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Zacks Earnings Trends Highlights: Alphabet and Tesla
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For Immediate Release
Chicago, IL – July 25, 2024– Zacks Director of Research Sheraz Mian says, "Looking at Q2 as a whole, total earnings for the S&P 500 are expected to be up +9.6% from the same period last year on +4.9% higher revenues. This will be the highest earnings growth pace since the +10% earnings growth in the first quarter of 2022."
Will Mag 7 Earnings Meet Expectations?
Note: The following is an excerpt from this week's Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
For the 134 S&P 500 companies that have reported Q2 results, or 26.8% of the index's total membership, total earnings are up +7.6% from the same period last year on +4.7% higher revenues, with 81.3% beating EPS estimates and 57.5% beating revenue estimates.
Except for the revenue beats percentage, which at 57.5% is the lowest for this group of 134 index members over the preceding 20-quarter period, all of the other performance metrics are tracking better relative to what we have seen in other recent periods.
Looking at Q2 as a whole, total earnings for the index are expected to be up +9.6% from the same period last year on +4.9% higher revenues. This will be the highest earnings growth pace since the +10% earnings growth in the first quarter of 2022.
Q2 earnings for the 'Magnificent 7' companies are expected to be up +26.6% from the same period last year on +13.6% higher revenues. Excluding the 'Mag 7', Q2 earnings growth for the rest of the index drops to +6.1% (from +9.6%).
Alphabet (GOOGL - Free Report) and Tesla (TSLA - Free Report) kicked off the Q2 reporting cycle for the 'Magnificent 7' stocks, with the market unimpressed with either of the two reports. This contrasted with the companies' Q1 releases when both Alphabet and Tesla were up big on the quarterly results.
There is no surprise in the Tesla sell-off, as the company not only missed estimates but also had nothing good to say about the near-term outlook. The EV maker has been suffering competitive challenges in its core market, prompting it to cut prices that are weighing on its margins. As a result, Tesla's Q2 earnings were down -45.3% on +2.3% higher revenues. Given Tesla shares' gain of more than +40% in the three-month period ahead of the quarterly release, the post-release sell-off makes perfect sense.
The sell-off in Alphabet shares is far harder to understand, as the search giant handily beat estimates and showed broadly positive trends in all of its businesses.
The issue in the Alphabet report appears to be the market's disappointment with a bigger-than-expected capital spending level in the period of $13.2 billion relative to expectations of $12.2 billion. Management also indicated that they saw underspending as a bigger risk at this stage of the AI rollout than the alternative, which was interpreted as indicative of an elevated capex spend trend than what investors had been factoring in.
We don't see elevated capex by Alphabet or any other Tech operator as a negative, but this appears to be the case with Tech investors at this stage. Perhaps the market would like to see a tangible path toward monetization for all the AI-centric investments in which Alphabet and its peers are currently engaged in. This also means that capex spending levels in the coming Meta and Microsoft reports will similarly receive close scrutiny.
For the Mag 7 group as a whole, Q2 earnings are expected to be up +26.6% on +13.6% higher revenues.
Beyond the Mag 7, Q2 earnings for the Tech sector as a whole are expected to be up +16.3% from the same period last year. The revisions trend for the Tech sector has been positive for a while now, which is important since the sector alone is on track to bring in almost 30% of all S&P 500 earnings over the coming four-quarter period.
For full-year 2024, Tech sector earnings are expected to be up +17.2%, followed by another strong showing expected next year.
A big contributing factor to the Tech sector's positive earnings outlook is the sector's margins outlook.
We are already in record territory with Tech sector margins, with 2024 margins expected to exceed last year's record level. The expectation is for some more gains next year and the year after, with the ever-growing share of higher-margin software and services in the overall Tech earnings pie explaining the favorable trend. Part of this likely also reflects optimism about the impact of AI on the sector's productivity.
The Earnings Big Picture
Please note that this year's +8.7% earnings growth on only +1.7% top-line gains reflects revenue weakness in the Finance sector. Excluding the Finance sector, the earnings growth pace changes to +8.5%, and the revenue growth rate improves to +3.9%. In other words, about half of this year's earnings growth comes from revenue growth, with margin gains accounting for the rest.
On the margins front, 11 of the 16 Zacks sectors are expected to have higher margins in 2024 relative to last year, with Tech, Finance, and Consumer Discretionary as the big gainers.
Why Haven't You Looked at Zacks' Top Stocks?
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Zacks Earnings Trends Highlights: Alphabet and Tesla
For Immediate Release
Chicago, IL – July 25, 2024– Zacks Director of Research Sheraz Mian says, "Looking at Q2 as a whole, total earnings for the S&P 500 are expected to be up +9.6% from the same period last year on +4.9% higher revenues. This will be the highest earnings growth pace since the +10% earnings growth in the first quarter of 2022."
Will Mag 7 Earnings Meet Expectations?
Note: The following is an excerpt from this week's Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>
Here are the key points:
Alphabet (GOOGL - Free Report) and Tesla (TSLA - Free Report) kicked off the Q2 reporting cycle for the 'Magnificent 7' stocks, with the market unimpressed with either of the two reports. This contrasted with the companies' Q1 releases when both Alphabet and Tesla were up big on the quarterly results.
There is no surprise in the Tesla sell-off, as the company not only missed estimates but also had nothing good to say about the near-term outlook. The EV maker has been suffering competitive challenges in its core market, prompting it to cut prices that are weighing on its margins. As a result, Tesla's Q2 earnings were down -45.3% on +2.3% higher revenues. Given Tesla shares' gain of more than +40% in the three-month period ahead of the quarterly release, the post-release sell-off makes perfect sense.
The sell-off in Alphabet shares is far harder to understand, as the search giant handily beat estimates and showed broadly positive trends in all of its businesses.
The issue in the Alphabet report appears to be the market's disappointment with a bigger-than-expected capital spending level in the period of $13.2 billion relative to expectations of $12.2 billion. Management also indicated that they saw underspending as a bigger risk at this stage of the AI rollout than the alternative, which was interpreted as indicative of an elevated capex spend trend than what investors had been factoring in.
We don't see elevated capex by Alphabet or any other Tech operator as a negative, but this appears to be the case with Tech investors at this stage. Perhaps the market would like to see a tangible path toward monetization for all the AI-centric investments in which Alphabet and its peers are currently engaged in. This also means that capex spending levels in the coming Meta and Microsoft reports will similarly receive close scrutiny.
For the Mag 7 group as a whole, Q2 earnings are expected to be up +26.6% on +13.6% higher revenues.
Beyond the Mag 7, Q2 earnings for the Tech sector as a whole are expected to be up +16.3% from the same period last year. The revisions trend for the Tech sector has been positive for a while now, which is important since the sector alone is on track to bring in almost 30% of all S&P 500 earnings over the coming four-quarter period.
For full-year 2024, Tech sector earnings are expected to be up +17.2%, followed by another strong showing expected next year.
A big contributing factor to the Tech sector's positive earnings outlook is the sector's margins outlook.
We are already in record territory with Tech sector margins, with 2024 margins expected to exceed last year's record level. The expectation is for some more gains next year and the year after, with the ever-growing share of higher-margin software and services in the overall Tech earnings pie explaining the favorable trend. Part of this likely also reflects optimism about the impact of AI on the sector's productivity.
The Earnings Big Picture
Please note that this year's +8.7% earnings growth on only +1.7% top-line gains reflects revenue weakness in the Finance sector. Excluding the Finance sector, the earnings growth pace changes to +8.5%, and the revenue growth rate improves to +3.9%. In other words, about half of this year's earnings growth comes from revenue growth, with margin gains accounting for the rest.
On the margins front, 11 of the 16 Zacks sectors are expected to have higher margins in 2024 relative to last year, with Tech, Finance, and Consumer Discretionary as the big gainers.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
Follow us on Twitter: https://twitter.com/zacksresearch
Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.