This week takes us into the heart of the Q4 earnings season, with more than 300 companies reporting results, including four Magnificent 7 members and 96 other S&P 500 members. We have Tesla TSLA, Microsoft MSFT, and Meta Platform META on Wednesday, January 29th, and Apple AAPL on Thursday, January 30th.
Apple shares have struggled lately, with the stock lagging behind the Mag 7 group and the broader market. The stock hit the 52-week high around Christmas and has since lost about 15% of its value on persistent worries about China and its AI strategy. The chart below shows the one-year performance of Apple, Microsoft, Meta, and Tesla relative to the S&P 500 index.
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Image Source: Zacks Investment Research
Tesla shares have truly been on a tear since the last quarterly release on October 23rd, with the stock up more than +85% since the day before that release. Market participants appear convinced that Tesla’s competitive challenges are behind it. We will see if this Wednesday’s quarterly release validates this view.
The very positive sentiment on Tesla contrasts the dour views on Apple where some of the more bearish analysts are projecting a guidance cut. While estimates for the December quarter have been stable lately, estimates for the current and following fiscal years have been under pressure. The current Zacks Consensus EPS for fiscal year 2025 (ends in September) for Apple of $7.40 is down from $7.43 a week ago and $7.49 three months back.
Apple bulls see this all-around downbeat sentiment as overdone. While they acknowledge the China headwinds, they believe that the issue is manageable for the company and expect Apple to announce a local AI partner in the next few months. Baidu appears to be the front-line candidate, but analysts also mention Tencent and TikTok parent ByteDance as in the running.
The table below shows net margins for the group, with Tesla’s 2024 Q4 net margins of 7.4% only modestly down from 7.9% in the year-earlier period, while Apple’s margins are expected to be modestly up from the year-earlier period.
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Image Source: Zacks Investment Research
Unlike Tesla and Apple, the issue with Microsoft is the capex overhang, with the market concerned about the company’s heavy investments in AI infrastructure without a tangible monetization plan.
The capex question isn’t restricted to Microsoft alone, as Alphabet, Amazon, and Meta also face the same issue. Of these four, the problem is particularly central for Alphabet as many in the market see AI as potentially risking the company’s search monopoly. Alphabet did a good job in its last earnings release on that front, but this will likely remain an ongoing issue in the Google story.
Take a look at the chart below that shows current consensus expectations for the ‘Mag 7’ stocks as a whole for the current and coming periods in the context of what they were able to achieve in the preceding period.
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Image Source: Zacks Investment Research
As you can see, the group is expected to bring in +20.9% more earnings in Q4 relative to the same period last year on +12.2% higher revenues.
The chart below shows the group’s earnings and revenue growth on an annual basis.
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Image Source: Zacks Investment Research
As we all know by now, the group’s phenomenal boost in 2021 partly reflected pulled forward demand from future periods that got adjusted mostly in 2022. The group got back into ‘regular/normal’ growth mode in 2023, and the trend is expected to continue this year and beyond.
Q4 Earnings Season Scorecard
Through Friday, January 24th, we have seen Q4 results from 78 S&P 500 members, or 15.6% of the index’s total membership. Total earnings for these companies are up +17.4% from the same period last year on +6.2% higher revenues, with 83.3% beating EPS estimates and 66.7% beating revenue estimates.
The comparison charts below put the Q4 earnings and revenue growth rates relative to other recent periods for the same group of index members.
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Image Source: Zacks Investment Research
The comparison charts below put the Q4 EPS and revenue beats percentages relative to other recent periods for the same group of companies.
Zacks Investment Research
Image Source: Zacks Investment Research
For the Finance sector, we now have 45.5% of the sector’s market capitalization in the S&P 500 index. Total earnings for these Finance sector companies are up +27.5% from the same period last year on +10.9% higher revenues, with all the companies beating EPS estimates (100%) and 80% surpassing revenue estimates.
The comparison charts below put the Q4 results from these Finance sector companies in a historical context. The first set of charts shows how the Q4 earnings and revenue growth rates for these Finance companies compare to other recent periods.
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Image Source: Zacks Investment Research
Here is how the Q4 EPS and revenue beat percentages for these companies compare to other recent periods
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Image Source: Zacks Investment Research
Key Earnings Reports This Week
The 100 S&P 500 members on deck to report results this week include several blue-chip operators like Boeing, GM, Starbucks, IBM, Southwest Airlines, Comcast, International Paper, and others, in addition to the aforementioned Mag 7 players.
By the end of this week, we will have seen Q4 results from more than 35% of the index’s total membership.
The Earnings Big Picture
The chart below shows the Q4 earnings and revenue growth expectations in the context of where growth has been in the preceding four quarters and what is expected in the coming four quarters.
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Image Source: Zacks Investment Research
Excluding contributions from the Mag 7 companies, S&P 500 earnings would have been up +5.7% on +3.8% higher revenues.
The chart below shows the overall earnings picture on a calendar-year basis, with double-digit earnings growth expected in 2025 and 2026.
Zacks Investment Research
Image Source: Zacks Investment Research
Please note that the very strong growth expected in 2025 is not driven by one or two sectors but is rather broad-based. All 16 Zacks sectors are expected to enjoy positive earnings growth in 2025, with 8 of the 16 Zacks sectors expected to achieve double-digit earnings growth.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>> Earnings Picture Remains Strong: A Closer Look
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