Magnificent 7 Earnings Season

29-10-24

Last Wednesday, Tesla released its third-quarter earnings figures for 2024 marking the beginning of the US mega-cap earnings season. The embattled EV maker beat wall street estimates, reporting significant improvements in its profit margins. The earnings per share metric favoured by investors rose 24.14% to $0.72 from $0.52 in Q2, and a buying frenzy soon followed lifting the tech company 27% by the end of the week’s trading.

Chart displaying Tesla stock over 6-months

This week US tech mega-caps and the majority of the S&P500 will release their latest quarterly earnings in what is set to be the final data heavy week for the equity markets before the end of 2024.

TUESDAY

ALPHABET (+21.4% YTD) – Q3 2024 EARNINGS AFTER MARKET CLOSE

Google are up first this week, reporting their Q3 earnings after the market close on Tuesday. Revenues are forecast to increase by 1.86% to $86.32B from $84.74B in Q2, whilst earnings per share are set to drop by 2.65% from $1.89 to $1.84. Key drivers of googles revenue include its lions-share of internet advertising, as well as its expansion into the cloud computing industry alongside rival tech bidders Amazon and Microsoft. Ex-Google CEO Eric Schimdt recently attended the UK international investment summit, noting that AI is set to drive major advances in the healthcare sector and his expectation for growth in the overall artificial intelligence sector over the next two years to be faster and more turbulent than the previous two.

An ongoing US antitrust trial is weighing down Google’s growth plans, as its alleged monopolistic search engine practices faces severe regulatory scrutiny from the US Department of Justice which threatens to break up the tech giant, forcing it to sell either the android operating system, Google Play Store, or Chrome Browser. A detailed proposal from the DoJ is expected to be released on the 20^th November. Any commentary during the earnings call on the above matter will have a strong influence on the tech-titan’s future market outlook.

WEDNESDAY

META (+66.5% YTD) – Q3 2024 EARNINGS AFTER MARKET CLOSE

Mark Zuckerburg’s vision for the future of technology has been in the spotlight recently after unveiling Meta’s latest developments in its augmented reality eyewear collaboration with RayBan. The product has sold an estimated 700,000 units in its first year and more than doubled shipments from the first and second quarters of 2024. The embedding of this technology lays the groundwork for future innovations, with the long-term objective to instill the capabilities of currently available plug-in virtual reality headsets into a fashionable and practical product offering. Q3 revenues are forecast to increase by 2.7% to $40.13B from $39.07B in Q2, whilst earnings per share are forecast to increase by 0.96% to $5.21 from $5.16 in Q2. Investors will seek further guidance on the status of Meta’s large language models which are being trained on historical user data across its platforms. Privacy concerns have stymied progress following strong consumer backlash, as bad memories of Facebook’s secret harvesting and sale of user data to advertisers resurfaced.

MICROSOFT (+16.1% YTD) – Q1 2025 EARNINGS AFTER MARKET CLOSE

Microsoft’s quarterly revenues are forecast to decrease by 0.4% from $64.73B to $64.48B despite improved earnings per share projections of $3.10 from $2.95 in Q4. Microsoft’s core product offering is a favourite among enterprise IT buyers and has raised its rankings as a software provider after making a $10 billion investment in OpenAI, the creator of ChatGPT, to seamlessly integrate its AI into the Microsoft Office Suite, enhancing productivity for millions of users globally. A recently announced partnership between BlackRock, Global Infrastructure Partners, Microsoft and MGX to develop new data centers and energy infrastructure to meet the growing demand for computing power, has drawn strong support from NVIDIA founder and CEO Jensen Huang who stated that

“Accelerated computing and generative AI are driving a growing need for AI infrastructure for the next industrial revolution,”

and

“NVIDIA will use its expertise as a full stack computing platform to support the Global AI Infrastructure Investment Partnership (GAIIP) and its portfolio companies on the design and integration of AI factories to propel industry innovation.”

Signifying that long-term growth in the AI sector may be first realised at the West’s best-known software house.

THURSDAY

AMAZON (+26.4% YTD) – Q3 2024 EARNINGS AFTER MARKET CLOSE

By far the largest revenue generator of the Magnificent Seven, Amazon’s forecast quarterly revenues are expected to rise by 6.4% to $157.4B from $147.98B in Q2. Earnings per share figures however are forecast to fall by 9.5% to $1.14 from $1.26 per share in Q2. The world’s

largest e-commerce platform maintains a diversified presence in the technology sector, with notable holdings in cloud computing and the streaming industry through Amazon Web Services and Amazon Prime Video.

It’s perceived slow start in the artificial intelligence space was a concern for investors as they marveled at the new large language models produced by OpenAI, however CEO of Amazon Web Services Matt Garman recently asserted during an interview with the Wall St Journal that the business has no intention of bringing a product to market quickly, as their ambition is to build a platform composed of numerous AI models which will better service their enterprise, startup and government customers than a white label of ChatGPT.

Similarly to Microsoft, Amazon has recently made long term investments in modular nuclear reactors, which are projected to come online by 2030 and secure a renewable and reliable energy source capable of meeting the future projected demands of their mammoth data centers which are currently in development. Analysts have recently called into question the strength of Amazons previously dominant cloud business, which has ceded market share to Microsoft’s Azure platform and any updated guidance on this segment of the business at the upcoming earnings call on Thursday will be crucial to the company’s end of year performance.

APPLE (+25.8% YTD) – Q4 2024 EARNINGS AFTER MARKET CLOSE

The world’s second-most valuable company has been dealt a fresh blow yesterday, 28^th October 2024; ahead of Thursdays earnings call, as Indonesia has banned sales of its new iPhone 16 handset. Despite finding itself caught in the crossfire of an East-West trade war in recent years, the smartphone maker has managed to continue outperforming the S&P500 index after unveiling its answer to generative AI in the form of Apple Intelligence (AI) which will be available in iOS18 following the event on 31^st October this year. Q4 Revenues are forecast to increase by 10% to $94.41B from $85.78B, whilst earnings per share (EPS) are set to grow by 14.3% to $1.60 from $1.40 reported at their previous round in Q3. Apple shipped 234.6 million iPhones and controlled 20.1% of the global smartphone market last year, beating close rival Samsung by a marginal 0.7%.

Analysts point to Apple’s enormous 2.2 billion pre-existing user base as a path to easy monetisation of its new AI software which could be made available via a subscription model as per its rivals Microsoft and OpenAI. Conservative estimates of 300 million paying customers at $10 per month would generate an additional $3 billion in revenue every month, and push Apple’s services business closer to the $100B annual revenue mark heralded as the next milestone by industry analysts.

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