When last Tuesday’s results from two key players, namely Google’s parent company Alphabet (GOOGL) and Tesla (TSLA), hit the market, it was met with a chorus of disappointments from investors. This sent ripples of concerns across the financial landscape, particularly triggered by Alphabet’s report. Analysts are now bracing for what might be foreshadowed by the underwhelming performances of these two heavyweights as the week unfolds. The upcoming financial spectacles include Microsoft (MSFT) on July 30^th, Meta Platforms (META) on July 31^st, followed by Amazon (AMZN) and Apple (AAPL) on August 1^st.

In sharp contrast to Tesla’s lackluster report, Alphabet managed to rally with a winsome performance. While Tesla slid past the consensus estimates due to persistent margin pressures, Alphabet danced ahead by beating the expectations with a laundry list of positives in its quarterly results, notably in the search and cloud segments. Yet, investors chose to fixate on the larger-than-anticipate capital expenditure figures, sparking fears about the relentless surge in AI-related capex absent a clear roadmap for when the investments will bear fruit.

Alphabet’s management acknowledging the risk of underinvestment as a more pressing concern than its alternative seem to have stoked the market’s fears further. A more substantial surge in search growth attributed to the company’s AI ventures could have assuaged some of these concerns, but the reality did not align. This week’s impending reports from Meta and Microsoft are likely to place the capex debate in the spotlight once more. As for Amazon, an incumbent in the cloud arena through its Amazon Web Services arm, the deceleration in business growth in recent quarters has flipped on the red alert, especially when compared against the meteoric rise of Microsoft and Alphabet.

While Apple has been making strides in the AI realm with recent announcements, doubts linger in the market regarding its endeavors. Short-term concerns for Apple revolve around the shifting iPhone landscape in China.

Reflecting on Alphabet and Tesla, the former witnessed Q2 earnings rise by +28.6% compared to the same period last year, driven by a +15% uptick in revenues. In stark contrast, Tesla’s Q2 earnings nosedived by -45.3%, despite a marginal +2.3% uptick in revenues.

Referencing the chart below depicting the current consensus forecast for the ‘Mag 7’ stocks collectively for the present and upcoming periods alongside their past performance, we notice a forward-looking expectation of +26.8% earnings versus the prior year with +13.7% augmented revenues.

Image Source: Zacks Investment Research

Similarly, analyzing the sector’s Q2 earnings scenario, total Q2 earnings for the Technology sector are anticipated to climb +16.8% from the equivalent period a year ago, supported by a +9.5% surge in revenues. The visual representation below illustrates the sector’s earnings and revenue growth lenses within an annual context.

Image Source: Zacks Investment Research

The overarching theme centers on the Technology sector’s encouraging trend in earnings revisions over recent quarters, with the Mag 7 pointering the forecast improvements.

The Earnings Season Landscape and Coming Week’s Reports

The financial scoreboard as of July 26^th tallies Q2 results from 207 S&P 500 members, representing 41.4% of the index’s constituents. Collectively, these companies showcased a +0.6% upturn in earnings from the prior year, coupled with a +4.9% revenue surge. However, the dampener comes with only 79.7% surpassing EPS estimates, while merely 57.5% managed to top revenue estimates.

The Q2 earnings unveiling this week will be colossal, with over 1000 companies lining up to spill their financial beans, including 170 S&P 500 members. Apart from the ‘Magnificent 7’ cohort, this week’s lineup boasts a mélange of industry giants such as McDonald’s, Proctor & Gamble, Pfizer, Starbucks, and Boeing, among others.

Diving into the historical context, the illustrations below offer a lens into the earnings and revenue beat percentages for these titans.

Image Source: Zacks Investment Research

An ominous shadow looms over the 57.5% Q2 revenue beats percentage, marking a historic low for this group of 207 index members over a 5-year span encompassing 20 quarters.

Further spotlighting the figures, the visuals below contrast the Q2 earnings and revenue growth rates for these 207 companies in a historical panorama.

Image Source: Zacks Investment Research

Weaving the Earnings Tapestry

Summing up Q2 proceedings alongside the imminent projections brings insight into the anticipated +6.9% surge in total S&P 500 earnings from the previous year, accompanied by a +5.2% hike in revenues. The visual rundown below overlays the year-over-year earnings and revenue growth for the 2024 Q2 amid historical and immediate vista.

Image Source: Zacks Investment Research

Noteworthy is the significantly favorable revisions tailwind preceding the Q2 earnings unveiling, with the estimates retaining robust stability compared to previous quarters. On an annual rhythm, the total 2024 S&P 500 earnings are prognosticated to soar by +8.7%, coupled with a +1.7% revenue expansion. Excluding the Finance sector from the aggregate data elevates the revenue growth tempo to +4%, painting a slightly rosier trajectory.