Earnings season is in full swing, with tech companies set to take centre stage this week, as most of the Magnificent Seven behemoths are due to release their latest results.
Electric carmaker Tesla (TSLA) kicked things off for this group of market-leading tech stocks, with a further five set to report next week: Alphabet (GOOGL, GOOG), Meta (META), Microsoft (MSFT), Amazon (AMZN) and Apple (AAPL). Chipmaker Nvidia (NVDA) will report in November.
These companies have been capitalising on tech growth trends such as AI and cloud computing, leading markets higher.
The main S&P 500 (^GSPC) and the tech-focused Nasdaq Composite (^IXIC) indices are both up nearly 22% year-to-date.
Last year, the Magnificent Seven were responsible for more than half of the S&P 500’s gain, according to Morgan Stanley.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “The week ahead is a key moment for big tech and investors will be highly sensitive to the huge sums being poured into AI developments, keen to see the spend being justified.
“Given the super high valuations these companies are currently trading at, signs of weakness and numbers which fall short of expectations are likely to spark jolts of volatility and may see positive sentiment seep away.”
Will this latest batch of earnings drive these stocks even higher? Here’s what you need to look out for:
Elon Musk’s Tesla got the group off to a strong start, when it reported its third-quarter results after the closing bell on Wednesday 23 October.
While the results were mixed, investors cheered the company’s beats on earnings per share and higher gross margins, with the stock surging nearly 14.5% in after-hours trading.
Tesla posted revenue of $25.18bn (£19.18bn), which was less than the $25.4bn expected, according to Bloomberg consensus estimates. However, this was higher than the $25.05bn in reported in the second quarter and topped the $23.04bn it posted for the same period last year.
Adjusted earnings per share of $0.72, was ahead of an anticipated $0.60, on adjusted net income of $2.5 billion and free cash flow of $2.9 billion.
Tesla’s closely-watched gross margin figure came in at 19.8%, much higher than the 16.8% expected.
In its earnings deck, Tesla said: “Preparations remain underway for our offering of new vehicles — including more affordable models — which we will begin launching in the first half of 2025.”
Musk then said in an earnings call that Tesla’s volume growth could be between 20% and 30% next year.
These details were welcome news to investors, in light of recent updates that disappointed markets. Tesla recently announced third-quarter deliveries that slightly missed expectations, while the company’s highly-anticipated robotaxi event left investors wanting more details.
Russ Mould, investment director at AJ Bell, said this strong set of results was a “reminder that, for all its recent challenges, it is one of the few operators to genuinely make the manufacture of electric vehicles pay.
“The next key test for Tesla is to hit its targeted year-on-year increase in vehicle deliveries for 2024 which will require a pretty sizable acceleration in the remainder of the year.”
Google-parent Alphabet has seen weaker performance more recently, amid concerns over looming regulatory headwinds.
Earlier this month, the US Department of Justice (DOJ) said it was considering whether to recommend the break up of Google to rein in its dominance in the search engine market.
The DOJ said in a court filing that it was considering options, including “behavioral and structural remedies that would prevent Google from using products such as Chrome, Play, and Android to advantage Google search.”
This update came after a landmark ruling in August, in which a US district court said Google had illegally monopolised the online search market.
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In response to DOJ’s latest court filing, Google released a blog post entitled: “DOJ’s radical and sweeping proposals risk hurting consumers, businesses, and developers.”
These developments have weighed on Alphabet shares, with the company down 11% over the past three months.
Looking ahead to the third quarter results, Hargreaves Lansdown’s Streeter said: “Investors will be watching closely to see if Alphabet is still pulling all the right revenue levers, after some of the forward-looking statements suggested that the climate for the rest of the year might be tricky.”
She said that “fresh regulation is also hovering like a dark cloud” but added that “even if its power is diminished and it’s not able to be the default search engine on devices owned by big tech giants, it’s sheer might of reputation in the world of search is likely to propel users towards it, nonetheless.”
In the second quarter, Alphabet posted 14% revenue growth year-on-year to $84.7bn, while operating income came in at $27.4bn, with margin growth of 32%.
“The power of Google over the second quarter indicates that its already harnessing AI technology to deliver improvements and investors will want to see this trend continue,” said Streeter.
While Meta might be best known as the owner of social media platforms Facebook and Instagram, the company has become something of an AI darling more recently.
Meta’s growth in AI comes via its Llama language models, which the company is building into its social media platforms. The company also reported in August that a number of businesses, including Accenture (ACN) and Goldman Sachs (GS) were using Llama to develop their own AI software.
The fact that the company offers Llama models as open-source software, has also helped set it apart. Open-source software is typically software that companies create and then allow developers to download and augment for free.
Futurum Group CEO Daniel Newman said the company had been “democratising AI”.
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In the second quarter, Meta reported 22% earnings growth to $39bn, which Streeter said would be “tough target to beat, but there are good signs that its strategy of using AI tools to beef up its advertising might be paying off”.
“Meta’s huge scale means that volumes keep driving upwards and with daily users growing 7% in the second quarter and more eyes on screen are set to continue to be attractive for advertisers,” she said.
“The extent to which Meta will keep pouring cash into AI developments will be under scrutiny, but if the giant keeps delivering results, it’s likely to be seen as crucial investment rather than overspend.”
Meta Platform shares are up nearly 60% year-to-date.
One of the latest areas of competition for major technology firms is digital agents powered by AI, with Microsoft jumping into the race this week.
On Monday, Microsoft announced the rollout of its Copilot AI features, which aim to enhance business productivity by automating routine administrative tasks. These AI tools, known as autonomous agents, are custom-built applications that can handle specific tasks, freeing up employees to focus on more strategic work.
Going into its first quarter results, Streeter said there would be “high interest in how eager companies are to snap up new subscriptions offering access to Microsoft’s CoPilot across its apps”.
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She said that Microsoft had “planted itself in the centre of the AI revolution and shoots of growth from artificial intelligence are sprouting fast in all divisions.
“Given the direction of travel, revenues from its cloud computing arm Azure, which will help other companies build out the capacity to use AI tools, will be closely watched.”
Streeter said there were expectations that revenue in this part of the business would grow between 28% and 29% this quarter.
“Investment in new infrastructure is crucial and although this is a very expensive endeavour Microsoft has deep pockets and despite the huge spend involved, cash is flowing in at record levels thanks to the company’s highly efficient operations, which will ease any ups and downs,” she said.
In full-year results released at the end of June, Microsoft said revenue was up 16% to $245bn, while operating income had risen 24% to $109bn. In addition, net income had grown 22% to $88bn.
Shares in Amazon have rebounded since the company released results in August, which disappointed both in revenue performance in the second quarter and its outlook for the the third quarter.
While Amazon’s earnings of $1.26 per share exceeded expectations of $1.04, net sales of $147.98bn was just shy of an anticipated $148.78bn revenue figure.
The company’s operating income forecast for the third quarter, of between $11.5bn and $15bn, also fell short of estimates. Investors were looking for guidance of $15.66bn, according to a Bloomberg consensus.
The e-commerce firm also expected to report net sales of between $154bn and $158.8bn for the third quarter, saying this “guidance anticipates an unfavourable impact of approximately 90 basis points from foreign exchange rates”.
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“Amazon’s cloud business AWS (Amazon Web Services) continues to be Amazon’s most lucrative growth driver so sales growth will be scrutinised closely, given the increasing competition from other tech giants,” said Streeter.
In the second quarter, net sales for AWS came in at $26.28bn, topping estimate of $25.98bn.
“Given the AI megatrend unfolding, it bodes well for AWS but at the same time Amazon is also having to invest heavily in the technology to stay ahead and the sums it’s been pouring in has caused some nervousness among investors,” she added.
She said that investors will also want to see signs of recovery story in its e-commerce business, following a cost-saving drive which saw layoffs globally.
“Continuing to build revenues will be crucial and there could be headwinds here given that USD consumers are showing signs of being more cautious in their spending habits.”
Shares in Apple reached a fresh high closing price of $236.48 last Monday, with the company holding onto its title of the world’s most valuable company.
Apple shares climbed higher on the back of Wall Street analysts issuing bullish outlooks on the stock. Analysts at Morgan Stanley (MS), Bernstein, and Evercore ISI have reiterated their buy ratings on Apple.
In addition, positive preliminary iPhone shipment data posted by International Data Corporation (IDC) showed strong demand for Apple’s previous smartphone models. Sales were also helped by Apple’s rollout of the latest iPhone 16 model.
On Friday, IDC Research also reported that the iPhone maker had risen back up to the number two smartphone spot in China’s consumer market.
Concerns over weak demand for the iPhone 16 had slightly dampened investor enthusiasm around Apple more recently.
However, these more upbeat data indicators could prove more positive going into its fourth quarter results on Thursday, especially after the company posted a year-on-year decline in iPhone sales in the third quarter.
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In China, Apple posted third quarter revenue of $14.7bn, which was below estimates of $15.2bn, according to Bloomberg. This was also down from the $15.7bn in revenue it generated in China last year.
But overall revenues of $85.5bn and earnings per share of $1.40 came in ahead of estimates.
Streeter said: “Investors had been hoping that new AI enabled tools would prompt a flurry of upgrades but with some much-touted features now not expected until next year, they’ve been braced for disappointment.
“Services should shine through as a beacon of light again as demand has been strong recently for the App Store and Apple Music with a bundling of apps helping win more loyalty.”
She explained that this part of the business is higher margin as it doesn’t involve the same costs as making a MacBook or iPhone.
“But for services to reach its full potential, it relies on growing hardware sales so there is a lot riding on how keen iPhone fans have been to upgrade to the latest model,” she added.
Nvidia’s third quarter earnings are slated for release later in November.
Nvidia has been closing in on Apple’s top spot as the world’s most valuable company, with a new record high close last Monday, taking its market valuation past the $3.5tn mark.
This latest advance in share price comes as Wall Street analysts reiterated on their bullish outlook on the company.
For example, Bank of America (BAC) raised its price target on Nvidia from $165 to $190 per share, citing strong demand for AI.
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Other recent catalysts behind the stock include the company recently saying that its Blackwell AI chips had already sold out for the next 12 months.
In the second quarter, Nvidia posted 122% revenue growth versus the same period last year to $30bn
The company’s gross margin came in at 75%, while net income had increased to $16.6bn.
For the third quarter, Nvidia said it expected revenue of $32.5bn, “plus or minus 2%”.
The chipmaker also anticipated a gross margin of 74.4%, “plus or minus 50 basis points” and this to be in the mid-70% range for the full year.
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