Triumphant Tesla Kickstarts Earnings Cycle
Tesla, the pioneer of electric vehicles, set a roaring pace for the Q3 earnings season among the elite Magnificent 7 tech companies. With impressive margin gains, Tesla delivered a strong start, hinting that the fierce competition in the industry might be softening. However, Tesla’s unique challenges do not necessarily hint at the forthcoming results of its Mag 7 peers.
As we dive into the heart of the Q3 earnings season, over 800 companies are poised to report their financial results, with 168 of them being S&P 500 members. Upcoming this week, Alphabet on October 29th, Meta and Microsoft on October 30th, and Amazon along with Apple on October 31st are set to unveil their Q3 performance.
Significant Margin Gains Spark Tesla’s Performance
The recent bounce in Tesla’s shares has greatly compensated for the market’s initial disappointment following the Robo taxi announcement. Despite this recovery, Tesla remains the underperforming Mag 7 member. Notably, Tesla’s Q3 margin gains, while remarkable, may not entirely signify the end of margin pressures. Speculation suggests that a significant portion of the margin growth could stem from high-margin deliveries from Tesla’s Shanghai factory and production tax credits associated with the company’s battery production.
If Tesla can sustain its Q3 margin growth, future quarters may witness a continuation of this positive trajectory. Comparing net margins across the group, Tesla’s Q3 2024 net margins stood at 8.7%, reflecting a notable increase from 5.8% in the prior period and 7.9% in the corresponding year-ago period.
Alphabet’s Battle with Market Expectations
Alphabet faced a downward trend following its last earnings report on July 23rd, despite surpassing consensus EPS and revenue expectations. Post the Q2 earnings release, Alphabet’s shares witnessed a dip of -9.3%, contrasting with the gains seen in the Zacks Tech sector and the S&P 500 index. The market’s tepid response suggests that unless Alphabet’s management presents a compelling case for its increasing investment in AI, investors may remain unconvinced.
The AI-centric concerns are not unique to Alphabet alone; companies like Microsoft, Amazon, and Meta also grapple with the dilemma of capital expenditure. However, Alphabet’s focus on AI has raised apprehensions about its search monopoly, potentially explaining its lag in share performance compared to Microsoft and Amazon over recent months.
Forecasting the Magnificent 7 Earnings Growth
An overview of the Mag 7 stocks’ consensus expectations for the current and upcoming periods reveals an anticipated +16.9% surge in earnings for Q3 compared to the same period last year, supported by +13.3% higher revenues. This expected growth aligns with a return to a more normalized growth pattern after the exceptional demand pull-forward observed in 2021.
Amidst the ongoing earnings season, a significant portion of S&P 500 members have reported their Q3 results, reflecting a nuanced performance. While total earnings are down -2.1% year-over-year, revenues show a positive trend with a +4.5% increase. Notably, a majority of the reporting companies have surpassed EPS and revenue estimates, indicating resilience in the face of market challenges.
Navigating the Earnings Landscape
Looking ahead, the broader S&P 500 index is poised to witness a +1.5% growth in total earnings for Q3 compared to the previous year, supported by a +5% rise in revenues. Despite modest growth projections, a detailed analysis of the earnings landscape unveils a consistent pattern of recovery and stable growth across various sectors, hinting at a resilient market outlook.
Unveiling Financial Future Amidst Market Volatility
Resilient Growth Projections in Face of Uncertainty
Despite the tumultuous fluctuations in the market, the financial projections for the upcoming quarter provide a glimmer of hope for investors. The expected 9% surge in total S&P 500 earnings from the same period last year, paired with a 5.3% rise in revenues, presents a promising scenario amidst the chaos.
Steady Estimates Defy Previous Volatility
Unlike the turbulent forecast adjustments witnessed prior to the Q3 earnings season, estimates for the upcoming quarter are displaying remarkable stability. This resilience is a welcome change, indicating a sense of grounded projections amidst the ever-shifting landscape of the financial market.
Positive Trajectory for Earnings Growth
Looking at the broader picture of the earnings landscape on a yearly basis, the current year’s 7.3% earnings growth sets the stage for even more promising double-digit expansions in 2025 and 2026. This trajectory of growth hints at a future that is ripe with potential and prosperity for savvy investors.
Focus on Ex-Energy Growth
It is worth noting that this year’s 7.3% earnings growth climbs even higher to 9.2% when excluding the volatile energy sector. This strategic focus on ex-Energy growth underscores the underlying strength of the market, independent of the unpredictable fluctuations in the energy landscape.
