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Market participants showed their disappointment with last Tuesday's results from two of ‘The Magnificent 7’ stocks: Google parent Alphabet and Tesla.
The worrisome aspect of the market reaction to these two reports, particularly to the Alphabet release, is that this could be a precursor of what to expect this week from four other members of the group – Microsoft on Tuesday, July 30th, after the market’s close (AMC), Meta Platforms on Wednesday AMC, July 31st and Apple on Thursday AMC, August 1st.
It is hard to say anything positive about the Tesla report, but the Alphabet report had a lot of positives. Unlike Tesla, which missed consensus estimates on the back to continued margin pressures, Alphabet beat estimates and had a number of other positives in its results, including search and cloud.
Investors instead zeroed in on the bigger-than-expected capital expenditure figure, which fed into creeping worries about ever-rising AI-centric capex without a timeline for when the spending will start to pay off. Alphabet management’s comment on the capex question that underinvesting represented a bigger risk than the alternative likely added to the market’s worries. A bigger jump in search growth that could be attributed to the company’s AI investments would have eased some of those worries, but that was not the case.
The capex will likely be front and center in this week’s Meta and Microsoft reports as well. Concerning Amazon, a leader in the cloud space through its Amazon Web Services business, there are questions about the business’ decelerating growth trend in recent quarters when Microsoft and Alphabet are showing accelerating growth trends.
Apple has started making some AI announcements lately, but many in the market appear skeptical of its efforts. The more significant near-term Apple questions are about the evolving iPhone trends in China.
Returning to the Alphabet and Tesla results, Alphabet’s earnings were up +28.6% from the same period last year on +15% higher revenues. Tesla’s Q2 earnings were down -45.3% on +2.3% higher revenues.
The group is expected to bring in +26.8% more earnings relative to the same period last year on +13.7% higher revenues.
Beyond these Mag 7 players, total Q2 earnings for the Technology sector as a whole are expected to be up +16.8% from the same period last year on +9.5% higher revenues.
The Tech sector has enjoyed a favorable revisions trend for the last few quarters, with the Mag 7 stocks leading the rising estimates trend.
Earnings Season Scorecard and This Week’s Earnings Reports
Through all the results that came out on Friday, July 26th, we have seen Q2 results from 207 S&P 500 members, or 41.4% of the index’s membership. Total earnings for these 207 index members are up +0.6% from the same period last year on +4.9% higher revenues, with 79.7% beating EPS estimates and only 57.5% able to beat revenue estimates.
The Q2 reporting cycle really ramps up this week, with more than 1000 companies on deck to report results, including 170 S&P 500 members. In addition to the aforementioned Mag 7 stocks, this week’s line-up includes a representative cross-section of reports from different sectors, including bellwethers like McDonald’s, Procter & Gamble, Pfizer, Starbucks, Mastercard, Boeing, DuPont, Exxon, Chevron, and others.
The one notable feature of the above comparison charts is the very low level of Q2 revenue beats percentage. In fact, the Q2 revenue beats percentage of 57.5% is a new low for this group of 207 index members over the preceding 20-quarter period (5 years).
The Earnings Big Picture
Looking at Q2 as a whole, combining the actual results that have come out already with estimates for the still-to-come companies, total S&P 500 earnings are expected to be up +6.9% from the same period last year on +5.2% higher revenues.
As we have been flagging all along in this space, we experienced a notably favorable revisions trend ahead of the start of the Q2 earnings season, with estimates for Q2 holding up far better than other recent periods. In the three-month period from the start of the quarter through June 30th, Q2 estimates for the S&P 500 index fell the least relative to the comparable periods of other recent quarters.
Looking at earnings expectations on an annual basis, total 2024 S&P 500 earnings are expected to be up +8.7% on +1.7% revenue growth.
The expected revenue growth pace improves to +4% once Finance is excluded from the aggregate data, with the index level aggregate earnings growth for the year declining only to +8.4% on an ex-Finance basis.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>> Will Mag 7 Earnings Meet Expectations?
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/performance for information about the performance numbers displayed in this press release.
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Tesla, Alphabet, Apple, Meta and Microsoft are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – July 29, 2024 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Tesla (TSLA - Free Report) , Alphabet (GOOGL - Free Report) , Apple (AAPL - Free Report) , Meta (META - Free Report) and Microsoft (MSFT - Free Report) .
Breaking Down Magnificent 7 Earnings
Market participants showed their disappointment with last Tuesday's results from two of ‘The Magnificent 7’ stocks: Google parent Alphabet and Tesla.
The worrisome aspect of the market reaction to these two reports, particularly to the Alphabet release, is that this could be a precursor of what to expect this week from four other members of the group – Microsoft on Tuesday, July 30th, after the market’s close (AMC), Meta Platforms on Wednesday AMC, July 31st and Apple on Thursday AMC, August 1st.
It is hard to say anything positive about the Tesla report, but the Alphabet report had a lot of positives. Unlike Tesla, which missed consensus estimates on the back to continued margin pressures, Alphabet beat estimates and had a number of other positives in its results, including search and cloud.
Investors instead zeroed in on the bigger-than-expected capital expenditure figure, which fed into creeping worries about ever-rising AI-centric capex without a timeline for when the spending will start to pay off. Alphabet management’s comment on the capex question that underinvesting represented a bigger risk than the alternative likely added to the market’s worries. A bigger jump in search growth that could be attributed to the company’s AI investments would have eased some of those worries, but that was not the case.
The capex will likely be front and center in this week’s Meta and Microsoft reports as well. Concerning Amazon, a leader in the cloud space through its Amazon Web Services business, there are questions about the business’ decelerating growth trend in recent quarters when Microsoft and Alphabet are showing accelerating growth trends.
Apple has started making some AI announcements lately, but many in the market appear skeptical of its efforts. The more significant near-term Apple questions are about the evolving iPhone trends in China.
Returning to the Alphabet and Tesla results, Alphabet’s earnings were up +28.6% from the same period last year on +15% higher revenues. Tesla’s Q2 earnings were down -45.3% on +2.3% higher revenues.
The group is expected to bring in +26.8% more earnings relative to the same period last year on +13.7% higher revenues.
Beyond these Mag 7 players, total Q2 earnings for the Technology sector as a whole are expected to be up +16.8% from the same period last year on +9.5% higher revenues.
The Tech sector has enjoyed a favorable revisions trend for the last few quarters, with the Mag 7 stocks leading the rising estimates trend.
Earnings Season Scorecard and This Week’s Earnings Reports
Through all the results that came out on Friday, July 26th, we have seen Q2 results from 207 S&P 500 members, or 41.4% of the index’s membership. Total earnings for these 207 index members are up +0.6% from the same period last year on +4.9% higher revenues, with 79.7% beating EPS estimates and only 57.5% able to beat revenue estimates.
The Q2 reporting cycle really ramps up this week, with more than 1000 companies on deck to report results, including 170 S&P 500 members. In addition to the aforementioned Mag 7 stocks, this week’s line-up includes a representative cross-section of reports from different sectors, including bellwethers like McDonald’s, Procter & Gamble, Pfizer, Starbucks, Mastercard, Boeing, DuPont, Exxon, Chevron, and others.
The one notable feature of the above comparison charts is the very low level of Q2 revenue beats percentage. In fact, the Q2 revenue beats percentage of 57.5% is a new low for this group of 207 index members over the preceding 20-quarter period (5 years).
The Earnings Big Picture
Looking at Q2 as a whole, combining the actual results that have come out already with estimates for the still-to-come companies, total S&P 500 earnings are expected to be up +6.9% from the same period last year on +5.2% higher revenues.
As we have been flagging all along in this space, we experienced a notably favorable revisions trend ahead of the start of the Q2 earnings season, with estimates for Q2 holding up far better than other recent periods. In the three-month period from the start of the quarter through June 30th, Q2 estimates for the S&P 500 index fell the least relative to the comparable periods of other recent quarters.
Looking at earnings expectations on an annual basis, total 2024 S&P 500 earnings are expected to be up +8.7% on +1.7% revenue growth.
The expected revenue growth pace improves to +4% once Finance is excluded from the aggregate data, with the index level aggregate earnings growth for the year declining only to +8.4% on an ex-Finance basis.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>> Will Mag 7 Earnings Meet Expectations?
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/performance for information about the performance numbers displayed in this press release.