Big Tech Earnings Loom: Market Hangs on $11 Trillion Verdict

Investors Brace for Pivotal Tech Results Amidst Record Highs

The financial markets are on tenterhooks as the next 48 hours promise a critical earnings onslaught from tech titans. Four giants—Microsoft, Meta, Apple, and Amazon—collectively valued at $11.3 trillion, are set to unveil their results, potentially charting the course for the broader S&P 500’s trajectory.

Magnificent Seven Under Scrutiny

These behemoths, alongside Nvidia, Alphabet, and Tesla, known as the “Magnificent Seven,” now represent a significant 20% of the S&P 500’s total market capitalization. With the index flirting with all-time highs, investor expectations are soaring, demanding not just solid numbers but a compelling narrative of sustained growth.

So far, corporate performance has been robust. Approximately one-third of S&P 500 companies have reported, with a striking 82% exceeding profit estimates, according to Bloomberg Intelligence. However, these successes follow earlier forecast reductions, particularly within the tech sector, influenced by trade policy shifts.

“They’re likely going to have to say that the rest of the year or the next quarter looks positive. Investors may be forgiving on Q2—but they’ll want optimistic guidance to stay bullish.”

—Anthony Saglimbene, Ameriprise

AI Investment Drives Divergent Fortunes

Beneath the surface of market gains, a clear divergence is emerging. Microsoft, Meta, and Nvidia have spearheaded the index’s advance this year, largely fueled by substantial artificial intelligence investments. Conversely, companies like Apple and Tesla have faced greater challenges in maintaining momentum.

Last week’s positive report from Alphabet offered a blueprint for what investors seek: accelerated growth and demonstrable AI progress. Yet, Tesla’s subdued electric vehicle outlook served as a stark reminder of market sentiment’s volatility. Capital expenditure remains a critical focus, with Microsoft, Alphabet, Meta, and Amazon projecting a combined $317 billion for AI infrastructure this year, escalating to $350 billion by 2026.

As of August 2024, Alphabet’s market capitalization surpassed $2.1 trillion, underscoring the scale of these tech giants. This growth underscores the need for tangible returns on these massive investments.

“At these levels, especially for large-cap tech, we need to see monetization rather than a promise of monetization.”

—Gabriela Santos, JPMorgan