US results: what to expect from America’s biggest tech stocks

High-flying Alphabet Inc Class A (NASDAQ:GOOGL) and three trillion-dollar company Microsoft Corp (NASDAQ:MSFT) will put Wall Street's record-breaking run on the line tonight amid a big few days for the all-powerful tech sector. 

By the time Meta Platforms Inc Class A (NASDAQ:META), Apple Inc (NASDAQ:AAPL) and Amazon.com Inc (NASDAQ:AMZN) report on Thursday and NVIDIA Corp (NASDAQ:NVDA) on 21 February, these six companies are expected to have delivered aggregate earnings growth of over 53% for the fourth quarter.

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Excluding these six stocks, FactSet points out the Q4 earnings decline for the remaining 494 companies in the S&P 500 is likely to be about 10.5%.

The only one of the Magnificent Seven not a positive contributor to the performance is Tesla Inc (NASDAQ:TSLA), which has already reported a 40% year-on-year decline in earnings per share.

This week’s updates will test the lofty expectations of Wall Street after recent tech-led highs for the S&P 500 index were fuelled by a focus on AI, soft landing hopes for the US economy and the potential for Federal Reserve interest cuts.

The grouping of seven leading stocks finished 2023 accounting for around 30% of the S&P 500 index compared with 21.2% at the start of the year.

About a quarter of the S&P 500 index has so far reported earnings, with the majority delivering performances high enough to satisfy market expectations. About 40% of the index is reporting during this week, with the release by Microsoft covering the second quarter of its financial year arguably the most important given the size of its weighting.

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The Windows-to-Xbox firm’s update in October beat expectations, with chief executive Satya Nadella telling investors his company was “rapidly infusing” AI across every layer of the tech stack.

Analysts expect revenue of $61.1 billion (£48.3 billion), up 16% year-on-year, and underlying earnings of $30.7 billion (£24.3 billion), up from $25.9 billion a year ago.

Peter Garnry, Saxo’s head of equity strategy, said the market focus will be on Azure cloud computing revenue growth, the outlook and comments on AI-workloads and more colour on the recently completed Activision Blizzard acquisition.

Shares in YouTube and Google parent Alphabet have also risen sharply since October, as the economic outlook improves and the hangover for the online advertising market following the boom period of the pandemic continues to ease.

Along with Nvidia, Amazon.com and Meta Platforms, it is forecast by FactSet to be among the top four contributors of earnings growth in the S&P 500 during the first quarter of 2024.

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The financial data provider sees the quartet reporting year-over-year earnings growth of 79.7%, with the other 496 just about in positive territory through growth of 0.3%.

Looking across this year, UBS Global Wealth Management said today it expects S&P 500 earnings per share growth to accelerate 8% to $240.

It added: “Within the S&P 500, we remain most preferred on consumer staples, energy, and information technology while our least preferred view remains on real estate and utilities.

“Our base case is for a soft landing in the US, and we expect the Federal Reserve to pivot to rate cuts, possibly in May.”