Magnificent 7 Q3 Preview: All eyes on AI market gains as big tech earnings loom

As large-cap growth (Magnificent 7) stocks continue to dominate S&P 500 (SP500) performance, Tesla (NASDAQ:TSLA) will kick off third-quarter earnings this week, while Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), and Meta (NASDAQ:META), will be among those reporting next week.

Most of the Mag 7s have seen their stocks clock double-digit percentage gains this year, barring Tesla (TSLA), which has been the lone decliner, with shares sliding 12.6% year-to-date.

The percentage of investors that are overweight the Magnificent 7 has, meanwhile, declined by 10% according to the Jefferies TMT Trading October 2024 Positioning Survey.

Investors would, therefore, closing watch year-ahead earnings forecasts and investments into artificial intelligence, which has driven much of the recent earnings gains.

Here is a quick recap of the performance and sentiment around the stocks:

Electric vehicle giant Tesla (TSLA) is scheduled to release its Q3 financial results on Wednesday after the market closes, with analysts anticipating a 9% decline in profits despite expected top-line growth of about 10%. For investors, Elon Musk’s commentary on the timing of a new mass-market cheaper electric vehicle, energy storage business, and robotaxi developments will be of keen interest.

Tesla’s (TSLA) investments in self-driving technology are reaching a point where significant progress will be needed for the company to maintain its valuation premium. A consensus of analysts expects the company to report earnings per share of $0.60 on revenue of $25.67B.

Alphabet (NASDAQ:GOOG) (GOOGL) will be next on deck, with its report scheduled for Tuesday, Oct. 29. Having shed about 9% in value in the July-September period, the tech giant is trading at a significant discount to its peers, and the focus will be on its antitrust issues despite strong performance in the previous quarter.

Microsoft (MSFT), down 5.8% in the July – September period, while Meta (META), up 13% in the same period, are slated to report on Wednesday, Oct. 30.

According to Piper Sandler, Microsoft’s upcoming earnings report could be mixed due to new metrics published in August that are not yet fully reflected in analysts’ estimates, including a material change to Azure. Microsoft updated its fiscal year 2025 investor metrics in August, which included several significant segment changes. Morgan Stanley said that the reporting changes made by Microsoft should provide a “cleaner” look at its all-important Azure segment.

A consensus of analysts expects the company to report earnings per share of $3.10 on revenue of $64.54B.

Meanwhile, for Facebook parent Meta (META), analysts expect earnings per share of $5.29 on revenue of $40.29B, with a primary focus on the AI market, and the company’s AI monetization.

The company’s potential growth engines include AI and AR/VR, but the market has already priced in much of its future potential, suggesting a low margin of safety, writes one SA author. Meta (META) has recently initiated layoffs across various divisions, specifically targeting teams within WhatsApp, Instagram, and Reality Labs. The company gets a Seeking Alpha quant rating of ‘Hold‘ with the highest factor grades marked for profitability.

When it comes to Apple (NASDAQ:AAPL) consensus estimate for its FQ4 revenue is $94.23B, representing ~5% Y/Y growth. EPS estimate is $1.55. SA columnist Daniel Jones writes upcoming financial results on October 31st “show revenue growth, particularly in services, but weaknesses in iPhone and wearables sales, and challenges in China persist.”

Amazon (NASDAQ:AMZN), which reports on the same day, is expected to post a nearly 21% growth in profit, with revenue rising 9.9%. Brokerage JMP continues to favor AMZN for its resilient upper-funnel trends, exposure to non-discretionary items, its large and growing advertising business, and AWS’ exposure to AI; rates AMZN at ‘Market Outperform.’

Chip powerhouse Nvidia (NASDAQ:NVDA) reports in November and is projected to earn $0.74 on revenue of $32.92B, implying a whopping ~82% Y/Y growth in top-line. BofA recently increased Nvidia’s earnings estimates for the years ahead, citing the company’s impressive market share (80% to 85%) in a $400B total addressable market.

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