MarketsJul 22, 2026
Alphabet and Tesla Miss Key Marks as Mag 7 Earnings Season Opens
Market Sentiment
Rhea Lobo
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Two of the Magnificent Seven's biggest names reported Q2 results Wednesday, and neither hit every mark Wall Street had set.
Alphabet and Tesla headlined the first major wave of tech earnings this season, offering an early read on whether the sector's massive AI spending is paying off. The Magnificent Seven has been a focal point for investors navigating the AI spending debate all year.
Evercore ISI strategist Julian Emanuel framed Wednesday's reports as a test of whether strong capex signals could lift both the Mag 7 and chip stocks together.
Alphabet beat on cloud and overall revenue but fell just short on search. Cloud revenue came in at $24.77B for the quarter while total revenue hit $119.8B.
Search advertising generated $63.27B while remaining performance obligations, a measure of future contracted revenue, hit $514B.
"Q2 was an amazing quarter, with Alphabet revenues growing 24% year-over-year and Google Cloud revenues accelerating to 82% growth."
Sundar Pichai, Alphabet CEO
One overhang: reports that Google delayed its Gemini 3.5 Pro model over capability concerns. Google pushed back, saying it's actively testing the model with partners.
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Tesla's report was a cleaner miss. Sales rose sharply to $28.2B and Tesla sold more than 480K vehicles in the quarter. However, profit fell to $1.1B from $1.2B a year earlier as price cuts on the Model Y and Model 3 ate into margins.
Operating expenses jumped nearly 50% to $4.4B, driven by investment in self-driving and robotics. The company's adjusted EPS came in at $0.33, well below the analyst consensus while it also posted negative free cash flow of $1.09B.
CEO Elon Musk has flagged total 2026 spending above $25B. Tesla's robotaxi operation remains limited, with only 69 authorized self-driving vehicles in Texas, compared to Waymo's 628 in the same state.
Tesla shares are down over 10% year to date, making it the worst performer in the Magnificent Seven. The rest of the group reports in the weeks ahead, and investors will be watching to see if AI spending starts translating into bigger returns.
