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Of the six members of ‘The Magnificent 7’ group that have already reported June-quarter results, the market was disappointed with Tesla, Alphabet, Microsoft and Amazon . Conversely, it was okay with Apple’s quarterly release and loved Meta’s results.
This is clearly not a good picture and likely suggestive of tougher times ahead for the group. Some in the market are likely thinking the Mag 7 leadership of the market is likely behind us.
I will push back on parts of this narrative, as most of the Mag 7 stocks provide some of the most sustainable growth performance in the entire market.
Aside from Apple, which is likely no longer a growth company, and Tesla, which is dealing with a combination of competitive pressures and a cyclical downturn in its core market, the other five are not only generating impressive top- and bottom-line growth today, but the trend is expected to remain in place at least through next year, if not beyond.
Take the case of Amazon, which modestly missed the Zacks Consensus revenue estimate. Amazon’s Q2 earnings almost doubled from the year-earlier level (up +99.8%) to $13.16 billion on +10.1% higher revenues to roughly $148 billion.
Alphabet beat on the top and bottom lines, with its Q2 earnings up +28.6% to $23.6 billion on +15% higher revenues to $71.4 billion. Microsoft also beat on the top- and bottom lines, coming out with Q2 earnings that increased +9.7% to $22 billion on +15.2% higher revenues to $56.2 billion.
So why is everyone so glum if these companies are bringing in so much in revenues and earnings?
The answer to that question lies in what these companies are doing to prepare for the artificial intelligence (AI) world. Each one is heavily investing in building out the AI infrastructure; the amounts involved are huge and bigger than what many in the markets had been expecting. And that is the primary reason why investors are so glum; they feel that these companies haven’t provided a good-enough explanation of how these huge investments will be monetized.
We noted in this space last week the comment from Alphabet's CEO, who said that underinvestment in the AI opportunity represented a bigger risk at this stage than the alternative.
We have no reason to think that these otherwise very well-run companies are throwing good money on questionable projects. As such, we like these companies investing in their future, which will ensure their importance and leadership status in the AI-centric future world. In other words, we think the market’s capex fixation is overdone.
Beyond these Mag 7 players, total Q2 earnings for the Technology sector as a whole are expected to be up +20.3% from the same period last year on +10.1% 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, August 2nd, we have seen Q2 results from 377 S&P 500 members, or 75.4% of the index’s membership. Total earnings for these index members are up +11.2% from the same period last year on +5.5% higher revenues, with 79.6% beating EPS estimates and only 59.2% able to beat revenue estimates.
Plenty of Q2 results are still to come, even though we have seen results from three-quarters of the S&P 500 already. This week, more than 1,300 companies, including 80 S&P 500 members, will report results. The notable companies on deck to report results this week include Disney, Expedia, Eli Lilly, Airbnb, Uber, Caterpillar, Ralph Lauren, Shopify, 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 59.2% is a new low for this group of 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 +10.5% from the same period last year on +5.3% higher revenues.
This is the highest earnings growth pace in the last nine quarters since the +35.7% growth rate in 2021 Q4.
Looking at earnings expectations on an annual basis, total 2024 S&P 500 earnings are expected to be up +8.5% on +1.9% revenue growth.
The expected revenue growth pace improves to +4.2% once Finance is excluded from the aggregate data, with the index level aggregate earnings growth for the year declining only to +8.1% 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 >>>> Breaking Down the Q2 Earnings Season Scorecard
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.
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, Microsoft, Amazon and Meta's are part of Zacks Earnings Preview
For Immediate Release
Chicago, IL – August 5, 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) , Microsoft (MSFT - Free Report) , Amazon (AMZN - Free Report) and Meta’s (META - Free Report) .
Magnificent 7 Earnings: Good or Bad?
Of the six members of ‘The Magnificent 7’ group that have already reported June-quarter results, the market was disappointed with Tesla, Alphabet, Microsoft and Amazon . Conversely, it was okay with Apple’s quarterly release and loved Meta’s results.
This is clearly not a good picture and likely suggestive of tougher times ahead for the group. Some in the market are likely thinking the Mag 7 leadership of the market is likely behind us.
I will push back on parts of this narrative, as most of the Mag 7 stocks provide some of the most sustainable growth performance in the entire market.
Aside from Apple, which is likely no longer a growth company, and Tesla, which is dealing with a combination of competitive pressures and a cyclical downturn in its core market, the other five are not only generating impressive top- and bottom-line growth today, but the trend is expected to remain in place at least through next year, if not beyond.
Take the case of Amazon, which modestly missed the Zacks Consensus revenue estimate. Amazon’s Q2 earnings almost doubled from the year-earlier level (up +99.8%) to $13.16 billion on +10.1% higher revenues to roughly $148 billion.
Alphabet beat on the top and bottom lines, with its Q2 earnings up +28.6% to $23.6 billion on +15% higher revenues to $71.4 billion. Microsoft also beat on the top- and bottom lines, coming out with Q2 earnings that increased +9.7% to $22 billion on +15.2% higher revenues to $56.2 billion.
So why is everyone so glum if these companies are bringing in so much in revenues and earnings?
The answer to that question lies in what these companies are doing to prepare for the artificial intelligence (AI) world. Each one is heavily investing in building out the AI infrastructure; the amounts involved are huge and bigger than what many in the markets had been expecting. And that is the primary reason why investors are so glum; they feel that these companies haven’t provided a good-enough explanation of how these huge investments will be monetized.
We noted in this space last week the comment from Alphabet's CEO, who said that underinvestment in the AI opportunity represented a bigger risk at this stage than the alternative.
We have no reason to think that these otherwise very well-run companies are throwing good money on questionable projects. As such, we like these companies investing in their future, which will ensure their importance and leadership status in the AI-centric future world. In other words, we think the market’s capex fixation is overdone.
Beyond these Mag 7 players, total Q2 earnings for the Technology sector as a whole are expected to be up +20.3% from the same period last year on +10.1% 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, August 2nd, we have seen Q2 results from 377 S&P 500 members, or 75.4% of the index’s membership. Total earnings for these index members are up +11.2% from the same period last year on +5.5% higher revenues, with 79.6% beating EPS estimates and only 59.2% able to beat revenue estimates.
Plenty of Q2 results are still to come, even though we have seen results from three-quarters of the S&P 500 already. This week, more than 1,300 companies, including 80 S&P 500 members, will report results. The notable companies on deck to report results this week include Disney, Expedia, Eli Lilly, Airbnb, Uber, Caterpillar, Ralph Lauren, Shopify, 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 59.2% is a new low for this group of 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 +10.5% from the same period last year on +5.3% higher revenues.
This is the highest earnings growth pace in the last nine quarters since the +35.7% growth rate in 2021 Q4.
Looking at earnings expectations on an annual basis, total 2024 S&P 500 earnings are expected to be up +8.5% on +1.9% revenue growth.
The expected revenue growth pace improves to +4.2% once Finance is excluded from the aggregate data, with the index level aggregate earnings growth for the year declining only to +8.1% 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 >>>> Breaking Down the Q2 Earnings Season Scorecard
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 >>
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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.