The latest earnings season has gotten off to a strong start, with investor attention turning to the "Magnificent 7" tech giants to see if their results can add to this momentum.
More specifically, the Magnificent 7 — Tesla, Meta, Microsoft, Apple, Amazon, Alphabet and Nvidia — were responsible for more than half of the S&P 500’s (^GSPC) 25% return in 2024.
Tech stocks were already poised to climb higher this year, with Donald Trump's return to the White House, given his pledges to loosen regulations and cut taxes, as well as to invest heavily in AI.
Billionaire tech CEOs have also been flocking to forge closer ties with Trump, with many in attendance at his inauguration.
In the first few days of Trump's second presidential term tech stocks rallied, after he unveiled a $500bn (£405bn) private-sector investment plan — known as the "Stargate" project — to build AI infrastructure in the US.
In a note on Wednesday, John Higgins, chief markets economist at Capital Economics, said: "Trump’s ringing endorsement of Stargate is another shot in the arm for AI in the early days of his second presidency, and supports our long-standing view that the S&P 500 will thrive in 2025 amid growing investment in, and enthusiasm for, this transformative technology."
Given this theme is set to continue to dominate markets this year, investors will be watching to see which of the Mag 7 stocks are leading the way on the AI trend, or if any are falling behind.
Here's what experts expect to see from the Mag 7 this earnings season.
Shares in electric vehicle (EV) maker Tesla have surged since Trump's election victory in November, with the stock becoming known as part of the "Trump trade", as CEO Elon Musk has become a close ally of the president.
Musk, who was a major supporter of Trump campaign, was appointed to lead the new Department of Government Efficiency (DOGE).
Tesla shares fell following the release of these figures and while Musk's expected role of influence on the incoming Trump administration saw the stock rise ahead of the inauguration, it fell back on the first full day of trading after the Republican president returned to office.
Read more: Stocks that are trending today
This came after Trump revoked a policy that mandated half of the new US cars manufactured be electric by 2030 and directed his administration to consider eliminating "unfair subsidies" on EVs.
Musk had said last year that he didn't think Tesla would be as impacted as competitors by the scrapping of subsidies and believed it could even help the company in the long term.
Despite these headwinds, analysts remain confident about the stock. Piper Sandler analyst Alexander Potter said he believed that Tesla would shift away from launching new EVs and focus on "popularising" its autonomous driving software, changing his price target on the stock to $500 from $315.
In terms of financial performance, Tesla posted third quarter revenue of $25.18bn, which was below estimates of $25.4bn. However, adjusted earnings per share of $0.72 came in ahead of an anticipated $0.60, and Tesla's closely-watched gross margin figure came in at 19.8%, much higher than the 16.8% expected.
As for Tesla outlook, the company said in its quarterly earnings deck that plans for new vehicles, including more affordable models, "remain on track for start of production in the first half of 2025".
Mark Zuckerberg, the CEO of Facebook-owner Meta, is another tech leader that has been trying to build a closer relationship with Trump.
Meta committed $1m to Trump's inaugural fund and recently announced it had appointed Ultimate Fighting Championship CEO Dana White, an ally of Trump, as one of three new board members.
Zuckerberg also recently announced an end to the company's third-party fact-checking programme in the US, a move that was considered as part of a repositioning ahead of Trump's return to office.
Meta shares are up 62% over the past year, though the stock fell following the release of its third quarter earnings in October.
The company delivered earnings per share of $6.03, which bested estimates of $5.25 and revenue of $40.5bn beat forecasts of $40.2bn.
Read more: 6 crypto developments in 2025 that will keep fuelling bitcoin's rally
However, expectations were high going into this set of results and Meta guided to fourth quarter revenue guidance of between $45bn and $48bn for the quarter, compared to analyst forecasts of $46.09bn. The company also said it expects capital expenses to grow significantly in 2025.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: "Meta has set itself apart among tech giants by turning AI investments into quick wins. Unlike cloud providers that sell AI capabilities, Meta focuses its efforts on enhancing its own products, driving higher ad revenue."
"That’s not to say the AI push comes cheap," he added. "Zuckerberg sees AI as a once-in-a-generation opportunity, and the spending reflects that ambition. Investment will be watched closely, with some $15bn needed to be spent over the quarter to achieve full-year spending plans.
"Investors, understandably cautious after Meta’s past overspending on projects like the metaverse, will be laser-focused on investment plans for 2025."
As the Stargate project was unveiled, Microsoft said it signed a new agreement with OpenAI, which included "changes to the exclusivity on new capacity".
Microsoft has been OpenAI's biggest backer and has provided data centre infrastructure for the ChatGPT maker to run its language models.
While this new agreement marks a shift in the arrangement between the two companies, Microsoft was still named as one of the key initial technology partners on Stargate.
The company also recently said it planned to spend $80bn on AI in this fiscal year. Microsoft has also been among the tech companies to jump into the trend of digital agents powered by AI.
In October, Microsoft announced the rollout of its Copilot features, which aim to enhance business productivity by automating routine administrative tasks.
Futurum Group CEO Daniel Newman told Yahoo Finance in December that he projected AI agents represent a $4tn annual global market opportunity over the next five years, describing it as "a massive opportunity" for companies.
Read more: FTSE housing stocks set to benefit from property market rebound
In terms of broader company performance, Microsoft's fiscal first quarter results beat expectations. The company reported earnings per share of $3.30, versus forecasts of $3.10 and revenue of $65.6bn also topped expectations of $64.5bn.
However, market reaction was downbeat, given mixed guidance on the earnings call. There were concerns around pressure on company profit margins in second quarter given the ramp up in AI spending.
Shares have had a bumpy ride over the past year, capping gains at nearly 12%.
Britzman said that the key metric to watch in the second quarter results was growth in its cloud computing Azure business, which is expected to come in at 31% to 32%.
"Microsoft has said more recently that its capacity constraints are resolved, so markets hope to get a better picture of current demand levels in the coming quarters," he said. "Beyond Azure, the rollout of Copilot will also be under scrutiny, with investors eager to see how product development and adoption are progressing after some criticism from peers."
Shares in Apple have come under pressure recently, amid disappointing news around its iPhone market share.
Apple's stock has suffered two analyst rating downgrades this week alone. Jefferies (JEF) analyst Edison Lee lowered the investment bank's rating on Apple shares to "underperform" and decreased his price target on the stock by 13% to $200.75.
Lee said in an investor note that he expected Apple's first quarter results — which are due out next week — to come in below expectations, and for the company to miss against estimates for the second quarter on weak iPhone sales and a lack of interest in AI among consumers.
Meanwhile, Loop Capital downgraded Apple from "buy" to "hold" and lowered its price target on the stock from $275 to $230.
Meanwhile, Counterpoint Research found sales of Apple's iPhones fell 18.2% in China in the December quarter, according to a Bloomberg report. The research also showed that the iPhone gave up its title of the top selling smartphone handsets in China to Huawei Technologies.
Read more: Funds for investors to watch in 2025
And data from from market analyst firm Canalys showed that Apple lost its top spot as the smartphone maker with the biggest market share in mainland China.
The recent fall in the Apple's shares, has seen the company's market valuation down decline to $3.41tn, and chipmaker Nvidia overtake it once again as the world's most valuable company, with a market capitalisation of $3.55tn.
In the fourth quarter, Apple reported earnings per share of $0.97 on revenue on revenue of $94.9bn. The company said it saw a one-time charge related to the reversal of a European General Court decision that requires Apple to pay €13bn to Ireland for back taxes.
Without the charge, EPS would have come in at $1.64. That would have blown past expectations of $1.59 per share and revenue of $94.3bn.
A major focus for Amazon's fourth quarter results next week will be its cloud business, Amazon Web Services (AWS).
Revenue for this part of the business came in at $27.5bn in the third quarter, which was in line with Wall Street expectations, but was still up 19% year-on-year.
Shares popped following the release of Amazon's third quarter results, as it posted earnings per share of $1.43, which was ahead of estimates of $1.16. Revenue of $158.9bn also beat expectations of $157.29bn.
Investors also cheered Amazon's guidance for the fourth quarter, with the company expecting net sales to come in at between $181.5bn and $188.5bn.
Stocks: Create your watchlist and portfolio
Amazon is expecting to report operating income of between $16bn and $20bn, against the $13.2bn it reported for the same period in 2023.
Hargreaves Lansdown's Briztman said: "As usual, AWS will be the cloud hanging over market sentiment — any growth materially above 19% should get a warm reception. Investors will also be tuned in for updates on AWS’s AI initiatives and the eye-popping investment Amazon plans to spend in the space."
"Meanwhile, let’s not forget Amazon’s trusty old e-commerce arm, often overshadowed by its cloud cousin," he added. "For the first time in a while, it’s showing signs of life, with fresh initiatives like the discount storefront ‘Amazon Haul’ helping expand its reach. If Amazon can fine-tune automation, there’s potential for some tasty margin expansion too."
Sundar Pichai, CEO of Google-owner Alphabet, was another tech leader in attendance at Trump's inauguration.
A day later, Business Insider reported that Alphabet's chief investment officer Ruth Porat said at the World Economic Forum in Davos that there's a "tremendous amount of opportunity" to work with Trump in his second term.
These comments come after Alphabet has been grappling with regulatory headwinds over the past year. In November, the US Department of Justice (DOJ) asked that Google be forced to sell off its Chrome browser, as part of proposed remedies aimed at ending the company's dominance in internet search.
This filing came after a judge ruled in favour of prosecutors in a landmark trial in August, who argued that that Google ran its search engine empire as an illegal monopoly. The judge will will now decide what should happen next in a separate "remedies" phase of the trial that is expected to start this year.
Read more: Stocks to watch in European luxury and retail in 2025, according to Deutsche Bank
When Trump was asked in an interview in October about whether he believed Google should be broken up, he said: "Google’s got a lot of power. They’re very bad to me."
While Trump didn't go into specifics when asked if he would break up the business, he said: "I’d do something."
Despite regulatory concerns, Alphabet has continued to show strong performance, with the company smashing estimates in its third quarter results. Alphabet posted earnings per share of $2.12, compared to expectations of $1.83 and revenue of $88.27bn came in well ahead of estimates of $86.44bn.
Looking ahead to the fourth quarter, Britzman said that having "arrived fashionably late to the AI party, Alphabet is now making a splash. AI-powered overviews in Google search are starting to show their value, and investors will be laser-focused on ad revenue, still the core growth driver with a 9.5% uplift expected from [the] fourth-quarter results."
Market darling Nvidia will be the last of the Mag 7 to report, with investors eagerly anticipating the earnings for signals on the strength of AI chip demand.
Nvidia CEO Jensen Huang was one of the few tech execs not to attend Trump's inauguration, though the company was another named as a key initial technology partners on the Stargate project.
Shares in Nvidia are up a whopping 145% over the past year, though increasingly high expectations mean markets have become highly sensitive to any disappointing news around the chipmaker.
Read more: Surprising UK pay growth could delay Bank of England’s interest rate cuts
The stock dipped following the release of its third quarter results, even though Nvidia beat estimates on key metrics. Revenue of $35.1bn was comfortably ahead of analysts estimates of $33.2bn and earnings per share came in at $0.81 beat expectations of $0.74.
However, gross margins were lower quarter-on-quarter from 75.1% to 74.6%.
In addition, Nvidia guided to revenue of $37.5bn for the fourth quarter, plus or minus 2%, which would be just ahead of Wall Street expectations of $37bn.
Even so, analysts remain bullish on Nvidia, with Barclays (BARC.L) keeping an "overweight" rating on the stock and raising its price target on the stock from $160 to $175.
Read more:
Download the Yahoo Finance app, available for Apple and Android.
