This is the week that many investors, and certainly many Nasdaq.com readers, look forward to each quarter: the week when big tech earnings come in a flurry. We will start with Tesla (TSLA) after tomorrow’s closing bell, then hear from Meta (META) on Wednesday, Microsoft (MSFT), Alphabet (GOOG, GOOGL) and Intel (INTC) on Thursday.
I won’t attempt to break down expectations for the individual results here, mainly because Richard Saintvilus does his usual excellent job of that in this piece, but there is an interesting dynamic when it comes to big tech earnings in general that investors should keep in mind as these results hit the wire this quarter, because a lot has changed since three months ago.
At the end of last year, the concept of the “Magnificent Seven” emerged. They were seven big tech stocks that had become household names, all of which were massively outperforming the market and driving gains in the major indices. They tended to move as a unit in the last quarter of last year with those moves being generally in an upward direction.
So far this year, though, that homogeneity has not been seen. The group has diverged, with clear winners and losers emerging, at least in terms of market sentiment, and the history of those moves must be understood if one is to predict or even understand any market moves that may follow earnings this week.
The view now is that the “AI revolution” will have clear winners and the companies who are seen as fitting that bill have seen their stocks continue on higher at an even faster pace that was seen at the end of last year. That would include the likes of Meta and Microsoft, both of which had strong upward momentum this year, at least until the last few days when interest rate and geopolitical concerns have seen them fall with the overall market.
Other tech companies, however, who aren’t seen as being positioned to benefit from AI, have been correcting for a few months, giving back much of the ground gained in the second half of last year. Stocks like TSLA have been hit hard on the basis that while they got caught up in all the euphoria last year, the fundamental situation of the company, with growing, intense competition in the EV market, got lost in all that exuberance and must now be priced in. The same could be said of Intel, which the market now sees as having fallen behind in the AI race, making the intense competition from others a problem.
As I have said on many occasions, the market reaction to news often depends on the mood of traders and investors going into any release. That is as much the case for earnings, which should be an objective measure of a company’s success or failure. But if traders are looking for problems, as they will be when they view the earnings of TSLA and INTC, they will find them. So, those stocks could well drop this week, even if those companies beat expectations on their top and bottom lines.
However, moods do change, and from a long term perspective, picking up some of both names should that happen looks like a decent trade. Still, buying in front of earnings may be unadvisable at this point.
On the other hand, companies like Meta and Microsoft, which have been able to do no wrong in traders’ eyes, will have to release big misses or negative guidance revisions to get hit hard. There has been some selling of those stocks over the last week or so, but after nearly eight months of sustained buying there is still an overall positive bias, and bias confirmation could result in some cherry picking of results here too, just in the opposite direction.
That will probably limit the downside should the numbers disappoint and increase the upside if there is anything to cheer in either company’s report, so buying both META and MSFT in front of the numbers looks like a better course of action than waiting.
The point is that there really is no Magnificent Seven, Fantastic Four, Fab Five, Sexy Six, or whatever else you may want to call them anymore. Tech stocks are being evaluated individually, and any trading strategy going into earnings has to reflect that. It cannot be one size fits all, but rather it should be based on the prevailing market view going into the releases. That means taking a wait and see approach to out-of-favor names, and a more proactive approach to stocks that have continued gaining ground this year.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
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