The Magnificent Seven – Apple, Microsoft, Google parent Alphabet, Amazon, Nvidia, Tesla and Facebook owner Meta Platforms – generated nearly two-thirds of the S&P 500’s returns in 2023 and account for more than 25 per cent of the index.
As a key driver of U.S. market returns, investors who stay on top of the group’s recent developments may glean insights into consumer demand, investor sentiment, as well as burgeoning trends such as artificial intelligence (AI), allowing them to capitalize ahead of the herd.
Today’s losers
Alphabet stock (NASDAQ:GOOG) is down by 2.71 per cent, trading at US$156.74 per share as of 11:22 am ET Thursday, and has added 13 per cent year to date. Investors are concerned about the tech giant’s ability to compete with Microsoft and OpenAI on the AI front, update its legacy search infrastructure with AI tools to avoid competitive disruptions, and ultimately meet analyst growth estimates. Alphabet will release Q1 2024 results after today’s market close. Analysts are expecting revenue of US$66.07 billion (US$58.07 billion in Q1 2023), adjusted earnings per share of US$1.53 (US$1.17 in Q1 2023), cloud revenue of US$9.37 billion (US$7.45 billion in Q1 2023) and ad revenue of US$60.18 billion (US$54.55 billion in Q1 2023).
Microsoft stock (NASDAQ:MSFT) is down by 4.10 per cent, trading at US$392.28 per share as of 11:37 am ET, and has added 5.76 per cent year to date. Similar to Alphabet, investors are anticipating potential underperformance against analysts expectations, with Microsoft having already released a slew of AI tools and services since launching its AI chatbot in February 2023. The company will report fiscal Q3 results at market close. Analysts are expecting earnings per share of US$2.83 on revenue of US$60.88 billion, up from US$2.45 and US$52.86 billion year-over-year, respectively, in addition to overall commercial cloud revenue of US$33.93 billion, a 19 per cent year-over-year increase.
Amazon stock (NASDAQ:AMZN) is down by 2.75 per cent, trading at US$171.73 per share as of 11:54 am ET, and has added 14.54 per cent year to date. The dip in the stock can be attributed to a generalized downturn in mega-cap U.S. tech stocks, which are increasingly seen as overconcentrated in major stock indices such as the Nasdaq and the S&P 500, though some institutions, such as JP Morgan, view the Magnificent Seven as undervalued. Earlier this week, Amazon announced new features for its tens of thousands of generative AI customers, pressuring Alphabet and Microsoft to keep up their innovative output.
Meta Platforms (NASDAQ:META) is down by 12.26 per cent, trading at US$433 per share as of 12:12 pm ET, and has added 24.04 per cent year to date. Investors pushed the stock down after it forecasted lower sales and higher expenditures for 2024 and 2025 earlier this morning. Meta now expects to spend US$35 billion-US$40 billion in 2024, up from US$30 billion-US$37 billion, with the figure set to move even higher in 2025, at it advances its LLama AI, which has held its own against OpenAI’s ChatGPT and Google’s Gemini. The drop in the stock occurred despite the social media company beating analysts’ Q1 expectations of revenue of US$36.14 billion (US$36.4 billion actual) and EPS of US$4.32 (US$4.71 actual), which are up by 27 per cent and 114 per cent year-over-year, respectively.
Today’s winners
Tesla stock (NASDAQ:TSLA) is up by 1.34 per cent, trading at US$164.30 per share as of 12:37 pm ET, and has lost 33.86 per cent year to date. The stock rebounded on news of cheaper models ahead of schedule in 2025, which would allow Tesla to compete with value leaders such as China’s BYD. The rebound follows a double-digit fall after a widespread miss of analyst expectations for Q1 2024. Gross margin for Q1 2024 came in at 16.4 per cent, shy of the 17.6 per cent Wall Street expected, while adjusted EPS came to US$0.45, well below Wall Street’s estimate of US$0.52. Revenue also failed to impress, falling by 9 per cent to US$21.3 billion, compared with analysts’ US$22.3 billion consensus figure, in line with an ongoing slump in EV demand.
Apple stock (NASDAQ:AAPL) is up by 0.27 per cent, trading at US$169.48 per share as of 12:55 pm ET, and has lost about 9 per cent year to date. The smartphone pioneer’s underperformance in 2024 is tied to its minimal exposure to AI, compared with all other Magnificent Seven members, as well as its weakening position in China, the world’s largest smartphone market. Apple will release earnings results for Q2 2024 on May 2, with Wall Street expecting US$1.51 in EPS and US$90.83 billion in revenue, a dip from Q1, when the holiday bump was still in effect.
NVIDIA stock (NASDAQ:NVDA) is up by 3.56 per cent, trading at US$825.12 per share as of 1:13 pm ET, and has added 71.30 per cent year to date. The accelerated computing company is riding high after releasing a new chip that brings AI to organizations at up to 25 times lower cost than its predecessor, with Morgan Stanley seeing the stock reaching the US$1,000 mark over the next year. NVIDIA, for its part, expects to almost double revenue from US$60.9 billion in fiscal 2024 (ending in January) to US$112 billion in fiscal 2025, while almost doubling operating profit from US$37.1 billion in fiscal 2024 to US$72.8 billion in fiscal 2025.
How are you allocated in terms of these mega-cap tech stocks? Should investors be worried about their outsized presence in the U.S. market?
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