Two Magnificent Seven Earnings Are In… Who Wins the Gold? Dear Reader, Yesterday marked the beginning of the 2024 Olympic Games in Paris, France. This is when the best athletes from all over the world compete in their respective sports to win the bronze, silver or the coveted gold medal. The weight of the world is on their shoulders with millions of people watching, hoping to exceed expectations of their performance and make their country proud. Some sports like gymnastics are judged by the tiniest little detail and are scored based on difficulty and execution. A gymnast can have a great floor routine, but if they don’t stick the landing, their scores will suffer. Or in swimming, taking home the silver or gold can be determined by a millisecond. For example, in the 2008 Beijing Olympics, Michael Phelps won the 100-meter butterfly final swimming race by just .01 seconds. He originally started the race in seventh place and the heavy favorite, Milorad Cavic of Serbia, was in the lead for most of the race. But in the final seconds of the race, Phelps was able to push through and win the gold. Wall Street has its own Olympics of sorts: earnings season. Companies step in front of the analysts’ judging panel and hope that their quarterly numbers meet, or better yet exceed analysts’ expectations and prove that their fundamentals are sound and there is room for further growth. Analysts can either punish or reward companies over the smallest details. This week, we had two of the Magnificent Seven stand in front of the judging panel: Alphabet Inc. (GOOGL) and Tesla, Inc. (TSLA). Both companies reported their earnings results after Tuesday’s close. So, in today’s Market 360, we’ll review their quarterly numbers and see which company won the gold (if either). Four more of the Magnificent Seven will release their earnings reports next week, so I’ll preview their results today, too. And then, I’ll share another area of the market we should watch while the earnings Olympics continue. Alphabet Inc. (GOOGL) Alphabet released better-than-expected results for its fiscal second quarter. The company reported earnings of $1.89 per share on $84.7 billion in revenue, up from earnings of $1.44 per share and revenue of $76.6 billion a year ago. That represents 31.3% year-over-year earnings growth and 14% year-over-year revenue growth. Analysts were expecting earnings of $1.85 per share and $84.3 billion in revenue, so Alphabet topped earnings estimates by 2% and revenues by 0.5%. Cloud revenue jumped nearly 29% year-over-year to $10.35 billion, up from $8.03 billion last year. Advertising revenue rose 11.2% year-over-year to $64.6 billion, beating analysts’ expectations of $64.5 billion. Although YouTube ad revenue increased about 13% to $8.66 billion, this was short of analysts’ expectations for $8.95 billion. Now, the good news for Alphabet is that demand for artificial intelligence is still strong. CEO Sundar Pichai notes during the earnings call: Year to date, our AI Infrastructure and Generative AI Solutions for Cloud customers have already generated billions in revenues, and are being used by more than 2 million developers. Despite the strong results, GOOGL dropped 5% on Wednesday. The reality is analysts were expecting a bigger earnings beat, so the stock pulled back on profit-taking. Tesla, Inc. (TSLA) Tesla reported mixed results and missed earnings expectations for the fourth quarter in a row. Second-quarter earnings fell 42.9% year-over-year to $0.52 per share, down from earnings of $0.91 per share a year ago. Analysts were expecting earnings of $0.62 per share. Revenue increased 2% year-over-year to $25.5 billion, topping revenue estimates of $24.77 billion. Auto revenue dropped 7% year-over-year to $19.9 billion, down from $21.27 billion in the same quarter a year ago. Company management noted that its vehicle volume growth rate “may be notably lower than the growth rate” from last year. Tesla CEO Elon Musk also announced that he is pushing back the company’s robotaxi event from August 8 to October 10. Tesla did put a lot of effort into its AI software and hardware in the second quarter. It noted in the quarterly press release: In Q2, we focused on reducing interventions with FSD (Supervised)1, while improving driving comfort. Notably, we rolled out a version of FSD (Supervised) that primarily relies on eye tracking software to monitor driver attentiveness. We also increased the robustness of our nextgen FSD (Supervised) model with substantially more parameters. Looking ahead to future autonomous driving and robotaxi service, we continued progress on software and hardware development. Optimus is performing its first task handling batteries in one of our facilities. The south extension of Gigafactory Texas is nearing completion and will house our largest cluster of H100s yet. However, Tesla was adversely impacted by its AI initiatives, citing that an “increase in operating expenses [was] largely driven by AI projects.” Shares of Tesla dropped more than 12% on Wednesday. The Gold Medal Winner Is… Personally, I don’t think either Alphabet or Tesla deserves the gold for their second-quarter earnings reports. While both companies exceeded expectations in some areas, there were clearly some finer details that Wall Street was not happy with. So, one of the other Magnificent Seven companies could still take home the gold. Next week, we’re going to receive results from four more Magnificent Seven companies. Microsoft Corporation (MSFT) is up first Tuesday afternoon, Meta Platforms, Inc. (META) reports on Wednesday, while Apple, Inc. (AAPL) and Amazon.com, Inc. (AMZN) release their results on Thursday. NVIDIA Corporation (NVDA), which announces its quarterly results on August 28, will serve as the grand finale of earnings season. Here’s a quick preview of what analysts are expecting… - Microsoft: $2.93 earnings per share on $64.36 billion in revenue
- Meta: $4.72 earnings per share on $38.3 billion in revenue
- Apple: $1.34 earnings per share on $84.36 billion in revenue
- Amazon: $1.02 earnings per share on $148.53 billion in revenue
- NVIDIA: $0.63 earnings per share on $28.46 billion in revenue
While the earnings Olympics continues, there’s another area of the market we should also keep an eye on: the AI Revolution. The first phase of the AI Revolution has been going on for some time now, but we’re now entering the second phase – and it’s all due to quantum computing. In Phase 2, the tech companies that have led the charge over the past 20-plus years will be upended by smaller, innovative companies that are developing and leveraging quantum computing. Nearly every stock will be impacted by this new AI development. So, to help investors prepare for Phase 2, I sat down with my InvestorPlace colleagues Eric Fry and Luke Lango yesterday morning for an urgent roundtable discussion. During this briefing, we reveal the steps you need to take if you want to save yourself from the impact that quantum computing will have on your AI investments. Click here to check out a replay of our AI briefing now. Sincerely, | .png)
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