Magnificent 7 Earnings Preview: Tech Giants Face Challenges Amid Market Volatility

Magnificent 7 Earnings Preview: Is a growth slowdown on the horizon?

However, "the recent trend of small-cap outperformance will likely persist unless the macro environment changes substantially, or the mega-cap Tech stocks report Q2 results that causes analysts to raise revenue forecasts for the next several quarters," Kostin added. SA contributors had similar views in their recent analyses. The Mag 7 bubble is likely to "burst only with the weak earnings season" and "a slowing economy is likely to affect the Q2 2024 earnings, and it's likely that Mag 7 companies will miss on their guidance, like Meta did in Q1" according to Damir Tokic. The second half of 2024 is likely to see growth rate slow for the Mag 7 and growth rates for the broader S&P 500 catch-up, according to an analysis by Mott Capital Management. As such, any earnings surprise and guidance for the rest of the year and into 2025, will be closely watched and could set the tone for the rest of the market in the coming months. Below are the market's expectations for each of the Magnificent Seven stocks: Here is a quick recap of the performance and sentiment around the stocks: Tesla (TSLA) gained about 13% in the April - June period. Tesla has missed the EPS line in three straight quarters. The company's operating margin will be closely watched after it plunged to 5.5% in Q1 due in part to lower EV prices. Barclays remains cautious on Tesla (TSLA) and has reiterated an Equal-weight rating. While the firm raised its price target to $225 from $180, the new PT still implies downside potential from the current trading price. Alphabet (GOOG) (GOOGL), which has gained about 17% in the April-June period, took the top spot among the least shorted S&P 500 (SP500) stocks in June. Investors will particularly look at the performance of the company's cloud service offerings, updates on capital spending plans, and how it has been using its AI tools to maintain search market share. Up next, Microsoft (MSFT), which has advanced 5%, has recently received fresh price targets from notable institutions ahead of its Q2 earnings report on July 30, with Bank of America raising its PT to $510 from $480, citing strong performance in Azure cloud services. Analysts are also optimistic about Copilot's potential. For Meta Platforms (META), up 34% YTD, and over 12% in the April-June quarter, Q3 guidance and commentary on the digital ad market will be in focus along with AI initiatives. The company doubled down on its AI initiatives last year but recently had to delay the release of its multimodal AI model to customers in the EU due to regulatory concerns and has pulled its generative artificial intelligence assistant from Brazil. Nvidia (NVDA), up about 148% so far this year, has contributed to almost half of the S&P's top sector's performance and is expected to post a significant beat and raise quarter, driven by AI chip demand. Investment firms UBS and Wolfe Research raised their price targets in July, noting that recent checks indicate that demand for its upcoming Blackwell line is "exceedingly robust."

Tesla, Microsoft, Alphabet, Amazon and Nvidia are part of Zacks Earnings Preview

Many in the market are looking to the two members of 'the Magnificent 7' who report quarterly results this week to help reverse the stock market's recent weakness. The immediate catalyst for the stock market pullback appears to be renewed uncertainty about regulatory and trade policies following the November elections, particularly with respect to export restrictions on semiconductor players. That said, we are in a seasonally soft time of the year and should perhaps resist the temptation to read too much into the recent weakness of the Mag 7 stocks, particularly given these stocks' impressive runs already. Teslais in a league of its own (up +21.3% since July 1), while Microsoft (down -2.3%) and Alphabet (down -2.2%) are roughly tracking each other. This pecking order, with Tesla at the top and Amazon and Nvidia at the bottom, is completely reversed when the starting point is changed to the start of 2024 instead of the start of 2024 Q3. We have Tesla and Alphabet on deck to report Q2 results this week, both reporting after the market's close on Tuesday, July 23. The current Q2 Zacks Consensus EPS for Alphabet of $1.85 has remained unchanged over the last two months, as has Tesla's Q2 EPS estimate of $0.62. For Alphabet, the Q2 estimates of $1.85 per share on $70.6 billion in revenues represent year-over-year changes of +13.7% and +28.5%, respectively. Tesla's Q2 EPS estimate is -31.9% below the year-earlier period on +0.8% higher revenues. Both stocks move big on the earnings release, but the EPS surprise isn't always the most important factor behind the stock's post-release reaction. Alphabet shares were up following the last quarterly release on April 25, with the market appreciating the company's cloud results and AI outlook. Tesla missed on the top and bottom-lines in the April 23 quarterly release, but the stock was up following the numbers as the market liked the company's performance on the deliveries front. In fact, Tesla shares have been on a steady uptrend since the April 23 release, reversing the persistent underperformance of the preceding period. The other Mag 7 players will report the following week, with Nvidia being the last one to release quarterly results on August 28. The group is expected to bring in +25.6% more earnings relative to the same period last year on +13.3% higher revenues. As we all know by now, the group's phenomenal boost in 2021 partly reflected pulled forward demand from future periods that got primarily adjusted in 2022. The group returned to the 'regular/normal' growth model last year, and the trend is expected to continue this year and beyond. Beyond these Mag 7 players, total Q2 earnings for the Technology sector as a whole are expected to be up +15.5% from the same period last year on +9.3% higher revenues. As with the Mag 7, the Tech sector dealt with the pulled-forward revenues but is expected to remain firmly in growth mode. The Tech sector has enjoyed a favorable revisions trend for the last few quarters, with the Mag 7 stocks leading the rising estimates trend. The current +17.2% earnings growth expected for the group is up from +14.2% three months ago. Estimates for next year have also gone up. Earnings Season Scorecard and This Week's Earnings Reports Through all the results that came out on Friday, July 19, we have seen Q2 results from 71 S&P 500 members, or 14.2% of the index's membership. Total earnings for these 71 index members are up +8.7% from the same period last year on +5.2% higher revenues, with 83.1% beating EPS estimates and only 53.5% able to beat revenue estimates. The Q2 reporting cycle really ramps up this week, with more than 500 companies on deck to report results, including 135 S&P 500 members. In addition to the aforementioned Alphabet and Tesla, this week's line-up includes a representative cross-section of reports from different sectors, including bellwethers like Verizon and AT&T, UPS, Coke, GM and Ford, Spotify, IBM, Chipotle, and others. The one notable feature of the above comparison charts is the very low Q2 revenue beats percentage. In fact, 53.5% is a new low for this group of 71 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 +9% from the same period last year on +4.8% higher revenues. This will be the highest quarterly growth pace since the +10% earnings growth rate in the 2022 Q1 period. 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 30, Q2 estimates for the S&P 500 index fell the least relative to the comparable periods of other recent quarters. Not only is the Q2 earnings growth the highest since the first quarter of 2022, but the absolute level of aggregate earnings for the period is also on track to be a new all-time quarterly record. Looking at earnings expectations on an annual basis, total 2024 S&P 500 earnings are expected to be up +8.8% on +1.6% revenue growth. The expected revenue growth pace improves to +3.9% once Finance is excluded from the aggregate data, with the index level aggregate earnings growth for the year declining only to +8.7% on an ex-Finance basis. 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