The “Magnificent Seven” accounted for around two-thirds of the S&P 500 gains last year, but can they repeat those extraordinary returns this time around?
Profits for the “Mag 7” are forecast to rise 38% in the first quarter from a year ago, dwarfing the overall S&P 500’s 2.4% anticipated year-over-year earnings growth, according to Bloomberg Intelligence data.
This group of mega-cap tech companies — Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) — are capitalising on tech growth trends such as artificial intelligence (AI) and cloud computing.
In 2023, Magnificent Seven stocks surged between 48% and 239%, accounting for some 60% of last year’s 24% total return for the S&P 500.
Here’s how the mega caps performed this first quarter and what Nvidia is expected to deliver when it reports next week.
Tesla (TSLA) — reported 23 April
Tesla reported a 9% drop in first-quarter revenue, the biggest decline since 2012, and missed analysts’ estimates, as the electric vehicle company weathers the effect of ongoing price cuts.
The electric vehicle (EV) maker said it had made $1.13bn (£910m) over the first three months of the year, compared with $2.51bn a year earlier.
CEO Elon Musk said on the call that the company plans to start production of new models in “early 2025, if not late this year,” after previously expecting to begin in the second half of 2025.
“We slightly raised our 2024 deliveries forecast, versus our prior forecast for no growth. Our improved outlook is due to Tesla’s recent price cuts, so we also slightly reduced our near-term automotive gross margin forecast. We think Tesla could cut prices further as management aims to pass along the majority of cost savings to customers to drive demand,” said Morningstar analyst Seth Goldstein.
Meta beat analysts’ expectations on the top and bottom lines with its first quarter earning but a disappointing Q2 forecast gave investors the chills.
Total revenue rose 27% to $36.5bn and Meta forecast a slight improvement in the current March-June quarter. The Facebook owner reported earnings per share of $4.71 in the quarter.
However, looking ahead, Meta says it will see second quarter revenue between $36.5bn and $39bn, falling short of midpoint estimates of $38.24bn.
Meta said it had raised the high end of its full-year capital expenditure guidance from $37bn to $40bn in order to “continue to accelerate our infrastructure investments to support our artificial intelligence (AI) roadmap”. It added that it expected capital expenditures to “continue to increase next year”.
Meta stock has had a strong performance, climbing 131% over the last 12 months and more than 39% year to date.
However, it lost $132bn in market cap after its earnings, and several analysts lowered their target prices following the report. It is the only Mag 7 constituent that has failed to impress markets.
Microsoft (MSFT) — reported 25 April
Microsoft’s heavy bet on AI appears to be paying off as the world’s largest public company reported $61.86bn revenue for the last quarter.
Total revenue increased 17% to $61.86bn during the first three months of 2024, the third quarter of its financial year, surpassing analyst expectations of some $60.88bn. Earnings per share increased 20% to $2.94, ahead of the expected $2.83.
“Microsoft’s AI-powered earnings demonstrate that doubling down on innovation is paying off,” Jeremy Goldman, senior director of briefings at Emarketer, told Reuters, pointing to the company’s early moves in generative AI, such as its large investment in ChatGPT maker OpenAI.
Sales in Microsoft’s cloud division, its biggest revenue driver that includes its Azure computing platform, climbed 21% during the quarter to $26.7bn, compared with analysts’ forecasts for $26.2bn and above company guidance.
“Wide-moat Microsoft continues to deliver with strong third-quarter results, topping both our top- and bottom-line estimates. Results are impressive from most angles, but we highlight strength in AI, Azure, and gaming; a surge in bookings from large Azure deals; and robust margin performance despite downward pressure from the Activision acquisition are our key takeaways,” said Dan Romanoff, equity research analyst at Morningstar.
Alphabet (GOOG,GOOGL) — reported 25 April
Alphabet’s first-quarter revenue jumped 15% as Google’s parent company announced its first-ever dividend of 20 cents a share alongside a $70bn (£56bn) stock buyback.
Google posted $80.5bn in revenue for the first quarter of 2024 and reported $1.89 in earnings per share, up from $1.17 – beating analysts’ expectations on both counts.
The company also announced its first dividend, of $0.20 per share, and said the payout would become quarterly.
“Our leadership in AI [artificial intelligence] research and infrastructure, and our global product footprint, position us well for the next wave of AI innovation,” CEO Sundar Pichai said in the earnings release.
“Alphabet is taking a tougher stance on costs than its AI rival, continuing to cut headcount and consolidating teams to blunt the impact of infrastructure investments on profitability. Meanwhile, search advertising increased 14%, YouTube advertising surged 21%, and the cloud business also delivered impressive growth, with revenue up 28%, the best result in more than a year,” according to Michael Hodel at Morningstar.
Amazon (AMZN) — reported 30 April
Amazon reported better-than-expected earnings and revenue for the first quarter, driven by growth in advertising and cloud computing.
The earnings sent shares of the retail giant up as much as 5% in pre-market trading.
Amazon posted profits of $10.4bn (£8.3bn) in the first three months of 2024, up from $3.2bn during the same period last year.
First-quarter sales increased 13% to $143.3bn, driven by strong retail sales in North America and rapid growth across Amazon Web Services (AWS), its digital infrastructure division.
In the first quarter, Amazon saw its net income soar to $10.4 billion, more than tripling from the previous year. Sales at AWS also outperformed expectations, growing by 17% to $25 billion, surpassing Wall Street’s forecast of 12% growth to $24.5 billion. Looking ahead, the company anticipates revenue of $144 billion to $149 billion for the current quarter ending in June.
CEO Andy Jassy highlighted the significant opportunity for Amazon in serving AI customers, emphasizing the company’s focus on innovation and growth. Additionally, Amazon’s commitment to investing €1.2 billion in France to create jobs and expand its presence in the country demonstrates its dedication to expanding globally.
On the other hand, Apple reported strong fiscal second-quarter earnings, with revenue slightly ahead of estimates and an expanded stock buyback program. Despite falling behind in the AI race, Apple is making moves to catch up by exploring partnerships with OpenAI and Anthropic to enhance features like Siri and search.
Nvidia, the powerhouse behind the AI boom, is expected to report impressive earnings for the current quarter, driving the AI-related rally that has been dominating the market. With demand for its graphics processing units soaring, Nvidia remains a key player in the tech industry.
DailyBubble views these developments as indicative of the continued growth and innovation within the tech sector. As companies like Amazon, Apple, and Nvidia invest in AI and expand their global footprint, the potential for further advancements and profitability remains high. The AI “gold rush” led by Nvidia underscores the importance of technological innovation in driving success in today’s market. Greetings readers!
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