The so-called Magnificent Seven technology companies, which have been driving the US stock market rally this year, are now posting disappointing earnings, leading to a combined loss of $200 billion in market value and raising concerns about a potential S&P 500 correction. Google owner Alphabet Inc., Tesla Inc., and Facebook parent Meta Platforms Inc. have all witnessed significant declines since reporting their earnings, with only Microsoft Corp. managing to defy the trend.
Amazon.com Inc. is set to release its results after the market closes on Thursday, and the options market suggests a one-day stock price move of 8.1% in either direction, putting approximately $100 billion in market value in play. Meanwhile, Apple Inc. and Nvidia Corp. are due to report their earnings next month.
These seven tech giants have been the stars of the stock market this year, as heightened interest in artificial intelligence fueled their impressive gains. However, the optimism surrounding them has been waning due to the impact of rising interest rates and the ongoing conflict in the Middle East. The S&P 500 has fallen 8.8% from its 2023 peak, bringing it within striking distance of the 10% decline threshold that defines a correction in a bull market.
Nevertheless, there’s still some euphoria left in the market. The tech-heavy Nasdaq 100 Index, which is heavily influenced by the Magnificent Seven, remains up 31% for the year, indicating that there’s still plenty of room for potential market declines.
Meta Platforms Inc., the parent company of Facebook, is expected to significantly weigh on the market when trading opens on Thursday. In premarket trading, the social media giant’s stock fell by 2.4% after it disappointed investors by acknowledging its vulnerability to an uncertain economic environment, dampening hopes for a long-term advertising recovery.
The disappointment in Meta’s results followed Alphabet Inc.’s substantial loss of nearly $180 billion in market value on Wednesday. This loss was primarily driven by Alphabet’s cloud unit reporting a profit that fell short of expectations. This drop in market value marked the largest single-session wipeout for the tech giant in recent memory. Tesla Inc. also experienced a brutal day earlier this month, with its market value shrinking by $72 billion after reporting its earnings.
Currently, the only glimmer of hope among the tech giants is Microsoft. The software giant managed to rally, adding approximately $75 billion in market value on Wednesday, after reporting first-quarter results that surpassed expectations.
Both Alphabet and Microsoft, while trailing Amazon in cloud infrastructure, have been in a race to enhance their AI offerings to make their platforms more appealing to customers. The diverging results of these two companies set a high bar for cloud computing leader Amazon as it prepares to release its earnings on Thursday.
In summary, the so-called Magnificent Seven technology companies that have fueled this year’s US stock rally are experiencing a downturn in their earnings, resulting in a combined loss of $200 billion in market value, raising concerns about a potential correction in the S&P 500, which has already seen an 8.8% decline from its 2023 peak. While there is still some optimism left in the market, the disappointment in earnings from companies like Meta Platforms and Alphabet has added uncertainty to the outlook for tech giants. Microsoft remains the outlier, with its better-than-expected results providing a glimmer of hope in the midst of the tech giants’ struggles.
Source: Bloomberg
