely Microsoft (MSFT - Free Report) and Meta Platforms (META - Free Report) on Wednesday, July 29th, and Apple (AAPL - Free Report) and Amazon (AMZN - Free Report) on Thursday, July 30th.
The raised bar isn’t solely related to AI-centric capex spending plans and the effect that is having on cash flows, though that is a very critical issue for most investors, but also to the impressive operating momentum that Alphabet showed in its cloud business. Performance on the cloud front will be closely watched for Amazon and Microsoft, with the latter’s recent showing on this front having been less than satisfactory.
Alphabet showed further acceleration in its cloud business, with Google Cloud revenues up +82% from the same period last year. This follows year-over-year Google Cloud revenue growth of +45.2% in the preceding period (2026 Q1), +38.5% in 2025 Q4, and +35% in 2025 Q3. Alphabet’s results on the search, advertising, and AI monetization fronts were equally impressive.
Alphabet’s results show that it is doing a better-than-expected job of operationalizing and monetizing AI capabilities. But this wasn’t enough to convince market participants to buy the stock, with another capex hike becoming the trigger for the sell-off.
Alphabet’s free cash flow moved into negative territory for the first time in its public life, with management indicating that the Q2 cash flow trends will likely persist over the coming quarters as well, with a combination of debt and equity issuance making up for the shortfall. Alphabet shares the capex and cash flow issues with Amazon, Meta, and, to a smaller extent, Microsoft.
Alphabet’s reported earnings benefited from the unrealized gain on its SpaceX stake, which accounted for an estimated $77.4 billion in the company’s $112.1 billion net income. If we use Alphabet’s reported Q2 earnings, then quarterly earnings for the Mag 7 group as a whole are on track to increase +83.1% from the same period last year on +26% higher revenues, as the chart below shows.
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The Q2 earnings growth pace for the Mag 7 group becomes a relatively more ‘reasonable’ +28% once Alphabet’s non-operating unrealized gain is stripped out.
The chart below shows the Mag 7 group’s earnings and revenue growth on a calendar year basis.
Image Source: Zacks Investment Research
Importantly, the Mag 7 group has consistently enjoyed a steadily improving earnings outlook, with analysts raising their estimates, as the chart below shows.
Image Source: Zacks Investment Research
It is useful to keep in mind that the Mag 7 group is on track to bring in more than 27% of all S&P 500 earnings this year, up from 16.4% of the total in 2020, and accounts for 32.2% of the index’s market capitalization.
Q2 Earnings Season Scorecard
Through Friday, July 24th, we have seen quarterly results from 135 S&P 500 members or 27% of the index’s total membership. Total earnings for these are up +67.8% from the same period last year on +12.6% revenue gains, with 87.4% of the companies beating EPS estimates and 79.3% of them beating revenue estimates.
The comparison charts below put the Q2 earnings and revenue growth rates for these index members in a historical context.
Image Source: Zacks Investment Research
The comparison charts below put the Q2 EPS and revenue beats percentages in a historical context.
Image Source: Zacks Investment Research
As you can see above, the Q2 EPS beats percentage for this group of 135 index members is a new 5-year high, while the revenue beats percentage is toward the high end of the 5-year range.
The unusually strong earnings growth rate of +67.8% and revenue growth of +12.6% are benefiting from Micron (MU) and Alphabet’s blockbuster results.
The chart below shows the reported Q2 earnings growth picture, with and without Alphabet and Micron.
Image Source: Zacks Investment Research
As you can see above, Micron and Alphabet account for more than 60% of all reported earnings growth at this stage, an unusual level of earnings concentration.
The Q2 reporting cycle ramps up in a big way this week, with more than 800 companies on deck to report results, including 172 S&P 500 members (34% of the index’s membership). In addition to the aforementioned Amazon, Apple, Microsoft, and Meta, this week’s line-up ranges from Exxon (XOM) and Chevron (CVX) to Visa (V) and Mastercard (MA), Starbucks (SBUX), Ford (F), and many other bellwether operators.
The Earnings Big Picture
The chart below gives you a big-picture view of the overall earnings picture. It highlights current Q2 expectations right alongside actual results from the past four quarters and forecasts for the next four (including 2026 Q2).
Image Source: Zacks Investment Research
As you can see here, total S&P 500 earnings for 2026 Q2 are expected to increase by +39.1% compared to the same period last year on +12.3% higher revenues.
Of the 16 Zacks sectors, 11 are expected to have positive earnings growth in Q2, with Energy (earnings growth of +126.1%), Tech (+91%), Basic Materials (+49.1%) and Finance (+24%) as the major growth drivers.
Q2 earnings growth drops to +14.3% from +39.1% once the Tech sector’s substantial contribution is excluded.
The +126.1% earnings growth for the Energy sector is meaningful, but aggregate earnings growth would still be +35.2% on an ex-Energy basis.
The Tech sector has been a pillar of earnings growth over the last two years, and the sector is expected to continue playing that role in Q2 and beyond. The chart below shows current earnings and revenue growth expectations for the sector relative to what the sector actually reported in the preceding two periods and what is expected in the following three quarters.
Image Source: Zacks Investment Research
The Tech sector is unlike the other 15 Zacks sectors, as it alone brings in 41% of all S&P 500 earnings and accounts for 45.6% of the index’s total market capitalization.
As noted earlier, Alphabet’s Q2 results included a huge boost from a non-operating side, specifically the unrealized gain it has been forced to book on its SpaceX stake following that company’s IPO. Alphabet isn’t alone in having an outsized impact on the sector’s growth pace, as Nvidia (NVDA) and Micron are also exerting an outsized influence.
Excluding the contribution from Alphabet, Micron and Nvidia, Q2 earnings for the rest of the Zacks Tech sector would be up +27.6% (vs. +91% otherwise).
The chart below shows the Tech sector’s earnings growth picture, with and without these three companies.
Image Source: Zacks Investment Research
The chart below shows the aggregate growth picture for the S&P 500 index on a calendar year basis.
Image Source: Zacks Investment Research
As with Q2 expectations, the Tech sector has an outsized impact on the annual earnings picture as well. Total Tech sector earnings are expected to increase +40.1% from the same period last year on +18.5% higher revenues.
Excluding the Tech sector’s substantial contribution, total S&P 500 earnings for the year would be up +13.2% (vs. +22.4% otherwise).
As we saw with Q2 expectations, contributions from Alphabet, Micron, and Nvidia are also significant here, as the chart below shows.
Image Source: Zacks Investment Research
The way to read this chart is that the +22.4% earnings growth expected in 2026 drops to +13.2% once the Tech sector is excluded and +15% once only Alphabet, Nvidia, and Micron are excluded from the index. In other words, one-third of all S&P 500 earnings growth in 2026 is coming from these three Tech companies.
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