Tesla is set to kick off the Magnificent Seven’s reporting season on 24 January, with the remaining six companies – Microsoft, Alphabet, Apple, Meta, Amazon and Nvidia – reporting over the next month.
These stocks all outperformed the major stock indices in the US and UK in 2023, so investors will be eagerly awaiting their latest set of results to see if that trend is likely to continue in 2024.
Source: AJ Bell
Artificial intelligence (AI) investments, antitrust crackdown, innovation, cloud computing growth and advertising income are among the hot topics for the results. Dan Coatsworth, investment analyst at AJ Bell, takes a look at each of the Magnificent Seven stocks and highlights the things for investors to watch out for.
- TESLA
Fourth-quarter results published on 24 January 2024
“A leading manufacturer of electric vehicles which has a head-start on traditional car makers, Tesla also has a footprint in battery and energy storage technology.”
Key takeaways from the last set of results:
“Both revenue and earnings missed expectations as a result of planned factory shutdowns and price cuts. Tesla has been slashing prices to boost sales volumes amid a more competitive marketplace. Elon Musk warned the high interest rate environment would limit affordability of Tesla vehicles and also flagged that production ramp-up on the new Cybertruck would take at least 18 months.”
What to expect from the next set of results and beyond:
“The consensus analyst forecast for the next set of quarterly results is $0.72 earnings per share and $25.52 billion revenue. It is worth noting that Tesla has missed forecasts for revenue in four out of the past five quarters.
“Tesla has already given insight into its performance via the quarterly vehicle production and delivery data released ahead of the financial results. In the fourth quarter it produced 494,989 vehicles and delivered 484,507 vehicles, the bulk of which were Model 3 or Y. It managed to hit a 1.8 million annual delivery target which effectively gave it breathing space amid market worries that competition was biting at its heels, particularly China’s BYD which surpassed Tesla as the world’s biggest maker of electric vehicles last quarter.
“While Tesla’s Cybertruck is finally in the hands of a select few customers, the journey to launch has been fraught with delays and the vehicle could still be a headache for the company for months or years to come. Expect low production numbers due to the complexity of manufacturing and potential disappointment on converting reservations into actual sales as drivers may not have the patience to wait for what could be years before delivery. These issues suggest Tesla will not be making a profit on the product any time soon.”
- MICROSOFT
Second-quarter results published on 30 January 2024
“Cloud computing has been a big driver for a business which at one time looked to have been left behind by its rivals. Microsoft has been remarkably successful at selling its main products – the Windows operating systems, Microsoft 365 suite of productivity applications and Azure big data analytics – as cloud-hosted subscriptions rather than upfront licences. It has also taken a big step into artificial intelligence through its partnership with Open AI – the developer of ChatGPT.”
Key takeaways from the last set of results:
“Microsoft’s last set of results represented the fifth straight quarter that it beat earnings expectations. It has only missed quarterly market forecasts twice since the start of 2016, so the tech giant has form in smashing it out of the park.
“The most recent results included a rebound in growth from cloud computing platform Azure.”
What to expect from the next set of results and beyond:
“The consensus analyst forecast for the next set of quarterly results is earnings per share at $2.29 and revenue at $52.94 billion. The big issues are whether Microsoft can sustain robust growth in cloud computing and how it can take AI to the next level.
“Seen by most as the dominant AI software play, its apps are already critical to millions of businesses, so wrapping functionality into Windows, Microsoft 365, Azure and more through its Copilot tools offers immense potential.
“The acquisition of Activision Blizzard took a long time to get approval but it is now over the line, so the market will want news of how Microsoft plans to exploit its much bigger gaming footprint.
“It is not all champagne and caviar for Microsoft. Its success has naturally attracted the attention of various regulators and competition authorities and like its mega cap peers, there are growing concerns that the company has become too dominant. Antitrust probes are likely to be a key focus for investors in 2024.
“It also did not take long for the AI backlash to begin. New York Times is suing Microsoft and OpenAI, alleging they took a ‘free ride’ on millions of articles to help build generative AI chatbots. The newspaper is seeking unspecified billions of dollars in damages.”
- ALPHABET
Fourth-quarter results published on 30 January 2024
“Alphabet makes money from multiple sources including its Google search engine and YouTube video sharing platform, both of which generate significant advertising revenue. It also has artificial intelligence and cloud computing arms and more nascent ventures in areas like self-driving cars and quantum computing.”
Key takeaways from the last set of results:
“Resilient advertising revenues helped beat sales expectations but a weaker than expected performance in its cloud computing arm disappointed the market. This was problematic as cloud computing is important for the business over the long term.
“Alphabet is pinning its hopes on AI-related investments which could accelerate its position in the cloud over time.”
What to expect from the next set of results and beyond:
“Alphabet has beaten market expectations for both earnings per share and revenue over the past three consecutive quarterly results. Investors will be hoping it can make it four in a row on 30 January. Analysts forecast earnings per share will be $1.60 versus $1.05 a year earlier and revenue at $85.16 billion versus $76.05 billion last time.
“Cloud computing is the big unknown – one minute Alphabet is thriving in this area, the next it cannot sustain growth momentum. Competition is fierce and this is a difficult one to call ahead of the results.
“YouTube continues to go from strength to strength, with millions of people now treating the platform as a priority place to consume content.
“Historically someone would sit down and flick through TV channels to find a show or film they wanted to watch. Streaming then enabled content on demand, making Netflix and its peers the first port of call for video entertainment. More recently, YouTube has quietly transformed from being a place someone might watch a music video to now having a seat at the top table alongside Netflix.
“Forget high profile reality TV shows and big budget films, YouTube has a treasure chest of home-made content on every topic imaginable and this has become a go-to place to watch when people put up their feet in the evening. Naturally, the more eyeballs, the more scope to serve advertisements and scoop up the revenue from these promotions.
“One word of caution – last October Facebook owner Meta warned of lower advertising demand for its social media networks in the final calendar quarter of 2023, so there is a slight sense of nervousness for Alphabet’s YouTube-related income in its forthcoming results given the negative read-across.
“December 2023’s unveiling of Alphabet’s Gemini AI model will not impact results at the end of this month but will be more important as 2024 progresses. The company will be hoping that Gemini gives it an edge in AI and helps it better compete against the likes of Microsoft.
“On a broader basis, Alphabet continues to fall under the watchful gaze of global regulators concerned about its market power and the impact on competition.”
- APPLE
First-quarter results published on 1 February 2024
“The company behind leading consumer electronics brands like iPhone and iPad also has a burgeoning services division offering financial, entertainment and data management platforms and tools.”
Key takeaways from the last set of results:
“Apple reported its first full year of declining revenues since 2019 despite progress for its services arm and a return to growth for the iPhone. Weakness in China was part of the problem, and demand has been disappointing for Mac computers and iPads.”
What to expect from the next set of results and beyond:
“The quarter reported on 1 February will be one week shorter than the comparative period.
“Consumers have been cautious on big ticket spending in recent months which suggests Apple might not have had a bumper Christmas in terms of hardware sales. Lacklustre demand in China may have continued and there are signs that is still in motion with rare discounting on iPhones in the country during mid-January. Apple is not typically one to cut its prices so any promotions are a red flag.
“It will be hoping the new M3 chip, designed to boost performance and lower power consumption and heat, will have aided Mac sales in the quarter just ended.
“Analysts forecast Apple to report $2.09 earnings per share and $118 billion revenue, the latter only a whisker more than it made in the same period a year earlier.
“The company used to have a reputation for bringing out truly innovative products and shaking up the marketplace. In recent years that reputation has soured as there have only been new iterations of the same products.
“The momentous change could be the Vision Pro headset which goes on sale in February 2024. Strap on the kit and you can turn your room into a giant screen that can work like a laptop for computing or playing games, watching TV and films, and using the device as a 3D camera. While the $3,500 price point looks high, people pay that for high-end laptops and this could feasibly be another ‘must-have’ product for Apple fans.
“The key issue to monitor is whether Apple’s output can meet demand as last year there were reports it had to drastically cut production forecasts for the Vision Pro due to the complexity of its design.”
- META PLATFORMS
Fourth-quarter results published on 1 February 2024
“For all the talk of the metaverse, Meta remains a social media business at heart including ownership of platforms Facebook, Instagram, WhatsApp and Threads. Advertising accounts for a substantial proportion of revenue.”
Key takeaways from the last set of results:
“The third-quarter results smashed forecasts with $4.39 earnings per share against an analyst consensus of $3.64.
“Meta spent 2023 cutting costs, cancelling low priority projects and focusing more on technology to drive customer engagement. It has successfully used AI to drive content suggestions based on user habits, keeping them on its social networks for longer and thus serving more advertising.”
What to expect from the next set of results and beyond:
“Meta sounded a note of caution going into the trading period, flagging softer advertising demand because of unpredictability around the violence in the Middle East. However, certain industries including fashion and luxury goods have found life harder going in recent months, which may encourage them to increase advertising to keep their brand front and centre.
“Analysts forecast $4.96 earnings per share in Meta’s fourth quarter for 2023 versus a $1.76 per share loss in the same period a year earlier. That is quite a jump and so failure to hit expectations could see the share price punished hard. Analysts expect revenue to be $39 billion versus $34.15 billion one quarter earlier.
“The results are likely to include a reiteration that expenses are going to rise in 2024, driven by higher infrastructure-related costs and investment in AI. The hype around the metaverse has died down but it continues to plug away at the concept and any success from Apple’s Vision Pro headset could revive public interest in virtual worlds.
“Meta has a big folder of AI ideas such as language translation and Instagram users reimagining their photos, but these seem unlikely to generate meaningful revenue, so advertising will remain key in terms of income for the near future.”
- AMAZON
Fourth-quarter results published on 1 February 2024 (estimated date)
“While its retail arm is more prominent and longstanding, its Amazon Web Services cloud computing division is the more profitable part of the business. The company also has a strong position in TV, film and music streaming.”
Key takeaways from the last set of results:
“Strong online sales, success with advertising and its cloud computing division signing more deals helped the last set of results to beat market expectations, for the third time in a row.”
What to expect from the next set of results and beyond:
“Amazon has guided for net sales between $160 billion and $167 billion, equating to 7% to 12% growth versus the fourth quarter of 2022. The analyst consensus forecast is $0.78 earnings per share and $165.86 billion revenue.
“The uncertain economic outlook raises the prospect that companies are continuing to find new ways to save money including paring back IT costs which could be problematic for Amazon’s cloud computing division. Potentially offsetting this issue is greater corporate interest in AI which could benefit the group.
“Amazon has been rolling out new versions of AI chips which it said offer enhanced performance and announced plans to invest up to $4 billion in Anthropic, a US company generating AI systems and large language models. AI may be the ‘hot theme’ in tech but keeping up with rivals, let alone overtaking them, can be a costly exercise.
“Amazon is not unique in exploring new ways to use technology, nor backing Anthropic, as Alphabet has also signalled major investment plans into the ChatGPT rival to the tune of $2 billion.
“The retail and tech giant continues to find new ways to encourage people to sign up to its Prime membership scheme. Last November, Amazon offered Prime customers in the US discounted access to online doctors through the One Medical app. It is part of a push by Amazon to be a bigger player in the healthcare market as well as luring more people into its ecosphere, extending on film/TV streaming and rapid delivery services that already sit under the Prime umbrella.
“Hot on the heels of Netflix and Disney introducing adverts before shows and films, Amazon Prime is also doing the same. It might annoy customers but Netflix’s experience so far does not suggest doing so will alienate a large chunk of users to the extent that they cancel their account.”
- NVIDIA
Fourth-quarter results published on 21 February 2024
“Nvidia designs microchips. While everyone now associates Nvidia with chips used in artificial intelligence, the company’s original success stems from the gaming market where it designs advanced graphic processing units.”
Key takeaways from the last set of results:
“Earnings and sales were much better than expected but the market wasn’t impressed by weakness in China, where Nvidia suffered from export control regulations by the US government.”
What to expect from the next set of results and beyond:
“Guidance in November that sales to China and other markets affected by tighter regulations including Vietnam will decline significantly in the fourth quarter certainly cast a cloud over what has been a robust growth story to date.
“True to form, Nvidia does not seem too worried, saying weakness from these areas will be more than offset by robust growth in other regions.
“The analyst consensus forecast for its next quarterly results is $4.49 earnings per share and $20.06 billion revenue.
“Nvidia is going all-in on AI, believing the world is on the cusp of a radical shift in technology usage. Companies in every industry are exploring ways to deploy AI to improve productivity and that creates a huge runway for Nvidia to grow its earnings.
“Its key challenge is to keep up with demand and to keep innovating, rolling out new products that can help companies while also ensuring it remains at the forefront of the AI industry. Nvidia is the dominant force in market and there is no room for complacency, otherwise competition will be biting at its heels.”