Mag 7 Earnings & DeepSeek: What Should Investors Know?

Sheraz Mian

Fri, Jan 31, 2025, 4:57 PM 5 分鐘閱讀時間

在這篇文章中:

DeekSeek appears to have put a big dent in what everyone believed was a source of competitive advantage in the AI race for Tech leaders like Microsoft MSFT, Alphabet GOOGL, Amazon AMZN, and others. And if we go by how Microsoft and Meta described the evolving AI competitive landscape on their respective Q4 earnings calls last week, we will most likely hear comparable commentary from Amazon and Alphabet as they come out with their December-quarter results this week.

Market participants have all along been skeptical of the investment case for the extraordinarily heavy spending by Microsoft, Alphabet, Amazon, and others on AI-centric data centers and related infrastructure. The issue all along has been these companies’ inability to articulate a clear case for how these investments will get monetized.

While a lot about DeepSeek’s actual cost in building and training its model is unknown, notwithstanding the announced figure of a few million dollars, the hundreds of billions of dollars that these companies are collectively pouring into the project appears to be overkill. Microsoft and Meta reiterated their spending plans and see the resulting data center capacity as giving them a strategic advantage in the long run. We can safely assume that Amazon and Alphabet will follow Microsoft and Meta on this crucial question.

While the market’s collective focus was mainly on the AI question for Microsoft and Meta, the former disappointed in its core results, with cloud guidance coming up short, while the latter showed plenty of operating momentum in operating results. Microsoft’s December-quarter earnings were up +10.2% from the same period last year on +12.3% higher revenues, while Meta’s earnings and revenues increased +48.7% and +20.6% from the year-earlier levels, respectively.

Apple and Tesla, the other Mag 7 players that also reported results last week, received favorable market reception. However, the positive market follow-through was likely less of a response to the core results and more of a sigh of relief at better-than-feared numbers.

China has emerged as a major risk in the Apple story, with tepid iPhone demand in that key market and the company’s continuing AI struggles taking center stage. Some anecdotal evidence suggests that some of Apple’s local Chinese competitors are giving it a lot tougher competition than in years past. On top of that is the prospect of tariffs, a far bigger issue for Apple than the rest of its Mag 7 peers.

Apple’s December-quarter earnings were up +7.1% on +4% higher revenues, while Tesla’s earnings and revenues for the period were up +15.7% and +2.1% from the year-earlier level, respectively. Net margins were up at Apple and Tesla, with Apple’s margins up 86 basis points from the same period last year while Tesla’s expanded 105 bps.

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. The +25.6% earnings growth comprises actual results from the four group members that have reported and estimates for Alphabet, Amazon, and Nvidia (that haven’t reported yet).