Four tech giants to report earnings: MSFT, META, AMZN and AAPL

Four of the infamous Mag 7 companies will report earnings this week, two after the market closes today (META and MSFT), and two after the market closes tomorrow (AMZN and AAPL). These earnings follow the release of earnings last week from GOOG (beat) and TSLA (miss).  The timing of this week’s Mag 7 earnings releases, and the top and bottom-line analysts’ consensus expectations for each of these tech giants, is in the table below. 

The fact is that aside from META, analysts’ consensus expectations have been scaled back considerably, such that all four of the Mag 7 companies that are reporting this week should at least meet revenue and earnings expectations.  Having said this, the combination of dialled-back growth and what is likely to be caution with respect to forward guidance hardly justifies the sharp recovery in valuations of the companies over the last week or so.  No matter what your preferred valuation metric might be, all of the Mag 7 stocks with the possible exception of GOOG are valued well in excess of the broader market averages.  Of course, some premium is deserved, but investors have to ask, “how much is too much?”  As you are looking at the valuation metrics in the table below, keep in mind that the average ratios of the S&P 500 are as follows:  P/E ratio of 27.3x, price-to-sales of 2.81x, forward P/E ratio of 20.5x, a PEG of 3.82x, and a dividend yield of 1.35%.   The P/E ratio (TFQ), the forward P/E ratio, and the price-to-sales ratio are presented as of yesterday’s close, at the end of the first quarter and at the end of last year, to enable you to see valuation trends.

 All four companies reporting earnings this week face risks, with MSFT arguably the least affected (albeit the shares are expensive) although no company is entirely immune.

• META faces risks from declining advertising spend as the global economy slows (same issue as GOOG), and there is the “background risk” of social media blowback and anti-trust issues in the US and Europe.

• AMZN faces the risk of declining sales in the U.S. of many of its products that are imported from China due to higher prices caused by tariffs.  A 2024 Jungle Scout survey estimates that 71% of Amazon’s retail products sold in the US are imported from China.

• AAPL faces risks from tit-for-tat tariffs that will negatively affect demand for its products in the world’s second largest economy, China, not to mention the tariff effects on supply chains since many of the company’s products source parts from China or pass through China in their assembly.

Aside from TSLA, AAPL has also had the least impressive sales and earnings growth compared to its peers, and the stock looks over-valued to me based on rather anaemic growth even before effects of the trade war kick in. 

When combining valuation and operating trends, the reality is that none of the Mag 7 stocks look as ridiculously valued as TSLA.  TSLA behaves like a meme stock, with its valuation completely untethered from its operating metrics.  The current price of TSLA shares do not reflect at all the various headwinds the company is facing, ranging from tariffs (supply chains), slowing interest in “green” as EV sales moderate, and growing competition.  However, it is hard to conclude that any of the Mag 7 stocks are cheap aside from perhaps GOOG and to a lesser extent META.

This round of earnings will be a key market sentiment driver.  Investors will be focused on the recent quarterly results, and even more on each company’s respective outlook in light of ongoing uncertainty related to the Trump Administration’s trade war.   If I were to place a bet, it would be that the results will neither be good enough to support current price levels nor the generally rather buoyant sentiment in the stock market overall at the moment.  Having said this, knowing that GOOG’s stock price flat-lined after amazing earnings and TSLA’s stock price took off like a rocket after very poor earnings makes a directional bet difficult given the high uncertainty in the market.  I stick by my assertion that the risk is asymmetrical to the downside at these pricing levels. 

Even so, Mag 7 stock prices are well off their late 2024 highs, enticing some investors to “buy the dip” in spite of the global economic slowdown and potentially one-off increase in inflation that Mr Trump’s trade war is provoking. 

As an investor, the earnings from the four tech giants will be a key driver of overall market sentiment as we close this month and begin a new one.