The earnings season for the world’s top 7 tech stocks, also known as the “magnificent 7”, is just around the corner.
Among the most esteemed on Wall Street, AI darling names such as Nvidia and Microsoft stand out. Expectations are high for Amazon and Meta, as consensus suggests they will report a solid quarter.
Alphabet and Apple face more restrained estimates as they are perceived to be slightly behind in the AI race. Meanwhile, Tesla, the worst performer among the seven in the last twelve months, finds itself in a critical situation. The results could either serve as a salvation or a condemnation for the company led by Elon Musk.
According to Wedbush technology analyst Dan Ives, despite the current emotional volatility in the market, there is an opportunity for significant advancements in technology, particularly in artificial intelligence (AI) and digital transformation. He anticipates a “flexing of muscles” moment for tech companies, suggesting that upcoming developments will lead to improvements in earnings for the tech sector as a whole.
Who Will Likely Shine
NVIDIA
Nvidia NVDA 118,08 +1,94 +1,67%, a trailblazer in AI chip design, is poised to unveil its Q1 fiscal 2025 results on March 22. Boasting an impressive 90% stronghold on the AI data center market, Nvidia has soared to a staggering $2.2 trillion market cap in the past year. Its stock valuation reflects robust positions in AI and gaming, fortified by strategic moves such as investments in AI ventures like SoundHound AI and advancements in its CUDA interface. Despite fierce competition from AMD and Intel, Nvidia’s meteoric revenue and earnings growth underscore its unassailable dominance in AI chip technology.
Analysts anticipate a solid quarter for Nvidia, with an EPS estimate of $5.52, marking a remarkable 406% growth compared to the same period last year. Revenue forecasts of $24.31 billion suggest a significant annual growth of 237%. With such robust earnings growth, Nvidia trades at a PEG ratio of just 0.12x, significantly below the industry average, indicating favorable valuation metrics.
Morgan Stanley analyst Joseph Moore maintains that NVDA stock remains the top AI play. In his latest report, he highlighted several reasons for this stance. One key factor is the company’s strong product execution and the potential for aggressive pricing strategies that could pressure alternative options.
Amazon
The e-commerce giant Amazon AMZN 166,94 +1,14 +0,69% is set to report its earnings for Q1 2024 on April 30th. Throughout 2024, AMZN has performed admirably, showing a 16% increase thus far, and over the past 12 months, it has surged by 67%, bringing the company back to its all-time highs. The optimism surrounding Amazon’s performance stems from several factors, including the resilience of the U.S. and global economies and the emergence of AI as a new growth catalyst. Additionally, AWS sales have grown, with management attributing this to new customer engagements and heightened interest in generative AI opportunities.
Analysts are forecasting Amazon to report an EPS of $0.85 for Q1 2024, representing a remarkable annual growth of 172% and revenues of $142.5 billion, indicating a year-over-year growth of approximately 12%.
Evercore ISI’s Mark Mahaney highlights Amazon as their top pick in the internet sector, citing an apparent inflection point marked by accelerated growth in AWS and record-high retail operating margins. Projections suggest the potential for significant stock re-rating, with estimates ranging from $220 to $250 based on free cash flow valuations.
Meta
The social media giant Meta Platforms META 519,10 -2,02 -0,39%, which owns Facebook, Instagram, and WhatsApp, is set to release its Q1 2024 results on April 24th. Throughout the year, META stock has surged by nearly 40%, with a remarkable 124% increase over the last twelve months. This impressive performance can be attributed to the company’s solid quarterly results, characterized by strong revenue growth and tripled adjusted EPS.
Meta has also effectively optimized its costs, announcing a new round of layoffs, and has entered the generative AI race with the release of its Llama 3 language model and an image generator.
For Q1, analysts expect the company to report an EPS of $4.35, indicating a substantial annual growth of 97.5%. Revenue estimates stand at $36.1 billion, reflecting a year-over-year growth of 26.2%.
Truist Securities analyst Youssef Squali predicts that Meta will surpass Q1 estimates, attributing this success to improved monetization and a strengthened position as a must-buy entity within the digital ad ecosystem, particularly amidst ongoing cookie deprecation and macroeconomic volatility.
Microsoft
The Redmond-based company Microsoft MSFT 401,70 -6,69 -1,64% is scheduled to announce its financial results for Q3 2024 on April 25th. Throughout 2024, Microsoft shares have experienced an 8% increase, with a notable appreciation of approximately 40% over the last twelve months. The company’s consistent performance is largely attributed to maintaining a robust competitive advantage through its popular Windows and Office software, significant investments in cloud infrastructure with Azure, and successful expansion into the gaming industry. Additionally, the acquisition of OpenAI holds promising potential.
According to the Wall Street consensus, Microsoft is expected to report Q3 2024 EPS of $2.84, reflecting a 15% annual growth rate. Revenue estimates are $60.82 billion, indicating a 15% annual increase.
TD Coewn analyst J. Derrick Wood anticipates Azure’s growth surpassing Wall Street estimates, expecting another solid beat on growth and margins. Wood remains optimistic about Microsoft’s positioning for AI monetization, seeing it as best positioned in the market.
Who Will Likely Disappoint
Apple
The Cupertino-based company Apple AAPL 216,24 +2,93 +1,37% is set to announce its results for the second quarter of 2024 on March 2, following the closing bell. Throughout this year, Apple has stood out as one of the few, or perhaps the only, Magnificent 7 companies that have faced challenges. At the time of writing, Apple shares have declined by 15% since the beginning of 2024.
The poor performance of Apple’s shares can be attributed to several factors, including Wall Street downgrades, antitrust concerns, and slowing growth. However, the primary concern among investors has been the perception that Apple has lagged behind its more AI-savvy peers in capitalizing on the enthusiasm surrounding artificial intelligence. Nevertheless, it’s worth noting that Apple possesses the talent, resources, and existing AI capacity necessary to navigate this landscape effectively; it’s just uncertain about the optimal strategy.
The Street’s estimates for Q2 2024 suggest an EPS of $1.51, indicating a 1% decline compared to the same period last year. Revenue estimates stand at $90.6 billion for the quarter, representing a drop of 4.5% compared to Q2 last year. Over the past three months, 35 out of 39 analysts covering Apple have revised their revenue guidance downwards.
Needham analyst Laura Martin believes that Apple’s growth outlook is anemic and expects expenses to rise as the company increases investments in artificial intelligence.
Tesla
The giant electric vehicle (EV) maker Tesla TSLA 197,49 -2,51 -1,26% is set to release its figures for the first quarter of 2024 on April 23, after the closing bell. The company, led by Elon Musk, has faced significant challenges this year, with its value already plummeting by 40%. Tesla’s struggles reflect mounting risks and apparent issues with execution, including repeated delivery delays for Cybertrucks, missed delivery targets, margin pressure, and diminishing effectiveness of price cuts.
In response to these challenges, Tesla has announced layoffs affecting about 10% of its workforce, and the cancellation of plans to produce a low-cost family EV has raised doubts about the company’s direction. Concerns about CEO Elon Musk’s divided focus since acquiring Twitter have fueled apprehensions about Tesla’s stability and the perceived founder risk amid major setbacks and strategy changes.
According to Wall Street estimates, the consensus expects Tesla to report Q1 EPS of $0.50, representing a 42% decline year-on-year, and revenues of $22.3 billion, down 4% year-on-year. These figures are particularly concerning for a company trading at a P/E ratio of 48x.
Wedbush analyst Dan Ives characterizes Tesla and Elon Musk as being at a “moment of truth,” emphasizing the significance of this juncture in the company’s history. Wedbush notes that it and the Street anticipate a challenging quarter and a softer outlook. To alter the narrative surrounding Tesla, Ives suggests that Musk address five key areas during the conference call: reversing the negative growth trend in China, providing realistic guidance for 2024, introducing the Model 2 within the next 12 to 18 months, discussing artificial intelligence initiatives at Tesla and addressing previous comments regarding a 25% ownership stake, and announcing an AI day.
Alphabet
Alphabet NVDA 118,08 +1,94 +1,67%, the company that owns Google, is scheduled to report its FQ1 2024 results on April 25th. Despite facing challenges related to generative AI, shares have risen approximately 11% over the course of 2024 and 47% in the last twelve months. However, the stock is grappling with a generative AI overhang that may prove challenging to overcome.
Earlier this year, Google announced layoffs as part of efforts to control costs and prioritize investments in growth areas like AI. Nonetheless, the company faces a significant threat from generative AI capabilities, potentially impacting its position in the cloud business due to perceived lagging. There are concerns that Google’s management may be underestimating the long-term implications of recent reputational issues on its standing in the AI domain.
The Wall Street consensus forecasts Alphabet to report EPS of $1.50, indicating annual growth of 28%, and revenues of $78.68 billion, representing an increase of 12.7% annually.
According to Bank of America’s analyst Justin Post, he specifically anticipates the Search segment to generate $45 billion, slightly higher than the Street’s estimate of $44.8 billion. He also expects YouTube revenues of $7.8 billion, Cloud revenues at $9.3 billion, and Network revenues at $7.5 billion, all in line with consensus estimates.
X Speaks
Which of the #Magnificent7 will surprise or disappoint in this earnings season? Vote now! #EarningsSeason #StockMarket $AAPL, $AMZN, $GOOGL, $META, $MSFT, $NVDA, $TSLA.
— Wall Street Trends (@WStreetTrends) April 22, 2024
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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