Market participants showed their disappointment with last Tuesday’s results from two of ‘The Magnificent 7’ stocks: Google parent Alphabet GOOGL and Tesla TSLA.
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 MSFT on Tuesday, July 30th, after the market’s close (AMC), Meta Platforms META on Wednesday AMC, July 31st, Amazon AMZN and Apple AAPL 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.
Take a look at the chart below that shows current consensus expectations for the ‘Mag 7’ stocks as a whole for the current and coming periods in the context of what they were able to achieve in the preceding period.
Image Source: Zacks Investment Research
As you can see, the group is expected to bring in +26.8% more earnings relative to the same period last year on +13.7% higher revenues.
The chart below shows the group’s earnings and revenue growth on an annual basis.
Image Source: Zacks Investment Research
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 chart below shows the sector’s Q2 earnings and revenue growth expectations in the context of where growth has been in recent quarters and what is expected in the coming four periods.
Image Source: Zacks Investment Research
The chart below shows the sector’s growth picture on an annual basis.
Image Source: Zacks Investment Research
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, Proctor & Gamble, Pfizer, Starbucks, Mastercard, Boeing, DuPont, Exxon, Chevron, and others.
The comparisons charts below put the earnings and revenue beats percentages for these companies in a historical context.
Image Source: Zacks Investment Research
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 comparison charts below put the Q2 earnings and revenue growth rates for these 207 companies in a historical context.
Image Source: Zacks Investment Research
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.
The chart below shows the year-over-year earnings and revenue growth for 2024 Q2 in the context of what we saw in the preceding four periods and what is currently expected for the following three periods.
Image Source: Zacks Investment Research
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.
Image Source: Zacks Investment Research
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?
Free Report: 5 “Whisper” Stocks Poised to Stun Wall Street
Analysts may be seriously underestimating these stocks. When they announce earnings, they could immediately jump +10-20%.
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
Tesla, Inc. (TSLA) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Meta Platforms, Inc. (META) : Free Stock Analysis Report
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