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Tech slump puts ‘Magnificent 7’ earnings under scrutiny

Big Tech earnings arrive next week, right in time for investors looking for an artificial intelligence-powered rebound in the slumping S&P 500 Index, which just suffered through its worst week in over a year.

Microsoft, Meta Platforms, Google parent Alphabet and Tesla, all of which are among the so-called ‘Magnificent Seven’ group of tech giants, will report next week. Technology stocks are selling off, with the Nasdaq 100 Index registering its biggest weekly drop since November 2022 in the midst of a four-week losing streak, its longest since December 2022. Even AI darling Nvidia Corp is getting hit, plunging 10% on Friday and wiping out $212 billion in market value for its worst day since the Covid pandemic in March 2020.

But hope is on the horizon. Profits for the Mag Seven – which also includes Apple, and Nvidia – are forecast to rise 38% in the first quarter from a year ago, dwarfing the overall S&P 500’s 2.4% anticipated year-over-year earnings growth, according to Bloomberg Intelligence data.

Around 178 S&P 500 companies – representing more than 40% of the index’s market capitalisation – will post results next week. But the biggest expectations are for megacap tech firms. The problem is, when excluding Nvidia, the leading chipmaker for AI technology, expected net income growth for the group falls to 23%, and the AI plans get squishier. Nvidia, which Goldman Sachs Group’s trading desk dubbed “the most important stock on planet Earth,” doesn’t report its earnings for another month.

“Nvidia is the company that is actually putting up and surpassing estimates, but for tech as a whole, especially if there’s an AI theme, investors have become a bit more discerning when it comes to profits,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial. “Investors want to see that companies are actually starting to see growth from AI, or at least that they have a credible plan to grow through AI.”

Seeping Skepticism
That skepticism is seeping into the prices of the world’s largest tech stocks. While they’ve been responsible for the bulk of this year’s equity market gains, they’ve shed more than $930 billion in value since the Nasdaq 100 peaked last month, as traders raise bets that interest rates will stay higher for longer.

Investors will read the first tea leaves on Tuesday, when Tesla delivers results after the market closes. Meta will report on Wednesday, followed by Microsoft and Alphabet on Thursday. Bloomberg

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