A Review of This Week’s Big Tech Earnings Dear Reader, Earnings results have continued to roll out this week, but there were four companies’ reports that both Wall Street and I had our eyes on: Alphabet Inc. (GOOGL), Meta Platforms, Inc. (META), Microsoft Corporation (MSFT) and Tesla, Inc. (TSLA).
These companies are four of the “Magnificent Seven.” (Apple Inc. (AAPL), Amazon.com, Inc. (AMZN) and NVIDIA Corporation (NVDA) are the other three.)
Now, the phrase “Magnificent Seven” has been used to describe these big tech stocks for about a year. Last year, in 2023, Bank of America analyst Michael Hartnett coined the phrase to describe the group, pulling from the 1962 Western movie of the same name.
These stocks have been the powerhouses that have typically driven the S&P 500 during earnings season. In fact, they currently account for 29.7% of the S&P 500 and nearly half of the NASDAQ 100, so naturally these stocks can impact the broader market’s performance.
This earnings season, according to Investor’s Business Daily , “analysts expect five of the seven companies in the Magnificent Seven will be the top five contributors to year-over-year earnings growth for the entire S&P 500 in the first quarter.”
So, in today’s Market 360, let’s dig into the tech companies’ quarterly earnings and review the market’s reaction to the news. Then, I’ll share the details on a new tech sector popping up that could soon disrupt the market even more than AI.
Let’s dive in… Breaking Down the Numbers Tesla, Inc. (TSLA) – Tuesday, April 23
For the first quarter, Telsa reported abysmal sales, earnings and operating margins.
The company reported earnings per share of $0.45, missing analysts’ expectations of earnings per share of $0.50 by 10%. This is down from earnings per share of $0.85 in the same quarter last year. Revenue fell 8.6% year-over-year to $21.30 billion, down from revenue of $23.32 billion a year ago. This also missed analysts’ estimates for $22.26 billion.
Likewise, profit fell 55% to $1.1 billion, down from $2.5 billion in the same quarter a year ago. Ahead of this news, the company announced plans to lay off more than 10% of its employees worldwide. Not only that, CEO Elon Musk noted, “Global electric vehicle (EV) sales continue to be under pressure as many carmakers prioritize hybrids over EVs.”
Another miss for the company was its global deliveries. Tesla reported 386,810 global deliveries in the first quarter, well below estimates for 449,080. Additionally, the company produced 433,371 vehicles which was also below estimates for 452,976. The company noted that this decline in volume was partially due to the early phase of the production ramp of the updated Model 3, as well as factory shutdowns resulting from shipping diversions.
Now, the bright spot came from the company’s announcement to accelerate the launch of more affordable vehicles. This countered reports from earlier this month that the company was going to scrap these plans. Tesla noted, “We have updated our future vehicle line-up to accelerate the launch of new models ahead of our previously communicated start of production in the second half of 2025.”
Despite the earnings “miss,” TSLA shares opened nearly 10% higher on Wednesday thanks to this accelerated launch news. Meta Platforms, Inc. (META) – Wednesday, Apil 24
For the first quarter, Meta Platforms reported earnings per share of $4.71, which was above analysts' expectations of earnings of $4.36 per share. This was also 114% higher than earnings per share of $2.20 in the same quarter of last year. Additionally, revenue increased 27% year-over-year to $36.46 billion, topping analysts’ expectations of $36.22 billion.
But the dark clouds rolled in when Meta shared its outlook for the second quarter. The company noted it expects second-quarter revenue between $36.5 billion and $39 billion, falling just short of midpoint estimates of $38.24 billion. Also, the Facebook parent announced plans to increase its capital expenditures in order to fund its AI efforts. The company forecasts capex spending of $35 billion to $40 billion this year, up from its previous plans of $30 billion to $37 billion.
Wall Street clearly didn’t like this disappointing second-quarter forecast, and shares of META fell 11.8% on Wednesday. Alphabet Inc. (GOOGL) – Thursday, April 25
Google-parent Alphabet reported first-quarter earnings per share of $1.89, an increase of 61.5% compared to earnings of $1.17 per share a year ago. This also beat analysts’ earnings expectations for $1.50 per share by 26%. Revenue climbed 15.4% year-over-year to $80.54 billion, up from revenue of $69.7 billion in the same quarter a year ago. Analysts had called for revenue of $78.70 billion.
One important number to note in this report is Google Cloud sales, which increased 28.4% year over year to $9.57 billion. Likewise, YouTube advertising revenue increased 20.8% year over year to $8.09 billion.
Now, it is important to note that Alphabet did have a big announcement in its earnings release. The board approved the company’s first-ever cash dividend of $0.20 to be paid on June 17, 2024, to stockholders of record as of June 10, 2024. The company proceeded to note that it “intends to pay quarterly cash dividends in the future.”
Following this news and the company’s earnings beat, shares of GOOGL jumped 14% this morning. Microsoft Corporation (MSFT) – Thursday, April 25
Shares of Microsoft Corporation (MSFT) popped in after-hours trading on Thursday following the company’s better-than-expected quarterly report. The fact is the company’s cloud business drove results in the most recent quarter, with cloud revenue up 23% year-over-year to $35.1 billion.
For the third quarter in fiscal year 2024, Microsoft achieved total revenue of $61.9 billion and earnings of $21.9 billion, or $2.94 per share. That represented 17% year-over-year revenue growth and 20% year-over-year earnings growth. The analyst community expected third-quarter earnings of $2.82 per share and revenue of $60.8 billion, so Microsoft posted a slight earnings and revenue beat.
I should note one interesting thing about Microsoft’s earnings, which is that they seem to be gaining momentum in monetizing their AI software efforts. The company began reporting AI services revenue from its Azure and cloud services in the fourth quarter of fiscal 2023. Back then, it contributed to 1% of growth in the division’s revenue. In the first quarter of fiscal 2024, it contributed 3%; the second quarter saw 6% growth.
And in the most recent report, AI services contributed 7% of growth in the division.
Here’s what Satya Nadella, chairman and CEO of Microsoft, had to say: Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry… We offer the most diverse selection of AI accelerators, including the latest from NVIDIA, AMD, as well as our own first-party silicon.
Our AI innovation continues to build on our strategic partnership with OpenAI. More than 65% of the Fortune 500 now use Azure OpenAI Services. Looking forward, Microsoft called for $64 billion in revenue for the fiscal fourth quarter. This falls just below the $64.5 billion expected by analysts. Shares of MSFT were up about 3% in morning trading on Friday. The Real Tech Rally to Watch Now, as we discussed, the Magnificent Seven have an outsized influence on the swings of the market, as well as the overall news cycle. And one of the reasons for this is because of their trailblazing efforts in artificial intelligence...
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(Already a Growth Investor subscriber? Click here to log into the members-only website now.) Sincerely, |
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