Wall Street in the haze of the tech selloff as the AI promise lingers – Earnings Scorecard

As investors navigate through the frenzy of quarterly disclosures, the market’s turbulent anticipation of major tech companies’ results, a crucial Federal Reserve policy meeting, and key employment data is palpable. In a season marked by a whirlwind of corporate earnings announcements, stock reactions amidst macroeconomic events revealed a patchwork of varied performances across sectors such as communication services, consumer discretionary, and technology.

This week’s earnings scorecard presents a complex picture: with 80% of companies exceeding profit expectations, reflecting signs of strength despite broader economic headwinds. On the revenue front, over half of the reporting firms have surpassed forecasts, hinting at a mixed by generally positive trajectory in corporate performance.

Despite these encouraging earnings reports, market sentiment has taken a hit, with a broad decline in stock prices as investors assess the potential ramifications of a tech selloff, that saw the S&P 500 (SP500) mark their biggest one-day losses since 2022. Investors attributed the month-long rally in big tech, culminating during the third week of July, to the tepid earnings from Tesla (NASDAQ:TSLA) and Google parent Alphabet (NASDAQ:GOOGL).

Overall, Wall Street closed the week with a dip of about 1.76%. Among the S&P 500 sectors that reported this week, the technology sector and the consumer stocks hold the largest amount of influence, with Alphabet (GOOG) and Tesla (TSLA) moving markets.

With a couple of the Magnificent Seven stocks making an appearance in this week’s earnings, only further volatility may be on the horizon. With next week’s earnings from Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META) and Apple (AAPL), tech giants are expected to only test investor appetite for rallies and falls. Although this year has been marked by gains due to investments in generative artificial intelligence, the second quarter has only hinted on speculations about subsequent extended valuations for these firms.

Big Tech’s turbulence amidst Gen AI promises

Google-parent Alphabet only contributed to the sell-off deluge after the stock fell on Wednesday morning despite the company posting better-than-expected growth in revenues and profits. Second quarter revenue rose 14% to $84.74 billion, as cloud revenue surpassed $10 billion for the first time. The tech giant also reported profit of $1.89 per share, compared to a profit of $0.45 per share during the comparable period a year ago.

According to investment firm Wedbush Securities, the tech sell-off is likely to be “short-lived,” due to the rampant growth of artificial intelligence and the cloud. It is of note that the brokerage has repeatedly called the increase in AI spending as the fourth industrial revolution as the firm estimates over $1 trillion in spending to come from companies, utilities and government.

International Business Machines (NYSE:IBM) was among the few companies that reported a rise of 4% in extended trading on Wednesday, post reporting second-quarter results and guidance that topped expectations and upped its free cash flow forecast for the year. The company also reported a rise in profit and revenue compared to the previous year, earning $1.99 per share on revenue of $15.77 billion.

Automobiles in sight

Tesla (TSLA) shares fell in after hours trading on Tuesday after reporting lower EPS and operating income than anticipated. The company reported that revenue was up 2.3% year-over-year in the second quarter to $25.50 billion, however profits fell with $0.52 per share compared to $0.91 per share a year ago.

U.S.’s automobile industry reported a mixed bag of results, with consumer favorites General Motors (NYSE:GM) and Ford Motor Company (NYSE:F) reporting results during the week.

Fueled by strong U.S. demand that offset continued still sluggish demand in China, General Motors (GM) reported a 60% increase in its second quarter profit, beating Wall Street’s expectations by $0.36. Coupled with an increase to GM’s (GM) profit guidance for 2024, shares were moving higher in Tuesday’s premarket trading, up nearly 5% before the open.

Shares of U.S.-based Ford (F) traded down in after hours trading after the company reported an erosion in its profitability due to increased warranty costs and losses associated with its electric vehicle division. Ford missed Wall Street estimates after the company reported a fall in profit of $0.47 per share, down $0.25 per share from the same quarter a year ago. Total Revenue rose 6% to $47.8 billion.

Wading through the deluge

Looking at the airline sector, shares of American Airlines (NASDAQ:AAL) and Southwest Airlines (NYSE:LUV) fell during premarket trading on Thursday despite the companies posting a beat in profits for the quarter. AAL posted a mixed earnings report with a profit of $1.09 per share on revenue of $14.3 billion, compared to a profit of $2.05 per share on revenue of $14.1 billion a year ago. LUV posted an earnings and revenue beat with a profit of $0.58 per share on revenue of $7.35 billion, compared to a profit of $1.09 per share on revenue of $7.04 billion a year ago.

Communication service providers AT&T (NYSE:T) and Verizon (NYSE:VZ) were also part of the deluge. Shares of AT&T are gained ground in Wednesday’s premarket, earning a lower adjusted profit from a year ago, declining to $0.57 per share from $0.63 per share in the same quarter last year, and in-line with expectations. Verizon reported marginal topline growth and a bottom line that just matched consensus in its second-quarter results, sending shares down 6.7% on Monday.

Beverage company Coca-Cola (NYSE:KO) moved higher in early trading on Tuesday after posting an earnings beat, with a profit of $0.84 per share on revenue of $12.31 billion, compared to profit of $0.78 per share on revenue $12 billion.

For the upcoming week, at least 160 S&P500 names are scheduled to report results, with the likes of McDonald’s (MCD) and ON Semiconductor (ON) on Monday. Tuesday is expected to include Microsoft (MSFT), Procter & Gamble (PG), Merck (MRK), Advanced Micro Devices (AMD), Pfizer (PFE), Starbucks (SBUX), and S&P Global (SPGI). Meta Platforms (META), Mastercard (MA), Qualcomm (QCOM), Western Digital Corporation (WDC), Arm Holdings (ARM), Boeing (BA), eBay (EBAY), Altria (MO), Marriott International (MAR) are also expected to report earnings on Wednesday.

Thursday would see Amazon (AMZN), Apple (AAPL), Intel (INTC), Block (SQ), DoorDash (DASH), Cigna (CI), ConocoPhillips (COP), Anheuser-Busch InBev (BUD), Roblox (RBLX), and DraftKings (DKNG) put out their earnings. Church & Dwight (CHD), Chevron (CVX), and ExxonMobil (XOM) will post their results on Friday