AI and Cloud Remain the Growth Engines

AI remains the top priority for the FANGMA companies, with Microsoft, Alphabet, Amazon, and Meta pouring billions into AI infrastructure. Microsoft’s AI business hit a $13 billion annual run rate, while Google and Amazon ramp up their AI-driven cloud services. However, cloud growth is slowing, with AWS trailing Microsoft and Google in expansion.

Advertising Strength and Subscription Growth

Digital ad revenues surged across Meta, Alphabet, and Amazon, with Meta posting 21% revenue growth and YouTube ads up 13.8%. Meanwhile, Apple and Netflix capitalized on subscription-based models, with Apple surpassing 1 billion subscriptions and Netflix growing its ad-supported tier.

Cautious Outlook Despite Profitability Gains

Despite a record-breaking quarter for big tech on many fronts, with Apple posting a best-ever 46.9% gross margin and Amazon delivering its most successful holiday season, companies tempered expectations with cautious guidance. Macro uncertainty and intensifying AI competition weighed on their outlooks. While AI remains a key long term growth driver, rising execution risks and mounting capital expenditures pose growing challenges.

Top Portfolio Holdings in the Evolve FANGMA Index ETF*

Apple Inc (AAPL)

Portfolio weight: 16.20%

• EPS: $2.40 reported vs Bloomberg estimate of $2.35
• Revenue: $124.3B reported vs Bloomberg estimate of $124.1B

“Today Apple is reporting our best quarter ever, with revenue of $124.3 billion, up 4 percent from a year ago.” – Tim Cook, CEO.

Apple reported revenue of $124.3 billion, slightly exceeding estimates, while earnings per share of $2.40 also topped expectations. Net income rose 7.1% to $36.33 billion, and gross margin hit a record 46.9%. However, iPhone sales fell short at $69.14 billion, missing forecasts and marking Apple’s biggest iPhone revenue miss in two years, partly due to a decline in Greater China sales (down 11.1%). CEO Tim Cook attributed the weakness to channel inventory adjustments, the absence of Apple Intelligence in China, and upcoming government subsidies that could boost future sales. Apple’s Services revenue grew 14% to $26.34 billion, reaching 1 billion subscriptions, while Mac and iPad sales rebounded strongly, rising 15% each amid excitement for new product launches. The Wearables segment declined 2% year-over-year to $11.75 billion. Looking ahead, Apple forecasts low to mid-single-digit revenue growth in the coming quarter, with Services expected to grow in the low double digits. The company also spent $30 billion on dividends and share repurchases and announced a 25-cent per-share dividend. Despite challenges in China, Apple remains focused on expanding AI capabilities and device ecosystem growth, with 2.35 billion active devices now in use worldwide.

Microsoft Corporation (MSFT)

Portfolio weight: 15.20%

• EPS: $3.230 reported vs Bloomberg estimate of $3.124
• Revenue: $69.632B reported vs Bloomberg estimate of $68.915B

“We are innovating across our tech stack and helping customers unlock the full ROI of AI to capture the massive opportunity ahead. Already, our AI business has surpassed an annual revenue run rate of $13 billion, up 175% year-over-year.” – Satya Nadella, CEO.

Microsoft reported revenue of $69.63 billion, surpassing estimates, while earnings per share of $3.23 also beat expectations. However, Azure cloud revenue growth slowed to 31%, missing forecasts and marking a decline from the previous quarter’s 33% growth. The company’s Intelligent Cloud segment brought in $25.54 billion, slightly below expectations, and CFO Amy Hood projected next quarter Azure growth of 31-32%, trailing the 33.4% consensus. Microsoft also issued a weaker-than-expected revenue forecast of $67.7 billion to $68.7 billion, missing the $69.78 billion consensus, leading to investor concerns. Net income rose to $24.11 billion, up from $21.87 billion a year ago, while capital expenditures reached $15.8 billion, with similar spending expected in the coming quarters. Microsoft continues investing heavily in AI, reaching a $13 billion annual AI revenue run rate, expanding GitHub’s AI capabilities, and adding $750 million more into OpenAI. The Productivity and Business Processes segment, which includes Office and LinkedIn, saw 13.9% revenue growth to $29.44 billion, while the More Personal Computing unit, including Windows and Xbox, remained flat at $14.65 billion but exceeded expectations. Despite AI efficiency gains, Microsoft faces execution challenges and cloud capacity constraints, with AI competition increasing from global players like DeepSeek. Looking ahead, capital spending is expected to slow in fiscal 2026, but Microsoft remains committed to scaling AI capabilities across its ecosystem.

Alphabet Inc (GOOGL)

Portfolio weight: 16.38%

• EPS: $2.150 reported vs Bloomberg estimate of $2.130
• Revenue: $96.47B reported vs Bloomberg estimate of $96.56B

“Our results in the first quarter reflect strong performance from Search, YouTube and Cloud. We are well under way with our Gemini era and there’s great momentum across the company. Our leadership in AI research and infrastructure, and our global product footprint, position us well for the next wave of AI innovation.” – Sundar Pichai

Alphabet reported fourth-quarter revenue of $96.47 billion, slightly missing Wall Street’s estimate of $96.56 billion, while earnings per share of $2.15 narrowly beat expectations. Despite a 12% year-over-year revenue increase, growth across its core businesses, including search, YouTube ads, and cloud services, was slower compared to last year. YouTube ad revenue rose 13.8% to $10.47 billion, exceeding expectations, but Google Cloud revenue fell short at $11.96 billion, despite growing 30% year-over-year. The company also announced a significant $75 billion capital expenditure plan for 2025, well above the expected $58.84 billion, aimed at expanding AI capabilities and increasing compute capacity to meet high demand. Net income surged 28% to $26.54 billion, but the underperformance of the Other Bets segment, including Waymo and Verily, weighed on results, with revenue falling 39% year-over-year to $400 million. Alphabet remains committed to expanding its AI and cloud offerings, emphasizing the need for additional capacity to support growing demand.

Amazon.com Inc (AMZN)

Portfolio weight: 16.55%

• EPS: $1.860 reported vs Bloomberg estimate of $1.474
• Revenue: $187.792B reported vs Bloomberg estimate of $187.323B

“The holiday shopping season was the most successful yet for Amazon and we appreciate the support of our customers, selling partners, and employees who helped make it so.” –  Andy Jassy, CEO.

Amazon reported fourth-quarter revenue of $187.79 billion, slightly exceeding expectations, while earnings per share of $1.86 far outpaced forecasts. Net income nearly doubled to $20 billion, reflecting strong cost-cutting efforts and margin improvements, with operating margin rising to 11.3%, up from 7.8% a year ago. However, first-quarter revenue guidance of $151–$155.5 billion fell short of Wall Street’s $158.5 billion estimate, with the company citing a $2.1 billion foreign exchange impact. Amazon Web Services (AWS) revenue hit $28.8 billion, growing 19% year-over-year, though it continues to lag behind Microsoft Azure (31%) and Google Cloud (30%). The company’s capital expenditures surged to $27.8 billion, with plans to increase spending to $100 billion in 2025, primarily to support AWS and AI infrastructure. CEO Andy Jassy emphasized AI investments, including new AI models (Nova) and custom Trainium chips, as Amazon competes with OpenAI, Google, and Anthropic in generative AI. Advertising revenue rose 18% to $17.3 billion, cementing Amazon’s position as a top digital ad platform. Despite solid profitability, the slower revenue growth outlook (5–9%) weighed on investor sentiment, leading to a post-earnings stock decline.

Meta Platforms (META)

Portfolio weight: 17.77%

• EPS: $8.020 reported vs Bloomberg estimate of $6.780
• Revenue: $48.385B reported vs Bloomberg estimate of $46.977B

“We continue to make good progress on AI, glasses, and the future of social media. I’m excited to see these efforts scale further in 2025.” – Mark Zuckerberg, CEO.

Meta reported a strong fourth quarter, with revenue of $48.39 billion, exceeding expectations, while earnings per share of $8.02 also beat forecasts. Sales grew 21% year-over-year, and net income surged 49% to $20.8 billion, reflecting continued advertising strength and AI-driven engagement. Daily active users reached 3.35 billion, surpassing estimates, and the Meta AI chatbot grew to 700 million users, with expectations to hit 1 billion by year-end. Meta remains committed to open-source AI, with Llama 4 training progressing well, reinforcing its position against competitors like OpenAI and Google. The company announced $60–$65 billion in capital expenditures for 2025, prioritizing AI infrastructure as a long-term strategic advantage. However, first-quarter revenue guidance of $39.5–$41.8 billion was slightly below Wall Street’s $41.73 billion forecast. The Reality Labs unit reported a $5 billion operating loss, generating $1.1 billion in sales, as Meta continues its push into virtual and augmented reality. Total 2025 expenses are projected at $114–$119 billion, with a focus on AI, infrastructure, monetization, and compliance hiring. While Meta didn’t provide a full-year revenue outlook, the company expects strong growth throughout 2025, supported by AI innovation and expanding engagement.

Netflix Inc (NFLX)

Portfolio weight: 17.90%

• EPS: $4.270 reported vs Bloomberg estimate of $4.182
• Revenue: $10.247B reported vs Bloomberg estimate of $10.106B

Netflix delivered a strong fourth-quarter performance, surpassing 300 million paid subscribers with a record 19 million new additions, driven by a robust content slate, product enhancements, and seasonal factors. Revenue rose 16% year-over-year to $10.25 billion, exceeding expectations, while net income doubled to $1.87 billion. The company’s ad-supported tier gained traction, representing 55% of new sign-ups, with memberships growing 30% quarter-over-quarter. Netflix will no longer report quarterly subscriber counts, shifting to biannual engagement reports starting in 2025. Major content hits included “Squid Game” Season 2, live NFL games, and the Jake Paul vs. Mike Tyson fight, with upcoming releases like “Stranger Things,” “Wednesday,” “Knives Out 3,” and “Happy Gilmore 2” set to drive engagement. Netflix also announced price increases of $1 to $2 per month on some plans and aims to expand its advertising business while investing further in live events and gaming. Revenue guidance for 2025 was raised to $43.5–$44.5 billion, reflecting continued business strength.

 

*Portfolio weights as at January 31, 2025. EPS and Revenue data via Bloomberg in USD.

 

Source: Getty Images Credit: monsitj

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