The Magnificent Seven accounted for about two-thirds of the S&P 500’s (^GSPC) gains last year, but can they repeat these extraordinary returns in 2024?
This group of mega-cap tech giants – Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) – are benefiting from technology growth trends such as artificial intelligence (AI) and cloud computing.
In 2023, Magnificent Seven shares rose between 48% and 239%, accounting for about 60% of last year’s 24% total return for the S&P 500.
Here’s what to expect when Tesla starts megacap reporting season on January 24.
Tesla (TSLA) – reporting January 24
Shares in Elon Musk’s EV maker have doubled in value in 2023, up 102%, with the company expected to report revenues of $25.5 billion (£20.1 billion).
Tesla has reported 485,000 deliveries for the fourth quarter of 2023, up about 20% from last year.
“Tesla has already provided insight into its performance through quarterly vehicle production and delivery data released ahead of financial results. In the fourth quarter, the company produced 494,989 vehicles and delivered 484,507 vehicles, the majority of which were Model 3 or Y,” said Dan Coatsworth, investment analyst at AJ Bell.
“It managed to hit an annual delivery target of 1.8 million, giving the company breathing room amid market concerns that competition was nipping at its heels, particularly China’s BYD, which overtook Tesla last quarter as ‘ the world’s largest manufacturer of electric vehicles,” he added.
There are concerns about a stagnation in car sales without the launch of new models and a delayed start-up of Cybertruck.
Analysts are forecasting earnings per share of $0.72 for the next set of quarterly results.
Microsoft (MSFT) – reporting on 30 January
Microsoft managed to steal the title of world’s most valuable company from Apple in 2024, with the software giant’s bet on AI paying off.
CEO Satya Nadella has urged Microsoft to take a global leadership role in AI. The company has a significant stake in leading AI startup ChatGPT maker OpenAI and has reportedly invested up to $13 billion in the startup.
This alliance is considered one of the most lucrative partnerships in the technology industry.
On Wednesday, Microsoft’s market cap was $2.895 trillion, a new record for the company, and above Apple’s market cap of $2.825 trillion.
The last time the software giant earned the title of most valuable company in the world was in 2021.
The consensus analyst forecast for the next set of quarterly results is for earnings per share of $2.29 and revenue of $52.94 billion.
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“The big issues are whether Microsoft can sustain robust growth in cloud computing and how it can take AI to the next level,” Coatsworth said.
“Viewed by most as the dominant AI software, the apps are already critical to millions of businesses, so packaging functionality into Windows, Microsoft 365, Azure and more through the Copilot tools offers enormous potential.
“It’s not all champagne and caviar for Microsoft. Its success has naturally attracted the attention of several regulators and competition authorities and, like its fellow megacaps, there are growing concerns that the company has become too dominant. Antitrust investigations are likely to be a key focus for investors in 2024.”
Alphabet (GOOG,GOOGL) – reporting on 30 January
The search engine giant appears to be playing catch-up in the AI race, announcing hundreds of job cuts in an effort to reduce costs. But the stock is still a buy for most analysts given its strong free cash flow.
Most analysts expect Alphabet to report a 12% increase in fourth-quarter revenue to $85.26 billion, which should translate into a 51% increase in earnings per share to $1.60, up from $1.05 in the same period a year ago.
“Alphabet has exceeded market expectations for both earnings per share and revenue for the past three consecutive quarterly results. Investors are hoping that it can be four in a row by January 30,” said Coatsworth.
“Cloud computing is the great unknown: one moment Alphabet is flourishing in this area, the next it cannot maintain its growth momentum. The competition is fierce and this is difficult to predict before the results are announced.
“YouTube continues to go from strength to strength, with millions of people now considering the platform as a priority for consuming content.
Apple (AAPL) – reporting on January 30
Apple has overtaken Samsung (005930.KS) as the world’s largest phone maker, but that may not be enough to convince investors amid declining iPhone sales in China.
Apple added $1 trillion in market capitalization in 2023, even as the company reported four consecutive quarters of revenue declines from the previous year.
Analysts predict Apple will report earnings per share of $2.09 and revenue of $118 billion, amid weakness in China and declining global demand for Mac computers and iPads.
“The company used to have a reputation for bringing really innovative products to market and shaking up the market. In recent years that reputation has deteriorated as new versions of the same products have only been released,” says Coatsworth.
“The momentous change could be the Vision Pro headset that goes on sale in February 2024. While the $3,500 price seems high, that’s what people pay for high-end laptops and this could potentially be another ‘must-have’ product for Apple fans.
“The key issue to watch is whether Apple’s production can meet demand, as there were reports last year that it had to drastically reduce production forecasts for the Vision Pro due to the complexity of the design.”
Meta Platforms (META) – reporting on February 1
The year of efficiency, in which the company turned away from the opposite trend, allowed Meta to achieve a remarkable return of 194% in 2023.
But what can investors expect when Mark Zuckerberg, the CEO of Facebook owner, sold nearly half a billion dollars worth of the company’s stock late last year. It was the first time he sold shares in almost two years.
Analysts forecast earnings per share of $4.96 in Meta’s fourth quarter for 2023, compared to a loss of $1.76 per share in the same period a year earlier. Revenue is estimated at $39 billion, compared to $34.15 billion a quarter earlier.
“The results are likely to include a repeat that costs will rise in 2024, driven by higher infrastructure-related costs and investments in AI. The hype around the metaverse has died down, but it continues to connect with the concept and any success from Apple’s Vision Pro headset could revive public interest in virtual worlds,” said Coatsworth.
Read more: The ChatGPT portfolio outperforms the top 10 most popular funds in the UK
“Meta has a large folder of AI ideas, such as language translations and Instagram users reshaping their photos, but these seem unlikely to generate meaningful revenue, so advertising will continue to play a key role in terms of revenue for the foreseeable future” , he added.
Amazon (AMZN) – reporting on February 21
Amazon saw its stock price rise 81% in 2023 and is betting that generative AI will generate tens of billions in revenue for Amazon Web Services in the coming years.
Amazon wants to be a dominant player in the market, even if Amazon is slow to invest in this technology.
The company also has a strong position in TV, movie and music streaming and while the shares aren’t cheap, shares are the cheapest in more than a decade.
Amazon has forecast net sales of between $160 billion and $167 billion, representing 7% to 12% growth from the fourth quarter of 2022. Analysts’ consensus forecast is for earnings per share of $0.78 and a revenue of $165.86 billion.
“The uncertain economic outlook raises the prospect that companies will continue to find new ways to save money, including cutting IT costs, which could be problematic for Amazon’s cloud computing division. This issue could potentially be offset by increased corporate interest in AI, which could benefit the group,” Coatsworth said.
“Amazon has introduced new versions of AI chips that it says offer better performance and announced plans to invest up to $4 billion in Anthropic, a US company that generates AI systems and large language models. AI may be the hot topic in the tech sector, but keeping up with rivals, let alone overtaking them, can be a costly exercise,” he added.
Nvidia (NVDA) – reporting on February 21
The AI explosion of these tech megacaps wouldn’t be possible without Nvidia’s chips, with the chipmaker seeing its shares soar 239% last year.
With demand far outpacing supply for its graphics processing units, investors will want to know whether Nvidia can continue to drive the AI-related rally the market has seen over the past year.
Analysts’ consensus forecast for next quarter results is for $4.49 earnings per share and $20.06 billion in revenue.
Read more: How the rise of AI will benefit these nine chipmakers in 2024
“Nvidia is going all-in on AI, believing that the world is on the cusp of a radical shift in technology use. Companies in every industry are exploring ways to use AI to improve productivity and that creates a huge runway for Nvidia to grow its revenues,” said Coatsworth.
“The key challenge is to keep up with demand and continue to innovate, rolling out new products that can help businesses while ensuring the company remains at the forefront of the AI industry. Nvidia is the dominant force in the market and there is no room for complacency, otherwise the competition will bite at its heels,” he added.
Watch: Why Tech Will Still Be ‘One of the Leaders’ in 2024
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