For the first time, the Magnificent Seven have market sentiment against them. Investors will no longer be satisfied with exorbitant profit growth or multibillion-dollar investments in artificial intelligence. Now is the time to live up to high marks, with high risk of disappointment. The five companies arrive at the meeting with several open fronts and not just the shared one.
For example, Alphabet, the owner of Google, arrives at the meeting with the threat of being dismembered by the US Department of Justice. The company is accused of monopoly on its search engine, on video and advertising. And more and more journalistic reports suggest that the administration will take the tougher step, as it did with the Rockefeller oil company, Standard Oil, in 1911 or in 1980 with AT&T. With this panorama, the company’s results take second place.
For Apple, these will be the accounts that will have to confirm that the drop in demand for its iPhones is only a temporary toothache. The company committed a few weeks ago that all of its geographies and products will grow in the coming quarters. Some analysts already believe that the Apple firm’s prospects are too optimistic.
Market concern about Amazon revolves around capital spending and Meta is awaiting news related to its AI developments. Every business has its problems, but the common front is demonstrating AI advancements for their businesses.. During the last earnings season, Microsoft was scary. The company was the first to deploy AI in many of its software functions and caused disappointment. Performance does not match millions of dollars of investment. Revenue from its Azure division fell short of expectations and fears of an AI bubble suddenly emerged.
For the five aces of the Magnificent Seven, forecasts envisage a joint investment in new technology of $56 billion. Some experts are already warning that huge margins will be affected. “Huge margins are likely a thing of the past, at least in the short term,” say Bloomberg Intelligence’s Gina Martin Adams and Michael Casper, pointing out that increased capital spending is to blame for falling profits.
The consensus of Bloomberg He expects the five companies’ average profit to rise 13% from last year. This would go from a 25% increase for Amazon to 4.3% for Microsoft.
Why are your results important?
The Magnificent Seven represent a little more than 23% of the capitalization of the S&P 500, “due to their high weight in the indices, their behavior will greatly condition their behavior, and will be able to determine the monthly closing trend of the American stock markets and, outside “sympathy”, also from Europeans”, comments Link Securities.
The S&P 500’s gains over the past two years have been largely driven by tech giants, thanks to relentless earnings expansion and a market willing to continue paying higher multiples. And that’s the underlying problem. Apple trades at 32 times estimated earnings for the next 12 monthscompared to an average of 20 times over the past decade, according to Bloomberg data. Microsoft trades at 33 times, compared to an average of 25 times.
Distrust has set in on the market. Since peaking on July 10 after a 22% rebound at the start of the year, the Bloomberg Magnificent 7 index, made up of the five companies mentioned plus Meta and Tesla, has fallen 2%. The S&P 500 was up 4%, but the utilities, real estate, financials and industrials sectors were up more than 10%.
There are two points in favor of the Magnificent Seven narrative. Tesla, one of the members of the select club, released its results last week and surprised the market with its results and business outlook. And this week is important, but it won’t be as critical as during Nvidia’s presentation on November 20.
