What Can Investors Expect From Big Tech Earnings?

Photo by Steve Johnson on Unsplash


Many in the market are looking to this week's quarterly results from the four members of ‘the Magnificent 7’ to help reverse the stock market’s ongoing weakness.

The immediate catalyst for the stock market pullback appears to be tied to the timing of Fed easing as a result of the evolving inflation picture rather than any deterioration in the overall earnings picture. If anything, the overall earnings picture has actually been improving ever so slightly in recent weeks, as we have been noting in our earnings commentary.

The hope appears to be that robust results from the Mag 7 companies reporting this week – Tesla (TSLA - Free Report) on Tuesday, April 23rd, Meta Platforms (META - Free Report) on Wednesday, April 24th, Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) on Thursday, April 25th – will help restore confidence in the market’s fundamental underpinnings and offset some of the Fed-centric worries.

The chart below shows the year-to-date performance of Meta, Alphabet, Microsoft, and Tesla relative to the S&P 500 index.

Zacks Investment Research

Image Source: Zacks Investment Research


As the above chart shows, Meta is in a league of its own, while Microsoft and Alphabet are roughly tracking each other.

This pecking order, with Meta at the top and Tesla at the bottom, remains unchanged when we begin tracking from October 27, 2023, as the chart below shows.

Zacks Investment Research

Image Source: Zacks Investment Research


This divergence in performance reflects each stock’s earnings outlook, with Meta enjoying the best and Tesla the worst.

The current Q1 Zacks Consensus EPS for Meta of $4.32 has increased +20% since late January 2024. On the other hand, Tesla’s Q1 EPS estimate of $0.46 has been cut by more than -41% over the same period.

Tesla’s woes are well known, ranging from a distracted leader to fundamental supply-demand forces for its core product. Meta is benefiting from an improving digital ad market and effective cost controls.

Q1 estimates for Microsoft and Alphabet have barely moved higher, with both largely seen as leading the AI effort. It is unlikely that we will see any tangible developments from either of these two companies on their respective AI strategies, but we will nevertheless get more clarity about the coming periods.

The below chart illustrates current consensus expectations for the ‘Mag 7’ stocks as a whole for the current and coming periods in the context of what they achieved in the preceding period.

Zacks Investment Research

Image Source: Zacks Investment Research


As you can see, the group is expected to bring in +33% more earnings relative to the same period last year on +12.7% higher revenues.

The chart below shows the group’s earnings and revenue growth on an annual basis.

Zacks Investment Research

Image Source: Zacks Investment Research


As we all know by now, the group’s phenomenal boost in 2021 partly reflected pulled-forward demand from future periods that got primarily adjusted in 2022. The group jumped back into the ‘regular/normal’ growth model last year, and the trend is expected to continue this year and beyond.

Beyond these Mag 7 players, total Q1 earnings for the Technology sector as a whole are expected to be up +19.4% from the same period last year on +8.3% higher revenues.

The chart below shows the sector’s Q1 earnings and revenue growth expectations in the context of where growth has been in recent quarters and what is expected in the coming four periods.

Zacks Investment Research

Image Source: Zacks Investment Research


As was the case with the ‘Mag 7’, the Tech sector as a whole dealt with the pulled-forward revenues during 2021 but is expected to remain firmly in growth mode,  as the chart below shows.

Zacks Investment Research

Image Source: Zacks Investment Research


Earnings Season Scorecard and This Week’s Earnings Reports

This week, we enter the heart of the Q1 earnings season, with more than 500 companies reporting results, including 155 S&P 500 members. In addition to the aforementioned mega-cap Tech players, we literally have a representative cross-section of the market on deck to report results this week.

Through Friday, April 19th, we have seen Q1 results from 71 S&P 500 index members. Total Q1 earnings for these 71 index members are up +9.4% from the same period last year on +4.5% higher revenues, with 77.5% beating EPS estimates and 63.4% beating revenue estimates.

The comparison charts below put the Q1 earnings and revenue growth rates in a historical context.

Zacks Investment Research

Image Source: Zacks Investment Research

The comparison charts below put the Q1 EPS and revenue beats percentages in a historical context.

Zacks Investment Research

Image Source: Zacks Investment Research


The Earnings Big Picture

Looking at Q1 as a whole, total S&P 500 earnings are expected to be up +3.8% from the same period last year on +3.9% higher revenues, which would follow the +6.8% earnings growth on +3.9% revenue gains in the preceding period.

The chart below shows current earnings and revenue growth expectations for 2024 Q1 in the context of where growth has been over the preceding four quarters and what is currently expected for the following three quarters.

Zacks Investment Research

Image Source: Zacks Investment Research


Looking at the overall earnings picture on an annual basis, total 2024 S&P 500 earnings are expected to be up +8.8% on +1.7% revenue growth.

Zacks Investment Research

Image Source: Zacks Investment Research


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