Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>

Here are the key points:

 

• Total Q3 earnings for the 120 S&P 500 members that have reported results through Wednesday, October 23^rd, are up +1.9% on +4.2% higher revenues, with 79.2% beating EPS estimates and 63.3% beating revenue estimates.

 

• The earnings growth pace for this group of 120 index members represents a deceleration from what we had seen in the first two quarters of the year, while the revenue growth pace is roughly in line with the recent trend line.

 

• Looking at Q3 as a whole, combining the actual results from the 120 index members that have reported with estimates for the still-to-come companies, total S&P 500 earnings are currently expected to be up +3.0% from the same period last year on +4.9% higher revenues.

 

• Q3 earnings for the ‘Magnificent 7’ companies are expected to be up +16.2% from the same period last year on +13.6% higher revenues. This would follow the +35.2% earnings growth on +14.7% higher revenues in Q2. Excluding the ‘Mag 7’, Q3 earnings growth for the rest of the index would be down -0.1% (vs. +3.0% otherwise).

 

The Magnificent 7 Group's Outsized Earnings Contribution

 

The earnings focus shifts to the Tech sector in general and the Mag 7 companies in the coming days, with five members of the group – Apple AAPL, Amazon AMZN, Meta META, Alphabet GOOGL & Microsoft MSFT – coming out with Q3 results next week.

The Mag 7 stocks appear to have ceded their market leadership role over the last few months, likely reflecting investors’ worries about ever-rising AI-centric capital expenditures without any clear ideas on how these massive investments will get monetized.

You can see this shift in the year-to-date chart below. Aside from Nvidia and Meta, the other five are now lagging the market.

Image Source: Zacks Investment Research

The Q3 earnings results in the days ahead will provide these companies another opportunity to make the case. This is particularly significant for Alphabet, Microsoft, and Amazon, though developments related to AI are relevant to all of them.

The market’s current issues with the Mag 7 stocks notwithstanding, there is no escaping the fact that these mega-cap operators are enjoying sustainable profitability growth. These seven companies collectively are on track to bring in $112.4 billion in earnings in Q3 on $487.3 billion in revenues. This represents year-over-year earnings growth of +16.2% on +13.6% higher revenues.