Mega-Cap Earnings Could Decide the Tech Sector's Next Big Move

The technology sector has gotten off to a sluggish start to the year by its own standards. The tech-heavy Technology Select Sector SPDR ETF (NYSEARCA: XLK) is up just 2.8% year-to-date (YTD), while the Invesco QQQ Trust (NASDAQ: QQQ) has also struggled to gain traction. That’s notable given the sharp rally in memory chip stocks, which both ETFs have exposure to.

So what’s holding tech back? The answer primarily comes down to weighting. Both XLK and QQQ are heavily concentrated in mega-cap technology stocks, namely the Magnificent Seven, which have underperformed so far this year. As a result, despite pockets of strength in the sector, the broader tech complex has remained stuck in a consolidation phase.

That could be about to change.

Earnings season is now underway, and Wednesday, Jan. 28, 2026, marks a potentially pivotal moment. Three Magnificent Seven members, Microsoft (NASDAQ: MSFT), Tesla (NASDAQ: TSLA), and Meta Platforms (NASDAQ: META) report earnings after the bell. And their combined influence on the major tech ETFs is substantial. Microsoft alone accounts for more than 11% of XLK. In QQQ, Microsoft, Tesla, and Meta collectively make up nearly 14% of the ETF.

At the same time, both ETFs are sitting just below major breakout levels. XLK is roughly 3.2% below its 52-week high, with the $150 area acting as a key resistance zone. QQQ is even closer, less than 1% from its all-time high as of Tuesday’s close. With technical pressure building, the outcome of these earnings reports could determine whether tech finally breaks higher or slips back into consolidation.

Not surprisingly, AI-related capital expenditures will be a central theme, particularly for Microsoft and Meta, as investors look for reassurance that spending remains disciplined and growth-oriented.

Microsoft: AI Infrastructure Under the Microscope

Microsoft has lagged both the broader market and the tech sector, down modestly YTD and more than 6% over the past six months. That underperformance makes its earnings report important, especially given its heavy ETF weighting.

The company reports fiscal Q2 2026 results after the bell on Jan. 28, with capital expenditures front and center. In Q1, Microsoft reported capex of $34.9 billion, exceeding prior guidance due to surging demand for AI and cloud. 

In the Q2 report, investors should closely review updates on Azure growth, AI monetization, and forward guidance. Analysts expect revenue between $79.5 billion and $80.6 billion, implying 14% to 16% year-over-year growth, with earnings per share (EPS) estimates ranging from $3.88 to $3.91.

Tesla: A More Challenging Setup

Tesla has also underperformed so far in 2026, with shares down more than 4% YTD. Analysts are bracing for a tougher quarter, and prediction markets are predicting a relatively low probability of an EPS beat.

For Q4 2025, EPS is expected to come in around 44 cents to 45 cents, with revenue near $24.8 billion, reflecting weaker deliveries and higher spending. That said, investors might look past auto margins and focus instead on longer-term narratives, namely, energy storage, robotaxis, Optimus, and forward-looking capex commentary.

Meta: Strength Heading Into Earnings

Meta enters earnings on a much stronger footing. The stock has surged nearly 10% over the past week, and prediction markets imply a high probability of a beat. Analysts expect EPS between $8.16 and $8.32, driven by continued strength in advertising.

As with Microsoft, CapEx will be closely watched. Meta’s last report featured strong revenue but softer EPS due to elevated AI spending and a tax-related hit. Guidance on AI investment levels and profitability will likely shape the stock’s next move.

Taken together, this earnings slate could be the catalyst tech bulls have been waiting for.

With major ETFs sitting just below breakout levels, the tone set by these three mega-cap leaders may decide whether the sector finally pushes to new highs or remains stuck in neutral a while longer.

The Real Test After Earnings: Guidance and AI Spending

In the case of all three earnings reports—whether from Microsoft, Tesla, or Meta Platforms—the initial price reaction of the market matters less than what their results reveal about the next few quarters.

Investors will be parsing AI infrastructure spending plans, any clearer signals on monetization, and whether management teams sounded more confident—or more cautious—about demand into 2026. Ultimately, the bigger takeaway isn’t simply whether estimates were beaten, but whether guidance and commentary support sustained leadership from mega-cap tech and a more durable breakout attempt for XLK and QQQ in the sessions ahead.

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