Equity markets are about to undergo another test as the key US technology stocks so-called the Magnificent Seven report this week. Results from Microsoft, Google-parent Alphabet, Amazon, and Facebook-parent Meta are expected, while Apple and Nvidia are set to report next month.
Why is this important?
According to Dow Jones Market Data, the Magnificent Seven account for 30% of the S&P 500’s total market capitalisation and contributed 17% of the index’s earnings per share in 2022. In 2023, these seven stocks alone, have driven the entirety of the S&P 500’s 11% total return. Highlighting their importance given that the movement in just this handful of companies share prices can dictate the direction of an entire index.
In saying this, the earnings outlook for US big tech is positive. Market analysts estimate that Apple will report +4.8% earnings growth, Microsoft +13%, Meta Platforms +116% and most impressively, Nvidia +468% growth, driven by the boom in demand for computer chips powered by artificial intelligence.
With US risk-free yield surging to approximately 5% or more, investors will be paying even closer attention to the growth rates that these companies can deliver. The outcome will be incredibly important and provide a pulse check on the health of the overall equity market, especially as big tech is currently trading on high valuations. This leaves a small margin for error.
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