As earnings season heats up, the eyes of investors are laser-focused on the Magnificent Seven – Apple, Microsoft, Alphabet, Nvidia, Tesla, Meta Platforms, and Amazon. These tech giants have been the driving force behind the two-year bull market rally, with ETFs mirroring their performance showing significant gains. However, recent market pressure has led to questions about their future growth trajectory, prompting analysts to scrutinize their upcoming quarterly reports. This article delves into the expectations surrounding each company’s performance, taking into account analyst predictions, historical data, and potential risks.
Key Takeaways: Magnificent Seven Earnings Season
- Mixed Performance Expectations: While most companies show a strong history of exceeding earnings expectations, concerns exist regarding slowing growth, increased competition, and macroeconomic headwinds.
- AI as a Key Driver: Artificial intelligence (AI) plays a central role in the narratives surrounding several companies, with investors eager to see how AI initiatives translate into revenue growth.
- Varying Analyst Sentiment: While generally positive, analyst ratings and price targets vary significantly across the Magnificent Seven, reflecting individual company-specific prospects and risks.
- Geopolitical and Economic Risks: Factors like U.S.-China trade tensions, global economic slowdown, and antitrust scrutiny pose significant challenges to several companies’ outlook.
- Focus on Forward Guidance: Investors will closely examine each company’s forward guidance for crucial insights into management’s expectations and future growth strategies.
Microsoft: A Cloud-Focused Outlook
Microsoft (October 30th), a key player in software and gaming, boasts impressive historical performance, beating analyst earnings expectations 81% of the time and exhibiting a positive next-day market reaction 58% of the time. Analysts are largely bullish despite recent underperformance attributed to a market rotation away from large-cap tech, high capital expenditures, and AI competition with OpenAI. Goldman Sachs analyst Kash Rangan anticipates tailwinds in the coming quarters, particularly with the integration of Nvidia’s Blackwell system into Azure.
Azure’s Crucial Role
The focal point for investors will be Microsoft’s performance in the Azure cloud business—a key driver of revenue (25% of total revenue). Deutsche Bank’s Brad Zelnick emphasizes the necessity of demonstrating Azure outperformance and stable M365 growth to maintain investor confidence in projected future revenue growth. The average price target suggests an 18% upside.
Apple: Navigating iPhone Demand and AI
Apple (October 31st) enjoyed a robust third quarter, fueled by strong iPhone upgrade demand and AI anticipation. Its third-quarter stock performance showed a remarkable 10.6% jump. While showing a historically strong track record (beating earnings expectations 89% of the time and showing a positive next-day move 58% of the time), the analyst consensus suggests a more modest 4.6% upside potential.
Challenges and Opportunities
Concerns linger around Chinese smartphone market sluggishness, though recent government stimulus could provide a boost. Evercore ISI’s Amit Daryanani highlights the potential for wearables and services segments to drive growth, especially with new product launches. Risks include potential tariffs and continued economic uncertainty in China, as well as the ongoing antitrust lawsuit.
Nvidia: Riding the AI Wave
Nvidia (November 14th), a leader in the semiconductor industry, is enjoying a banner year with shares up 167% in 2024. Despite a slight dip in the third quarter (-1.7%), it recently reached a new record high. The company maintains impressive historical performance, surpassing earnings expectations 85% of the time and generating a positive market reaction 58% of the time on the day of earnings releases.
AI Demand and Geopolitical Risks
While analysts are overwhelmingly bullish (90% positive), uncertainties remain about the sustainability of AI-driven growth and the stock’s high valuation. The resolution of supply chain issues is positive, but U.S. export restrictions on AI chips to China pose a significant risk, impacting its stock performance and overall outlook.
Tesla: Facing Increased Competition
Tesla (October 23rd) witnessed a strong third-quarter surge (32.2%) before experiencing a downturn, partly due to less-than-expected results from its robotaxi debut. The company’s history of earnings beats is relatively lower (61% ), and next-day positive reactions occur 48% of the time. Analyst sentiment is more mixed, with average price targets suggesting a slight 1.6% decrease.
Mounting Competitive Pressures
Tesla faces increasing competition in both the U.S. and international EV markets, from established automakers and new entrants, which presents serious headwinds for its growth trajectory. Wells Fargo’s underweight rating reflects concerns over third-quarter delivery numbers and aggressive promotional pricing.
Alphabet: Navigating Antitrust Concerns
Alphabet (October 22nd) saw a year-to-date increase of approximately 23% aligning with the S&P 500. Its third-quarter performance, however, experienced an 8.8% decline from the previous growth, impacted by the Justice Department’s antitrust ruling. The company has a fairly solid record of beating earnings expectations, at 70% and about 55% positive next-day reaction
AI and Antitrust Risks
Despite the antitrust concerns, analysts remain largely positive on the prospects of Alphabet, with a strong buy rating. JPMorgan’s Doug Anmuth acknowledges the “headline risk” from the DOJ’s actions but highlights the potential for AI growth via Google search. The average price target implies a 22.5% upside. Evercore ISI further suggests strengthening enterprise cloud demand is improving its outlook.
Amazon: Balancing Growth and Profitability
Amazon (October 24th) saw a -3.6% dip in its third quarter, attributed to slowing core retail sales and disappointing guidance. While analysts hold a consensus buy rating and anticipate an 18% upside, concerns remain about e-commerce competition, and the significant capital expenditures in AWS (Amazon Web Service), which have yet to demonstrate long-term profitability. The company beats earnings expectations 64% of the time, but has a 49% next-day positive move.
AWS and Competitive Landscape
Goldman Sachs maintains a positive outlook, highlighting Amazon’s long-term revenue growth and margin expansion potential. However, the firm emphasizes competition from both traditional and online retailers. The impact of AWS investment on long-term profitability will be crucial to assessing this stock’s success.
Meta Platforms: Balancing AI Investments with Growth
Meta Platforms (October 30th) delivered impressive year-to-date growth (64%) and a strong third quarter (13.6%). The company showcases excellent historical earnings results, at 88% beats rate and 55% positive next day reaction. Investor optimism centers on its advertising business, utilizing AI enhancements, and its ventures in AR/VR technology.
Reality Labs and Advertising Competition
Despite the bullish sentiment, analysts show some caution given the significant losses incurred by Reality Labs and the increased competition from Chinese e-commerce companies. The consensus price target suggests a modest 2.3% upside potential indicating there is less room for growth. JPMorgan’s Anmuth highlights Meta’s strong execution and AI investments as positive indicators, while Goldman Sachs emphasizes the need for better visibility on the revenue impact of AI advancements.
