Mag 7 Members Report Strong Earnings, Double Down On CapEx

Table of Contents hide

1 Major Tech Firms Keep Spending High

2 Tech Sector Continues to Drive Growth

3 Overall Earnings Perspective

4 5 Stocks Set to Double

Note: The following is an excerpt from this week’s Earnings Trends report. To access the full report, which includes detailed historical actuals and estimates for current and upcoming periods, please click here>>>

Key Financial Highlights

Total earnings for 245 S&P 500 companies reporting results have risen by +11.6% compared to last year, driven by +5.1% higher revenues. Of these, 80.0% surpassed EPS estimates, while 66.9% exceeded revenue estimates.

As the earnings season for Q4 2024 unfolds, it showcases strong performance and an optimistic outlook, with companies not just meeting but exceeding estimates while offering positive guidance for the future.

Within the Tech sector, results for 68.3% of the index’s market capitalization are in, showing earnings up +23.2% from last year on +8.8% increased revenues. A notable 88.9% beat EPS expectations, alongside 77.8% surpassing revenue targets, outperforming previous reports.

Current projections for the entire Q4 anticipate S&P 500 earnings increasing by +11.9% year-over-year, with +5.3% higher revenues expected.

Major Tech Firms Keep Spending High

Alphabet Inc. (GOOGL) recently reinforced its commitment to substantial spending, particularly in artificial intelligence (AI) infrastructure, joining the trend previously set by Microsoft (MSFT) and Meta Platforms (META). Despite industry challenges, these companies are pressing forward with ambitious budgets.

Alphabet aims for a capital expenditure of $75 billion this year, a +47% increase. Similarly, Meta and Microsoft plan to invest $60 billion and $80 billion, respectively, with further upward adjustments anticipated for Microsoft as analysts reassess its projections.

Despite the high spending, Alphabet’s stock experienced a dip attributed largely to broader business environment concerns. Microsoft also faced setbacks in its cloud service dealings, impacting investor sentiment across the board.

Given the market’s reaction, there appears to be a demand for accountability from these major players, amid uncertainty regarding future returns on their spending. Nevertheless, the financials remain strong; Alphabet’s Q4 earnings climbed +28.3% year-over-year to $26.5 billion, accompanied by a +12.9% rise in revenues to $81.6 billion. In contrast, Microsoft reported a more modest +10.2% growth in earnings to $24.1 billion, while Meta’s earnings surged by +48.7% to $20.8 billion.

These leading companies argue that their hefty capital expenditures are essential for maintaining their competitive edge in the rapidly evolving AI landscape, crucial for sustaining their impressive earnings trajectory.

For Q4, earnings from the “Mag 7” tech firms are projected to be up +26.1% from the previous year, with revenues rising by +12.4%, as illustrated below.