Note: The following is an excerpt from this week’s Earnings Trends report. To access the complete report, which includes historical data and estimates for current and future periods, please click here>>>
Q3 Earnings Show Mixed Results as Tech Giants Lead the Pack
Key Highlights on S&P 500 Earnings
- Total Q3 earnings for 120 S&P 500 companies that reported by October 23rd increased by +1.9%, driven by +4.2% higher revenues. Notably, 79.2% surpassed EPS estimates, while 63.3% exceeded revenue projections.
- This earnings growth shows a slowdown compared to the first two quarters of the year, while the revenue growth aligns closely with recent trends.
- When combining actual results from these companies and estimates for others yet to report, total S&P 500 earnings are projected to grow +3.0% year-over-year, alongside +4.9% higher revenues.
- The ‘Magnificent 7’ companies, which include market leaders, anticipate Q3 earnings growth of +16.2% compared to last year, backed by +13.6% higher revenues. Notably, excluding these seven, earnings growth for the rest of the index would show a decline of -0.1% (instead of a +3.0% increase).
Tech Sector Spotlight: The Magnificent 7
As we look ahead, focus on the Tech sector, particularly the Magnificent 7 companies. Next week, five members—Apple AAPL, Amazon AMZN, Meta META, Alphabet GOOGL, and Microsoft MSFT—will announce their Q3 results. Recent trends indicate these stocks have faced challenges, as investors express concerns over skyrocketing AI-related expenditures without clear monetization strategies.
The year-to-date performance illustrates this shift; apart from Nvidia and Meta, other members are lagging behind the market.
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Upcoming Q3 earnings reports offer a chance for these companies to reassure investors, especially major players like Alphabet, Microsoft, and Amazon, where AI developments will be critically important.
Despite the market’s reservations, these seven tech giants are on track for robust profitability. Together, they’re expected to generate $112.4 billion in Q3 earnings on $487.3 billion in revenues, reflecting a year-over-year growth of +16.2% and +13.6% in revenues.
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Remarkably, the Magnificent 7 will contribute to 21.3% of total S&P 500 earnings in Q3. Without them, earnings for the remaining S&P 500 companies would trend downward.
The Broader Earnings Landscape
Analyzing Q3 more comprehensively, combining reported outcomes and outstanding estimates, total earnings for the S&P 500 are set to rise +3.0% year-over-year with +4.9% higher revenues. Without the drag from the Energy sector, which has seen a decline of -25.6%, earnings growth could have been as high as +5.3%.
However, excluding the substantial contributions from the Tech sector, overall earnings for the index would decline by -0.3% (with Tech showing an impressive growth of +11.7%).
Looking ahead, Q4 earnings are anticipated to improve, as reflected in the chart below showing historical quarterly performance.
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For Q4 2024, total S&P 500 earnings are expected to rise by +9.1% along with +5.3% higher revenues. If not for the Energy sector’s dip, Q4 performance could have seen a +10.9% boost.
Although estimates have been revised down this quarter, the decline is less severe than we observed in Q3’s comparable period, as seen in the forthcoming chart.
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Annual earnings data reveals this year’s growth of +7.4% is accompanied by only +1.9% in revenue gains, primarily due to a slowdown in the Finance sector. Excluding Finance, earnings growth adjusts to +6.4%, with revenue growth reaching +4.2%. In essence, nearly half of the earnings increases stem from revenue growth, the remainder credited to margin improvements.
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