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Magnificent 7 Earnings Preview: Can Investors Buy Tech Now?
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Get ready for some action this week in the stock market as four of the Magnificent 7 tech giants—Microsoft ((MSFT - Free Report) ), Meta Platforms ((META - Free Report) ), Amazon ((AMZN - Free Report) ), and Apple ((AAPL - Free Report) )—gear up to report their quarterly earnings.
These tech titans have been the primary drivers of this year’s return, pushing the market to new heights. But with the recent bout of market volatility, the big question remains: Is now the time for investors to dive into tech stocks?
Here, we will explore the broader picture of the sector and potential outcomes of these quarterly earnings reports and try to figure out if any or all of them are worthy additions to investor portfolios at current levels.
Image Source: Zacks Investment Research
Strong Earnings Growth… But AI Concerns Loom
Last week, following the quarterly report from Alphabet ((GOOGL - Free Report) ), investors started to grow cautious. Concerns about overinvestment into AI infrastructure and its ability to generate profits moving forward have been the main cause of selling over the last week.
Management’s comments about Capex regarding AI will be an important talking point for all these stocks.
Along with weakness in Alphabet, Semiconductor stocks and the other Mag 7 stocks have experienced considerable selling. But are these concerns overblown? I think they may be, and with another quarter of impressive growth likely coming, and reasonable valuations from the group, this dip could be a buying opportunity.
Amazon is expected to post a 63.64% year-over-year increase in earnings to $0.54 per share, with revenue projected at $140.88 billion, driven by robust AWS and North American retail operations. Apple, despite a slight revenue dip to $81.64 billion, is forecasted to achieve earnings of $1.19 per share, bolstered by its services and wearables segments.
Meta Platforms anticipates a significant earnings jump to $3.04 per share, a 45% jump and $31.05 billion in revenue, fueled by strong ad revenue and user engagement. Microsoft is projected to deliver $2.72 per share in earnings and $62.03 billion in revenue, reflecting Azure's impressive performance and continued strength in Office and LinkedIn.
Overall, the Mag 7 is expected to bring in +26.8% more earnings relative to the same period last year on +13.7% higher revenues.
Valuations: Amazon and Meta are Relatively Cheap
Looking at the valuations of these tech giants we see a spectrum of results. Although they are broadly trading at reasonable levels, two of them look much more appealing than the others.
Meta Platforms stands out with a free cash flow (FCF) yield of 4.1%, above its 10-year median of 3.2%, making it particularly attractive. Amazon too boasts an FCF yield of 2.6%, above its 10-year median of 1.8%.
Apple (AAPL - Free Report) , on the other hand, has a FCF yield of 3%, which is below its 10-year median of 5.7%, indicating it may be pricier relative to its historical norm. And Microsoft (MSFT - Free Report) shows a similar trend with an FCF yield of 2.2%, below its 10-year median of 3.6%.
Image Source: Zacks Investment Research
Uncertainty Into Year End but Forecasts are Strong
I think it may be a bit of a crapshoot buying these names ahead of earnings, but the reasonable valuations and secular tailwinds these companies enjoy make them compelling buys if they sell off further following the reports.
Critical to the performance of these stocks through the end of the year is investors perception of AI. Can these companies turn a profit in their new AI products? The answer is probably yes, but shareholders want to see hard evidence.
Another worthy consideration is the setup in the broader market and the approaching US Presidential Election. Big tech has been carrying the market higher all year, and it may be time for a pause in this run. Additionally, as the election approaches so does the perceived uncertainty, and investors may rotate into defensive sectors until after it concludes.
However, it is hard to understate the long-term growth catalysts at these big tech companies – they are almost all expected to grow earnings faster than the market, which will drive even higher stock prices in the coming years.
Any pause they take now, or in the coming months, is likely an opportunity to acquire shares in these generational assets.
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Magnificent 7 Earnings Preview: Can Investors Buy Tech Now?
Get ready for some action this week in the stock market as four of the Magnificent 7 tech giants—Microsoft ((MSFT - Free Report) ), Meta Platforms ((META - Free Report) ), Amazon ((AMZN - Free Report) ), and Apple ((AAPL - Free Report) )—gear up to report their quarterly earnings.
These tech titans have been the primary drivers of this year’s return, pushing the market to new heights. But with the recent bout of market volatility, the big question remains: Is now the time for investors to dive into tech stocks?
Here, we will explore the broader picture of the sector and potential outcomes of these quarterly earnings reports and try to figure out if any or all of them are worthy additions to investor portfolios at current levels.
Image Source: Zacks Investment Research
Strong Earnings Growth… But AI Concerns Loom
Last week, following the quarterly report from Alphabet ((GOOGL - Free Report) ), investors started to grow cautious. Concerns about overinvestment into AI infrastructure and its ability to generate profits moving forward have been the main cause of selling over the last week.
Management’s comments about Capex regarding AI will be an important talking point for all these stocks.
Along with weakness in Alphabet, Semiconductor stocks and the other Mag 7 stocks have experienced considerable selling. But are these concerns overblown? I think they may be, and with another quarter of impressive growth likely coming, and reasonable valuations from the group, this dip could be a buying opportunity.
Amazon is expected to post a 63.64% year-over-year increase in earnings to $0.54 per share, with revenue projected at $140.88 billion, driven by robust AWS and North American retail operations. Apple, despite a slight revenue dip to $81.64 billion, is forecasted to achieve earnings of $1.19 per share, bolstered by its services and wearables segments.
Meta Platforms anticipates a significant earnings jump to $3.04 per share, a 45% jump and $31.05 billion in revenue, fueled by strong ad revenue and user engagement. Microsoft is projected to deliver $2.72 per share in earnings and $62.03 billion in revenue, reflecting Azure's impressive performance and continued strength in Office and LinkedIn.
Overall, the Mag 7 is expected to bring in +26.8% more earnings relative to the same period last year on +13.7% higher revenues.
Valuations: Amazon and Meta are Relatively Cheap
Looking at the valuations of these tech giants we see a spectrum of results. Although they are broadly trading at reasonable levels, two of them look much more appealing than the others.
Meta Platforms stands out with a free cash flow (FCF) yield of 4.1%, above its 10-year median of 3.2%, making it particularly attractive. Amazon too boasts an FCF yield of 2.6%, above its 10-year median of 1.8%.
Apple (AAPL - Free Report) , on the other hand, has a FCF yield of 3%, which is below its 10-year median of 5.7%, indicating it may be pricier relative to its historical norm. And Microsoft (MSFT - Free Report) shows a similar trend with an FCF yield of 2.2%, below its 10-year median of 3.6%.
Image Source: Zacks Investment Research
Uncertainty Into Year End but Forecasts are Strong
I think it may be a bit of a crapshoot buying these names ahead of earnings, but the reasonable valuations and secular tailwinds these companies enjoy make them compelling buys if they sell off further following the reports.
Critical to the performance of these stocks through the end of the year is investors perception of AI. Can these companies turn a profit in their new AI products? The answer is probably yes, but shareholders want to see hard evidence.
Another worthy consideration is the setup in the broader market and the approaching US Presidential Election. Big tech has been carrying the market higher all year, and it may be time for a pause in this run. Additionally, as the election approaches so does the perceived uncertainty, and investors may rotate into defensive sectors until after it concludes.
However, it is hard to understate the long-term growth catalysts at these big tech companies – they are almost all expected to grow earnings faster than the market, which will drive even higher stock prices in the coming years.
Any pause they take now, or in the coming months, is likely an opportunity to acquire shares in these generational assets.