What to expect from the Magnificent Seven: Tesla, Microsoft, Alphabet, Apple, Meta, Amazon and Nvidia

The 'Magnificent Seven' accounted for around two-thirds of the S&P 500 gains (^GSPC) last year but can they repeat those extraordinary returns in 2024?

This group of mega-cap tech giants – Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) – are capitalising on tech growth trends such as artificial intelligence (AI) and cloud computing.

In 2023, the Magnificent Seven stocks surged between 48% and 239%, accounting some 60% of last year's 24% total return for the S&P 500.

Here’s what to expect as Tesla kicked off the mega-caps’ reporting season on 24 January.

Tesla (TSLA) – reported on 24 January

Tesla share prices struggled as the EV maker's revenues and profits missed expectations.

The company revealed that operating profits in the fourth quarter of the year had almost halved to $2.1bn (£1.7bn).

It was the second straight drop and meant for 2023 as a whole, operating income fell by 35% to $8.9bn, the first fall since the company turned profitable in 2020.

Tesla said revenue rose by 3% in the fourth quarter to $25.2bn and climbed by 15% for the year to a record $82.4bn.

Elon Musk's company cautioned growth would be "notably lower" than in 2023, when deliveries rose 38%.

Musk also warned that Chinese rivals "will pretty much demolish most other car companies in the world" unless trade barriers are put in place.

Microsoft (MSFT) – reporting on 30 January

Microsoft managed to steal the title of most valuable company in the world from Apple in 2024, with the software giant’s bet on AI paying off.

CEO Satya Nadella has made a push for Microsoft to assume a global leadership role in AI. The company has a significant stake in leading AI startup ChatGPT maker, OpenAI, and reportedly invested up to $13bn in the startup.

This alliance has been considered one of the tech industry’s most lucrative tie-ups.

On Wednesday, Microsoft’s market capitalisation stood at $2.895tn, a new record high for the company, and above Apple’s market cap of $2.825tn.

The last time the software giant earned the title of most valuable company in the world was back in 2021.

The consensus analyst forecast for the next set of quarterly results is earnings per share at $2.29 and revenue at $52.94bn.

Read more: FTSE top trending tickers of 2023

“The big issues are whether Microsoft can sustain robust growth in cloud computing and how it can take AI to the next level,” Dan Coatsworth, investment analyst at AJ Bell, said.

“Seen by most as the dominant AI software play, its apps are already critical to millions of businesses, so wrapping functionality into Windows, Microsoft 365, Azure and more through its Copilot tools offers immense potential.

“It is not all champagne and caviar for Microsoft. Its success has naturally attracted the attention of various regulators and competition authorities and like its mega cap peers, there are growing concerns that the company has become too dominant. Antitrust probes are likely to be a key focus for investors in 2024.”

Alphabet (GOOG,GOOGL) – reporting on 30 January

The search engine giant appears to be playing catch-up in the AI race and announced hundreds of job cuts in an effort to reduce costs. But the stock is still a buy with most analysts given its powerful free cash flow.

Most analysts are expecting Alphabet to report a 12% increase in fourth-quarter revenue, to $85.26bn, which should translate to a 51% increase in per-share earnings to $1.60, up from $1.05 in the same year-ago period.

“Alphabet has beaten market expectations for both earnings per share and revenue over the past three consecutive quarterly results. Investors will be hoping it can make it four in a row on 30 January,” Coatsworth said.

“Cloud computing is the big unknown – one minute Alphabet is thriving in this area, the next it cannot sustain growth momentum. Competition is fierce and this is a difficult one to call ahead of the results.

“YouTube continues to go from strength to strength, with millions of people now treating the platform as a priority place to consume content.

Apple (AAPL) – reporting on 30 January

Apple has taken overtaken Samsung (005930.KS) as the world’s biggest phone maker but that might not be enough to convince investors amid dwindling iPhone sales in China.

Apple added $1tn in market cap in 2023 even as it has reported revenue declines from the prior year in four consecutive quarters.

Analysts forecast Apple to report $2.09 earnings per share and $118bn revenue amid weakness in China and global waning demand for Mac computers and iPads.

“The company used to have a reputation for bringing out truly innovative products and shaking up the marketplace. In recent years that reputation has soured as there have only been new iterations of the same products,” Coatsworth said.

“The momentous change could be the Vision Pro headset which goes on sale in February 2024. While the $3,500 price point looks high, people pay that for high-end laptops and this could feasibly be another ‘must-have’ product for Apple fans.

“The key issue to monitor is whether Apple’s output can meet demand as last year there were reports it had to drastically cut production forecasts for the Vision Pro due to the complexity of its design.”

Meta Platforms (META) – reporting on 1 February

Its year of efficiency, that saw the company pivot away from the metaverse push, allowed Meta to achieve a remarkable return of 194% in 2023.

However, what can investors expect when Mark Zuckerberg, the chief executive of Facebook owner, sold almost half a billion dollars’ worth of the company’s shares at the end of last year. It was the first time he sold shares in almost two years.

Analysts forecast $4.96 earnings per share in Meta’s fourth quarter for 2023 versus a $1.76 per share loss in the same period a year earlier. Revenue is estimated be $39bn versus $34.15bn one quarter earlier.

“The results are likely to include a reiteration that expenses are going to rise in 2024, driven by higher infrastructure-related costs and investment in AI. The hype around the metaverse has died down but it continues to plug away at the concept and any success from Apple’s Vision Pro headset could revive public interest in virtual worlds,” Coatsworth said.

Read more: ChatGPT portfolio outperforms the UK’s top 10 most popular funds

“Meta has a big folder of AI ideas such as language translation and Instagram users reimagining their photos, but these seem unlikely to generate meaningful revenue, so advertising will remain key in terms of income for the near future,” he added.

Amazon (AMZN) – reporting on 21 February

Amazon saw its stock surge 81% in 2023 and is betting that generative AI will produce tens of billions in revenue for Amazon Web Services in the next few years.

Amazon aims to be a dominant player in the market despite being slow to invest in this technology.

The company also has a strong position in TV, film and music streaming and although the stock is not inexpensive, shares are the cheapest they have been in over 10 years.

Amazon has guided for net sales between $160bn and $167bn, equating to 7% to 12% growth versus the fourth quarter of 2022. The analyst consensus forecast is $0.78 earnings per share and $165.86bn revenue.

“The uncertain economic outlook raises the prospect that companies are continuing to find new ways to save money including paring back IT costs which could be problematic for Amazon’s cloud computing division. Potentially offsetting this issue is greater corporate interest in AI which could benefit the group,” Coatsworth said.

“Amazon has been rolling out new versions of AI chips which it said offer enhanced performance and announced plans to invest up to $4bn in Anthropic, a US company generating AI systems and large language models. AI may be the ‘hot theme’ in tech but keeping up with rivals, let alone overtaking them, can be a costly exercise,” he added.

Nvidia (NVDA) – reporting on 21 February

The AI boom of these tech mega-caps would not be possible without the chips from Nvidia, with the chipmaker seeing shares surge by 239% last year.

With demand far outstripping supply for its graphics processing units, investors will want to know if Nvidia can keep driving the AI-related rally the market enjoyed over the past year.

The analyst consensus forecast for its next quarterly results is $4.49 earnings per share and $20.06bn revenue.

Read more: How AI boom will benefit these nine chipmakers in 2024

“Nvidia is going all-in on AI, believing the world is on the cusp of a radical shift in technology usage. Companies in every industry are exploring ways to deploy AI to improve productivity and that creates a huge runway for Nvidia to grow its earnings,” Coatsworth said.

“Its key challenge is to keep up with demand and to keep innovating, rolling out new products that can help companies while also ensuring it remains at the forefront of the AI industry. Nvidia is the dominant force in market and there is no room for complacency, otherwise competition will be biting at its heels,” he added.

Watch: Why tech will still be 'one of the leaders' in 2024

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