Microsoft Gains After AI Results While Tesla Faces Profit Concerns Amid Magnificent Seven Underperformance
Microsoft's shares rose after strong AI-related earnings, whereas Tesla's stock is being avoided due to falling margins and high spending, as most of the Magnificent Seven lag the S&P 500.
Only Apple and Alphabet have outperformed the S&P 500 this year, with the rest of the so-called Magnificent Seven lagging behind. Microsoft (MSFT) fell 17.4% year-to-date but jumped 9.5% in after-hours trading following its fiscal 2026 fourth-quarter report, which highlighted growth in its cloud and AI businesses. Azure revenue topped $100 billion for the first time and total Microsoft Cloud revenue rose 27% year over year to $214 billion, while paid seats for Microsoft 365 Copilot doubled to 30 million.
"Microsoft's AI investments are beginning to pay off," the commentary noted, citing the company's expanding cloud footprint and AI-driven services.
Analysts point to Microsoft's entrenched position in enterprise software and its relatively modest valuation—about 23.7 times earnings, the third-lowest among the group—as reasons to consider the stock a potential upside despite ongoing capital-expenditure plans.
In contrast, Tesla (TSLA) posted a 26% increase in Q2 revenue to $28.2 billion and a record 480,216 vehicle deliveries, but its operating income fell 57% year over year, yielding a 1.4% operating margin and negative free cash flow of $1.09 billion. The company’s capital spending rose to $5.79 billion in the quarter, more than double the prior year, and it projects $25 billion in capex for 2026.
"Tesla's car business alone does not justify its current valuation," the analysis said, noting that investors are largely betting on long-term projects such as robotaxis and humanoid robots, which remain years from commercial deployment.
With Tesla trading at roughly 277 times earnings, the report suggests the stock carries significant risk until clearer profitability and cash-flow improvements emerge.