Magnificent Seven Post Earnings: Who’s Leading the Race?
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Magnificent Seven Post Earnings: Who’s Leading the Race?

Calling something "magnificent" raises investor expectations. Meta and Amazon lead the stock charge while Microsoft wins the valuation battle.
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Five out of Magnificent Seven companies reported their earnings this week. Together, they account for $12.75 trillion worth of capital. This is more than the entire stock markets of other nations, having yielded 70% of the US stock market gains in November.

As forecasted that month, Microsoft (NASDAQ: MSFT) has now dethroned Apple (NASDAQ: AAPL) as the most valuable stock, with a market cap of $3.04 trillion and $2.84 trillion, respectively. In the wake of the latest earnings, Wall Street analysts continue to be bullish, except for Tesla.

Although Microsoft is now market cap king, the same cannot be said of the company’s stock performance. Which one of the Magnificent Five has pleased investors, and what do their earnings show moving forward into 2024?

META as Performance Outlier

Over one year, META is 3x outpacing the other four stocks – MSFT, AMZN, GOOGL, and AAPL. At META’s 153% one-year track, the closest is MSFT at 54% gains, while AAPL is the least performant at a 23% valuation boost during the same period.

Equally, META stock has gone up 38% since the beginning of the year, leaving behind AMZN and MSFT at 14% and 10% gains, respectively. Year-to-date, GOOGL and AAPL are borderline negative. There are several drivers for META’s performance. 

In 2023, Zuckerberg conducted four layoffs, resulting in a 22% reduction of Meta’s workforce (~21,000). By getting leaner, the company became more flexible in executing its key visions for the future – AI, messaging, metaverse, and Reels rollout, integrated into Instagram and Facebook.

Leaner but More Revenue Yielding

Zuckerberg reported on several milestones. Having crossed 3.5 billion Reels resharing, this vertical video format now contributes to Meta’s overall revenue across apps, which increased to $40.11 billion in Q4. This is a 25% year-over-year growth, beating Bloomberg’s consensus estimate of $39.01 billion.

For the first time, Reality Labs metaverse division achieved $1 billion in revenue, having left the profusely bleeding zone. Moving forward, Zuckerberg expects an even leaner company with AI-creating ads, virtual assistance, analytics tools, photo editing, and chatbots.

More importantly, from a shareholder standpoint, Meta is following Apple’s lead by engaging in massive stock buybacks. The announced stock repurchase program is worth $50 billion, and the first-ever quarterly dividend is 50 cents per share. 

Based on 46 analyst inputs pulled by Nasdaq, META is a “strong buy” stock 12 months ahead. The average META price target is $505.36 vs. the current $479. The high estimate is $575, while the low forecast is $370 per share.

Amazon (NASDAQ: AMZN) Also Beat Earnings Estimates

Following the earnings release on Thursday, Amazon joined Meta in stock boosting. Although lagging behind META’s weekly performance gain of 20%, AMZN’s 6.7% boost is significant compared to the rest of the underperforming MSFT (+0.3%), AAPL (-3.5%) and GOOGL (-8.6%).

Compared to expected earnings per share, per LSEG, Amazon beat EPS by 20 cents, at $1.00 vs. 80 cents. Likewise, the logistics/e-commerce giant beat expected revenue of $166.2 billion, at $170 billion. For the full year 2023, Amazon netted $574.8 billion in sales, with Amazon Web Services (AWS) gaining 13% growth to $90.8 billion.

The company increased its free cash flow significantly, showing that Amazon can cover costs and reinvest, from $11.6 billion in Q4 2022 to $36.8 billion in Q4 2023. Based on 47 analyst inputs pulled by Nasdaq, AMZN is a “strong buy” moving 12 months ahead.

The average AMZN price target is $204.29, compared to the current $170. The high estimate is $230, while the low forecast is aligned with the current price of $170 per share.

Market Response to Microsoft, Alphabet, and Apple Earnings Suggest Overboughtness

Like Meta and Amazon, Microsoft’s growth outpaced estimates. A $62 billion quarterly revenue is up 18% year-over-year. Microsoft Azure’s cloud platform grew by 20% to $25.9 billion. Similarly, Office Commercial products saw 15% growth alongside a LinkedIn revenue boost of 9% and Dynamics products by 21%.

These results failed to elicit a similar META-like stock boost, suggesting that investors have surpassed Microsoft’s basic “beat estimates” threshold. 

Alphabet (GOOGL) finds itself in the same situation, having boosted its revenue by 13% year-over-year to $86.3 billion. Apple (AAPL) was the least “magnificent” of the five stocks, increasing its quarterly revenue by only 2% YoY. 

While Apple’s iPhone and services divisions grew by 6% and 11%, respectively, the wearables segment is still struggling with an 11% YoY decline. The same fate may await Apple’s ultra-expensive AR/VR headset, Apple Vision Pro.

Are you more exposed to blue-chip stocks or small-cap stocks with high growth potential? Let us know in the comments below.

Disclaimer: The author does not hold or have a position in any securities discussed in the article.