What to expect from ‘Mag 7’ in third-quarter earnings
As earnings season kicks into high gear, investors are keeping an especially close eye on the Magnificent Seven ‘s quarterly results. The group of mega-cap tech names — Apple , Microsoft , Alphabet , Nvidia , Tesla , Meta Platforms and Amazon — has been the powerhouse of the two-year bull market rally. The Roundhill Magnificent Seven ETF , for example, which tries to replicate their performance, is up about 42% this year versus 22% for the S & P 500. But the stocks have lately come under pressure as Wall Street questions if they have more room to run. The CNBC Magnificent 7 Index — which peaked more than three months ago, in early July — fell sharply during the early August selloff and is down 1.3% in October while the broader market has inched higher by more than 1%. Here’s what analysts are looking for when the Magnificent 7 companies report, and where they expect them to head next. Microsoft: October 30 EPS beat rate: 81%, per Bespoke Earnings day positive reaction: 58% of the time, per Bespoke Sales beat rate: 76%, per Bespoke Rating: 54/58 buy or strong buy, according to FactSet Upside to average PT: 18%, per FactSet Q3 stock performance: -3.7% Microsoft shares declined nearly 4% in the third quarter. However, the Windows software and Xbox videogame maker has beaten analysts’ earnings expectations 81% of the time and has recorded a positive move 58% of the time the next day after it posted earnings, according to data from Bespoke Investment Group. The majority of analysts remain bullish on Microsoft despite its underperformance, which has stemmed from a combination of a broader market rotation away from large-cap tech, concerns surrounding its high capital expenditures and rising competition for its artificial intelligence partner, OpenAI. “With expectations for increased capacity post-Blackwell’s Nov. release [from Nvidia] and as the market gains certainty on rates and the U.S. election as the year progresses, we see tailwinds to F2Q25 and F2H25 earnings,” Goldman Sachs analyst Kash Rangan wrote in a research note late last week. “In prior periods of accelerated CapEx and [gross margin] pressure, the stock underperformed in the ST, while ultimately outperforming with Azure re-acceleration; we could now be at a similar juncture.” Microsoft became the first company to offer Nvidia’s Blackwell system for its cloud business Azure. Investors will be keeping a close eye on Microsoft’s forward guidance and commentary around Azure, which accounts for 25% of the company’s revenue. “We think Microsoft needs to deliver Azure outperformance and guidance for little if any deceleration in F2Q, along with a view to stable or better M365 Commercial Cloud growth ahead to satisfy expectations and build confidence in consensus forecasts for a modest overall F2H revenue reacceleration,” Deutsche Bank analyst Brad Zelnick said in a note on Monday. The average price target on Microsoft shares implies 18% additional upside for the stock, according to FactSet. The stock is up 10.6% year to date. Apple: October 31 EPS beat rate: 89%, per Bespoke Earnings day positive reaction: 58% of the time, per Bespoke Sales beat rate: 79%, per Bespoke Rating: 35/48 buy or strong buy, according to FactSet Upside to average PT: 4.6%, per FactSet Q3 stock performance: +10.6% Apple enjoyed a strong third quarter. The stock jumped more than 10% over the three months and has continued to rally in October, hitting a new record on Tuesday. The smartphone-and-laptop maker has benefited from strong upgrade demand in the new iPhone cycle and enthusiasm surrounding the looming rollout of its AI feature. To be sure, upside potential is a bit more limited for Apple shares — the consensus price target suggests shares will move just 4.6% higher over the next year, according to FactSet. Although Apple is “well-positioned to clear a lower bar,” Evercore ISI analyst Amit Daryanani notes that there are some concerns surrounding sluggish demand in the Chinese smartphone market. However, China’s recent government stimulus measures should help support demand in the domestic market there, he noted. Daryanani believes Apple’s wearables and services segments should also provide tailwinds for the stock. “Wearables should see a solid acceleration in Dec-qtr given a host of new products,” Daryanani wrote in a Sunday note. “Gross margins will be a key swing factor as they should see some benefit on the product side from higher iPhone mix in Dec-qtr, but this could be offset by relatively lower Services mix,” he added. Potential risks to the stock include tariffs on Chinese or American imports and continued sluggish economic growth in China. Apple is also currently embroiled in an antitrust case with the Justice Department, with regulators accusing Tim Cook’s company of creating a monopoly in the smartphone market. The iPhone maker has topped earnings expectations 89% of the time and posted a move higher on 58% of trading days after announcing earnings, according to data from Bespoke. The vast majority of analysts surveyed by FactSet hold a strong buy or buy rating on the stock. Nvidia: November 14 EPS beat rate: 85%, per Bespoke Earnings day positive reaction: 58% of the time, per Bespoke Sales beat rate: 86%, per Bespoke Rating: 58/64 buy or strong buy, according to FactSet Upside to average PT: 7.1%, per FactSet Q3 stock performance: -1.7% Chipmaker Nvidia has had a blockbuster year, but you’d never know it from the third-quarter stock performance. Shares slipped nearly 2% in the quarter, but the stock remains higher by almost 167% in 2024. Questions surrounding the strength of the AI-led rally and the stock’s lofty valuation led some investors to take profits and trim their holdings Nvidia’s sky-high gains in the first half. Nonetheless, Nvidia rose to a new record high on Monday , taking its market cap above $3.4 trillion. About 90% of analysts covering the company are bullish, per LSEG. Their consensus price target indicates shares will gain an additional 7.1% over the next year from their current level. Evercore ISI highlighted Nvidia as one of its top picks in the semiconductor industry heading into this earnings cycle. Morgan Stanley also reiterated its confidence in Nvidia, with Jensen Huang’s company having largely resolved its Blackwell supply issues. Nvidia management previously voiced “high conviction” that Blackwell will result in several billion in revenue in the January quarter. “Market focus now shifts toward AI demand outlook for 2026, where we hear a positive tone from the supply chain on continual growth,” Morgan Stanley analysts wrote in a research note on Monday. U.S. export limits on AI chip sales due to trade tensions with China are one of the biggest risks for Nvidia. On Tuesday, shares dropped more than 3% on a Bloomberg report that the Biden administration is considering limits on AI chip sales to certain countries. Tesla: October 23 EPS beat rate: 61%, per Bespoke Earnings day positive reaction: 48% of the time, per Bespoke Sales beat: 70%, per Bespoke Rating: 22/54 buy or strong buy, according to FactSet Downside to average PT: 1.6%, per FactSet Q3 stock performance: 32.2% Tesla has a high bar to climb ahead of earnings due next week. The electric vehicle maker’s shares rose 32.2% in the third quarter as enthusiam quickly rose ahead of its Oct. 10 robotaxi debut . Shares are so far down nearly 16% this quarter after the event proved to be a letdown to some on Wall Street, however. The stock is now down more than 11% for all of 2024 as Elon Musk’s company faces stiffer competition in the U.S. auto market from other EV makers such as Rivian, traditional carmakers like Ford and General Motors and commercial robotaxi operators. Rapid innovation in China’s EV market has also threatened Tesla’s international growth story. Most analysts surveyed by FactSet are shaky on Tesla, with roughly 41% rating the stock a buy and the remainder a hold or sell. On average, the analysts have a hold rating and $216 price target, which implies a roughly 1.6% decrease in the coming year. Wells Fargo on Tuesday reiterated an underweight rating on Tesla, saying it expects the automaker to miss third-quarter estimates. The bank noted that Tesla already reported disappointing third-quarter deliveries , one of the most closely watched metrics on Wall Street. “Aggressive financing promotions globally are likely driving volumes,” Wells Fargo analyst Colin Langan wrote. “We est. the end of quarter promotions are the equivalent to ~8% [price] cut & likely explain the end of Q3 volume recovery. The cuts should drive [profit] margins lower.” Alphabet: October 22 EPS beat rate: 70%, per Bespoke Earnings day positive reaction: 55% of the time, per Bespoke Sales beat rate: 74%, per Bespoke Rating: 46/58 buy or strong buy, according to FactSet Upside to average PT: 22.5%, per FactSet Q3 stock performance: -8.8% Alphabet ‘s shares are up about 23% this year, roughly in line with the S & P 500. The search giant lost 8.8% in the third quarter, marking a stark contrast in performance to its 20.8% growth in the second quarter, with sentiment souring in part from the Justice Department’s Aug. 5 ruling that Google violated antitrust law and has an illegal monopoly in online search. JPMorgan analyst Doug Anmuth, who still rates the stock overweight, previously noted that Alphabet shares have been falling short of the broader market and gains in other internet stocks covered by the bank since the ruling. The DOJ’s remedies still carry “headline risk” for Alphabet and suggest structural changes or separation proposals, possibly stifling its AI rollout and monetization, he said. Still, analysts are largely bullish on the stock ahead of earnings. Analysts polled by FactSet have a consensus overweight rating and $202 target price, suggesting 22.5% potential upside. Bank of America’s Justin Post recently kept his buy rating, saying he expects in-line or surprisingly better-than-expected results, with AI driving strength in Google’s search business. Evercore ISI on Tuesday added a tactical outperform recommendation on Alphabet, noting that strengthening enterprise demand is fueling ongoing revenue growth for major cloud vendors. Looking at Bespoke data, the stock has an average price change of about 1.4% the day after reporting results. Amazon: October 24 EPS beat rate: 64%, per Bespoke Ernings days positive reaction: 49% of the time, per Bespoke Sales beat rate: 70%, per Bespoke Rating: 63/67 buy or strong buy, according to FactSet Upside to average PT: 18%, per FactSet Q3 stock performance: -3.6% Like Alphabet, Amazon is also coming off a rough quarter, during which it lost 3.6% after posting slower sales in its core retail business and giving disappointing guidance for the third quarter. Shares are still up more than 22.5% year to date. Despite its recent slowdown, analysts surveyed by FactSet have a consensus buy rating on the dominant e-commerce platform. Their average $221 price target implies roughly 18% possible upside. Bullish voices on the stock include Goldman Sachs analyst Eric Sheridan, who recently reiterated a buy rating and $230 price target. Sheridan remains constructive on Amazon’s multi-year EBIT trajectory. “We maintain our long-term view that Amazon will produce a solid mixture of consolidated revenue growth and operating margin expansion on a multi-year view while also making critical investments in long-term growth initiatives,” Sheridan said in a Tuesday note. (To be sure, Goldman also removed Amazon from its October conviction list earlier this month.) JPMorgan’s Anmuth is similarly positive on Amazon ahead of earnings, rating the stock overweight and saying it remains the favorite in the bank’s firm’s internet sector coverage. Amazon Web Services should see continued acceleration driven by new workload migrations and early AI optimization, with overall North American operating margins trending higher, the analyst said. Concerns around Amazon include competitive risks from traditional retailers like Walmart and Costco and from online e-commerce names like eBay and Google, according to Baird. AWS is also now requiring significant capital expenditures that have yet to prove long-term profitability, the firm said. Shares tend to move 0.8% on the first full day after the quarterly report, Bespoke data shows. Meta Platforms: Oct. 30 EPS beat rate: 88%, per Bespoke Earnings day positive reaction: 55% of the time, per Bespoke Sales beat rate: 88%, per Bespoke Rating: 61/69 buy or strong buy, according to FactSet Upside to average PT: 2.3%, per Factset Q3 stock performance: 13.6% Meta has had a dazzling year, jumping roughly 64% year to date and more than 13.5% in the third quarter alone. The stock price almost tripled in 2024. Investors are optimistic about Meta’s resilient online advertising business, especially using new generative AI tools. Excitement is also building around Meta’s advancements in virtual and augmented reality, including its successful partnership with Ray-Ban for smart glasses, a strong recent demonstration of AR glasses called Orion , and a new AI video generating tool called Movie Gen , challenging OpenAI. But the company’s Reality Labs — its AR and VR hardware and software unit — is still seeing operating losses worth billions of dollars per quarter. Analysts remain mostly bullish on Meta’s outlook even with its gargantuan AI spending, but are slightly cautious on how much enthusiasm has already been priced into the stock. The consensus FactSet rating on Meta is buy, with an average price target of $604, suggesting just 2.3% potential upside. In a note to clients on Friday, Roth MKM said it is “incrementally cautious” on the Facebook and Instagram parent given concerns about advertising spending from Chinese e-commerce players Temu and Shein. Meta’s Asia-Pacific revenue growth rate slowed significantly in the second quarter — a trend which may have continued in the July-to-September period, the firm said. JPMorgan’s Anmuth said in his Friday note to clients that “META is executing best across the group & has earned the right to spend big on AI w/strong core operating results, early AI benefits in engagement & monetization, & clarity on the AI product roadmap.” Goldman’s Sheridan is another bull. He forecast ad revenue growth momentum in the second half of this year, but longer term is monitoring exactly how Meta’s Reality Labs can scale up and turn profitable in coming years. “We increasingly see META as leader in the space across both AR/VR hardware … and generative AI – the latter of which supported by Meta’s rapidly evolving AI capabilities, depth of resources & access to large-scale compute and a scaled global user base by which to deploy these new AI products/features across several different platforms & devices,” the Goldman analyst said, keeping a buy rating on shares. “That said, we need better visibility into how these opportunities translate into revenue growth over the medium-term (next ~2-3 years).” Bespoke data shows Meta tends to impress on sales and earnings more than four-fifths of the time and the stock has an average next day post-earnings move of 2.07%. —CNBC’s Michael Bloom contributed to this report.
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