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What's Ahead for "Mag 7" ETFs in Q2 Earnings After Sell-Off?
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The “Magnificent 7,” the stock market darlings of 2024, lost its steam in recent weeks, driven by market rotation for less-loved areas on September Fed rate cut bets and weak results from Tesla (TSLA). Alphabet (GOOGL) also failed to cheer investors despite surpassing earnings and revenue estimates.
The steep decline has dragged the Nasdaq 100 Index down 8% in just over two weeks, leaving it on the cusp of a correction. In particular, “Magnificent 7” lost more than $750 billion in market cap on Jul 24, following Tesla and Alphabet’s quarterly reports (read: Tesla, Google Spark Sell-Off in Technology ETFs).
Now, investors are wary about the earnings of the other members. Four members of the group are expected to report this week. Microsoft (MSFT) is scheduled to report on Jul 30, followed by Meta Platforms (META) on Jul 31, and Apple (AAPL) and Amazon (AMZN) on Aug 1.
The second-quarter earnings of the ‘Magnificent 7’ companies are expected to be up 26.8% from the year-ago quarter on 13.7% higher revenues. This would follow the 51.2% earnings growth for the group in the first quarter on 14% higher revenues.
Microsoft
Microsoft has an Earnings ESP of +1.08% and a Zacks Rank #3. Microsoft saw no earnings estimate revision over the past 30 days for the to-be-reported quarter. Its earnings track record is impressive, with the four-quarter earnings surprise being 7.38%, on average. The Zacks Consensus Estimate indicates earnings growth of 7.8% and revenue growth of 14.2% from the year-ago quarter. Microsoft belongs to a bottom-ranked Zacks industry (bottom 37%) and has gained 4.6% over the past three months.
The world's largest software has benefited most from the rapid deployment of generative AI (GenAI) thanks to its collaboration with OpenAI. About 65% of Fortune 500 companies are using the Azure service that delivers OpenAI's technology to businesses. Demand for generative AI will continue to fuel Microsoft's cloud business.
Meta Platforms
Meta Platforms has an Earnings ESP of -1.45% and Zacks Rank #3. The social media giant saw a positive earnings estimate revision of three cents for the to-be-reported quarter over the past 30 days. Analysts increasing estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. The current Zacks Consensus Estimate for the yet-to-be-reported quarter indicates substantial year-over-year earnings growth of 45.2%. Revenues are expected to increase 19.6% year over year. Meta Platforms delivered an earnings surprise of 13.30%, on average, in the last four quarters. The stock belongs to a top-ranked Zacks industry (top 39%). Shares of META have gained about 3% over the past three months (read: 5 ETFs to Bet On Amid Tech-Driven Market Sell-Off).
Meta is also investing heavily in its AI future by rolling out open-source artificial intelligence. There has been a steady increase in AI-generated content on Facebook and Instagram and the trend is expected to gather momentum, attracting advertisers and enhancing user engagement.
Apple
Apple has an Earnings ESP of +3.05% and a Zacks Rank #2. Apple saw a positive earnings estimate revision of a penny over the past seven days for the fiscal second quarter. The iPhone maker has a strong track record of positive earnings surprise. It delivered an average earnings surprise of 4.14% in the trailing four quarters. The Zacks Consensus Estimate indicates a modest year-over-year increase of 6.3% for earnings and 2.7% for revenues. Apple belongs to a top-ranked Zacks Industry (top 4%). The stock is up 3.5% over the past three months.
Apple, which was way behind its competitors in adopting AI, is finally catching up following the launch of the brand-new AI feature called Apple Intelligence. The introduction of numerous AI-powered features is expected to kickstart the next upgrade cycle, enhancing the company's performance and restoring investor confidence in Apple. However, falling sales in China have been an area of concern.
Amazon
Amazon has an Earnings ESP of +4.58% and a Zacks Rank #2. The stock saw a positive earnings estimate revision of a penny over the past seven days for the second quarter. The Zacks Consensus Estimate indicates a whopping year-over-year earnings increase of 63.5% and substantial revenue growth of 10.6% for the to-be-reported quarter. Additionally, Amazon’s earnings surprise history is impressive, with the four-quarter average surprise being 48.17%. The stock falls under a top-ranked Zacks industry (top 23%) and has shed about 2% in the past three months.
Amazon remains the king of e-commerce, and its advertising unit is booming. The growth in Amazon’s cloud computing business — Amazon Web Services (“AWS”) — is also accelerating, driven by its AI capabilities. It is on track to reach $100 billion in annual revenues.
ETFs to Tap
Given this, investors may want to play these stocks with the help of ETFs. Below, we have highlighted some ETFs having the largest exposure to Magnificent Seven.
Roundhill Magnificent Seven ETF is the first-ever ETF offering investors equal-weight exposure to the “Magnificent 7” stocks. It has amassed $676.5 million in its asset base and charges 29 bps in fees per year. MAGS trades in an average daily volume of 120,000 shares.
This ETN is linked to the performance of the NYSE FANG+ Index, which is equal-dollar weighted and designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. The note accounts for a 10% share in each of the seven stocks. MicroSectors FANG+ ETN has accumulated $353.6 million in its asset base and charges 58 bps in annual fees. It trades in a moderate volume of 120,000 shares a day on average and has a Zacks ETF Rank #3 (see: all the Technology ETFs here).
Vanguard Mega Cap Growth ETF tracks the CRSP US Mega Cap Growth Index. It holds 71 securities in its basket, with four of the “Magnificent 7” collectively accounting for 35.8% of the total assets. Vanguard Mega Cap Growth ETF charges 7 bps in annual fees and trades in a good volume of around 299,000 shares a day on average. The fund has AUM of $21.1 billion and a Zacks ETF Rank #2 (read: Can Mega-Cap Tech's AI Boom Continue in 2H24?).
Invesco S&P 500 Top 50 ETF follows the S&P 500 Top 50 ETF Index, which measures the cap-weighted performance of the largest companies on the S&P 500 Index, reflecting the performance of the U.S. mega-cap stocks. It holds 53 stocks in its basket, and four of the “Magnificent 7” accounts for a combined 33.4% share. Invesco S&P 500 Top 50 ETF has been able to manage assets worth $5 billion but trades in a good volume of about 2 million shares a day on average. XLG charges 20 bps in annual fees and has a Zacks ETF Rank #3.
iShares S&P 100 ETF offers exposure to the 101 largest U.S. companies. Four “Magnificent 7” stocks account for a combined 28.3% share. iShares S&P 100 ETF has amassed $12.8 billion in its asset base and charges 20 bps in annual fees. It trades in an average daily volume of 185,000 shares and has a Zacks ETF Rank #3.
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What's Ahead for "Mag 7" ETFs in Q2 Earnings After Sell-Off?
The “Magnificent 7,” the stock market darlings of 2024, lost its steam in recent weeks, driven by market rotation for less-loved areas on September Fed rate cut bets and weak results from Tesla (TSLA). Alphabet (GOOGL) also failed to cheer investors despite surpassing earnings and revenue estimates.
The steep decline has dragged the Nasdaq 100 Index down 8% in just over two weeks, leaving it on the cusp of a correction. In particular, “Magnificent 7” lost more than $750 billion in market cap on Jul 24, following Tesla and Alphabet’s quarterly reports (read: Tesla, Google Spark Sell-Off in Technology ETFs).
Now, investors are wary about the earnings of the other members. Four members of the group are expected to report this week. Microsoft (MSFT) is scheduled to report on Jul 30, followed by Meta Platforms (META) on Jul 31, and Apple (AAPL) and Amazon (AMZN) on Aug 1.
The second-quarter earnings of the ‘Magnificent 7’ companies are expected to be up 26.8% from the year-ago quarter on 13.7% higher revenues. This would follow the 51.2% earnings growth for the group in the first quarter on 14% higher revenues.
Microsoft
Microsoft has an Earnings ESP of +1.08% and a Zacks Rank #3. Microsoft saw no earnings estimate revision over the past 30 days for the to-be-reported quarter. Its earnings track record is impressive, with the four-quarter earnings surprise being 7.38%, on average. The Zacks Consensus Estimate indicates earnings growth of 7.8% and revenue growth of 14.2% from the year-ago quarter. Microsoft belongs to a bottom-ranked Zacks industry (bottom 37%) and has gained 4.6% over the past three months.
The world's largest software has benefited most from the rapid deployment of generative AI (GenAI) thanks to its collaboration with OpenAI. About 65% of Fortune 500 companies are using the Azure service that delivers OpenAI's technology to businesses. Demand for generative AI will continue to fuel Microsoft's cloud business.
Meta Platforms
Meta Platforms has an Earnings ESP of -1.45% and Zacks Rank #3. The social media giant saw a positive earnings estimate revision of three cents for the to-be-reported quarter over the past 30 days. Analysts increasing estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. The current Zacks Consensus Estimate for the yet-to-be-reported quarter indicates substantial year-over-year earnings growth of 45.2%. Revenues are expected to increase 19.6% year over year. Meta Platforms delivered an earnings surprise of 13.30%, on average, in the last four quarters. The stock belongs to a top-ranked Zacks industry (top 39%). Shares of META have gained about 3% over the past three months (read: 5 ETFs to Bet On Amid Tech-Driven Market Sell-Off).
Meta is also investing heavily in its AI future by rolling out open-source artificial intelligence. There has been a steady increase in AI-generated content on Facebook and Instagram and the trend is expected to gather momentum, attracting advertisers and enhancing user engagement.
Apple
Apple has an Earnings ESP of +3.05% and a Zacks Rank #2. Apple saw a positive earnings estimate revision of a penny over the past seven days for the fiscal second quarter. The iPhone maker has a strong track record of positive earnings surprise. It delivered an average earnings surprise of 4.14% in the trailing four quarters. The Zacks Consensus Estimate indicates a modest year-over-year increase of 6.3% for earnings and 2.7% for revenues. Apple belongs to a top-ranked Zacks Industry (top 4%). The stock is up 3.5% over the past three months.
Apple, which was way behind its competitors in adopting AI, is finally catching up following the launch of the brand-new AI feature called Apple Intelligence. The introduction of numerous AI-powered features is expected to kickstart the next upgrade cycle, enhancing the company's performance and restoring investor confidence in Apple. However, falling sales in China have been an area of concern.
Amazon
Amazon has an Earnings ESP of +4.58% and a Zacks Rank #2. The stock saw a positive earnings estimate revision of a penny over the past seven days for the second quarter. The Zacks Consensus Estimate indicates a whopping year-over-year earnings increase of 63.5% and substantial revenue growth of 10.6% for the to-be-reported quarter. Additionally, Amazon’s earnings surprise history is impressive, with the four-quarter average surprise being 48.17%. The stock falls under a top-ranked Zacks industry (top 23%) and has shed about 2% in the past three months.
Amazon remains the king of e-commerce, and its advertising unit is booming. The growth in Amazon’s cloud computing business — Amazon Web Services (“AWS”) — is also accelerating, driven by its AI capabilities. It is on track to reach $100 billion in annual revenues.
ETFs to Tap
Given this, investors may want to play these stocks with the help of ETFs. Below, we have highlighted some ETFs having the largest exposure to Magnificent Seven.
Roundhill Magnificent Seven ETF (MAGS)
Roundhill Magnificent Seven ETF is the first-ever ETF offering investors equal-weight exposure to the “Magnificent 7” stocks. It has amassed $676.5 million in its asset base and charges 29 bps in fees per year. MAGS trades in an average daily volume of 120,000 shares.
MicroSectors FANG+ ETN (FNGS - Free Report) )
This ETN is linked to the performance of the NYSE FANG+ Index, which is equal-dollar weighted and designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. The note accounts for a 10% share in each of the seven stocks. MicroSectors FANG+ ETN has accumulated $353.6 million in its asset base and charges 58 bps in annual fees. It trades in a moderate volume of 120,000 shares a day on average and has a Zacks ETF Rank #3 (see: all the Technology ETFs here).
Vanguard Mega Cap Growth ETF (MGK - Free Report)
Vanguard Mega Cap Growth ETF tracks the CRSP US Mega Cap Growth Index. It holds 71 securities in its basket, with four of the “Magnificent 7” collectively accounting for 35.8% of the total assets. Vanguard Mega Cap Growth ETF charges 7 bps in annual fees and trades in a good volume of around 299,000 shares a day on average. The fund has AUM of $21.1 billion and a Zacks ETF Rank #2 (read: Can Mega-Cap Tech's AI Boom Continue in 2H24?).
Invesco S&P 500 Top 50 ETF (XLG - Free Report)
Invesco S&P 500 Top 50 ETF follows the S&P 500 Top 50 ETF Index, which measures the cap-weighted performance of the largest companies on the S&P 500 Index, reflecting the performance of the U.S. mega-cap stocks. It holds 53 stocks in its basket, and four of the “Magnificent 7” accounts for a combined 33.4% share. Invesco S&P 500 Top 50 ETF has been able to manage assets worth $5 billion but trades in a good volume of about 2 million shares a day on average. XLG charges 20 bps in annual fees and has a Zacks ETF Rank #3.
iShares S&P 100 ETF (OEF - Free Report)
iShares S&P 100 ETF offers exposure to the 101 largest U.S. companies. Four “Magnificent 7” stocks account for a combined 28.3% share. iShares S&P 100 ETF has amassed $12.8 billion in its asset base and charges 20 bps in annual fees. It trades in an average daily volume of 185,000 shares and has a Zacks ETF Rank #3.