The Magnificent Seven Stocks: Mid-Year Review
This Q2 earnings season saw the spotlight firmly cast on the ‘Magnificent Seven.’ Featuring NVIDIA (NVDA), Tesla (TSLA), Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL, GOOG), Meta (META), and Amazon (AMZN). This group of mega-cap tech stocks has propelled major indices higher and outperformed the broader market.
Venturing into the second half of the year, we examined the status of each member of the ‘Magnificent Seven’ heading into the Q2 2023 earnings season. Now that all seven of these companies have reported earnings, check out our post-earnings wrap to see how they stand.
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NVIDIA
The dominating narrative in the stock market this year has revolved around the rapid strides in Artificial Intelligence (AI) technology. A standout beneficiary of this trend has been NVIDIA, a leading chip manufacturer based in Santa Clara, California. As of June 30th, NVIDIA’s stock has surged 190% this year, largely attributed to its pivotal role in the burgeoning AI sector. With tech giants like Google and Microsoft also heavily invested in the AI race, NVIDIA has become a major player in powering that journey.
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NVIDIA is continuing to innovate in the AI space as several new chips have gotten widespread adoption, including the H100, which the company says offers nine times the performance than its predecessor and is essential in building Large language models (LLMs) like ChatGPT and BARD.
As more companies embrace AI they’ll continue to use NVDA’s “three-chip strategy” data center architecture to train their AI models. The company says it currently powers 74% of the TOP500 supercomputers on its data center architecture.
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Having recently entered into the elite group of companies with a trillion-dollar market cap, NVIDIA sees a promising prospect ahead. The company envisions a $1 trillion opportunity on the horizon. A significant chunk of this potential, $300 billion, is expected to come from the automotive sector as the industry steadily advances through the stages of autonomy.
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Market analysts predicted an EPS of $2.055 (revised to 2.14), which would be a whopping 303% (307%) year-over-year (YoY) increase. NVIDIA released its quarterly earnings on August 23rd.
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Tesla
Tesla, a pioneer in electric vehicles (EVs), has been instrumental in driving the advancements in autonomous technology within the automotive industry. The first half of 2023 has seen the company’s stock soar by 113%.
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During the first quarter of the year, Tesla beat estimates both in terms of production and deliveries. The company’s presence on American roads has been steadily growing, underscored by the Model Y becoming the best-selling non-pickup vehicle in the US. On a global scale, the Model Y has achieved an even more remarkable feat by becoming the best-selling car worldwide.
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Tesla further solidified its influence on future EV infrastructure as several automakers, including Ford (F) and General Motors (GM), announced that their future EVs would be compatible with Tesla’s Supercharger Network.
Market analysts predicted an EPS of $0.82, representing an 8.2% increase from last year’s actual EPS. Tesla announced its earnings on July 19th.
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Apple
Apple continues to maintain its reputation as one of the most successful publicly traded companies, and this year has been no exception. Apple’s stock rose by 49.7% in the first half of the year, propelling the tech giant to become the first company in history to reach a $3 trillion valuation.
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Interestingly, Apple’s impressive surge has occurred even as it navigates the customary Q1 downturn in iPhone sales. Which raises the question: where is Apple’s revenue coming from?
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The answer lies with Apple’s services segment, which includes the App Store, Apple Music, iCloud, and other subscriptions. This segment has emerged as a significant revenue generator, reaching a whopping $20.9 billion last quarter.
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Even as a blue-chip stock, the company still sees substantial growth potential in emerging markets. India, now the world’s most populous nation, seems to be particularly enticing to Apple. In April, Apple’s CEO Tim Cook visited India to inaugurate the first official Apple store in Mumbai, highlighting the company’s strategic move to capture the vast market opportunity in the country.
Analysts predicted an EPS of $1.19 per share, a slight -0.79% downturn from last year. Apple reported its earnings on July 28th.
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Microsoft
With its strategic stake in OpenAI, Microsoft directly benefitted from the hype surrounding AI to start the year. OpenAI is the creator of the popular Large language model (LLM), ChatGPT. Microsoft stock has risen 47% on the year, reflecting successful quarters across various company segments.
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In addition to subscriptions for GPT-4 (an enhanced version of ChatGPT), OpenAI has monetized its API, which is powered by Microsoft’s Azure Cloud platform. Azure has been experiencing sustained growth, bolstering its importance in Microsoft’s enterprise ventures.
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The company’s Office 365 platform also made strides in both consumer and commercial segments. While renowned for its enterprise solutions, Microsoft continues to make a significant impact in the consumer market. This is particularly evident in the performance of LinkedIn, a social media platform owned by Microsoft, which generated an 8% increase in revenue in Q1. This growth attests to the diverse avenues in which Microsoft is extending its market influence.
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Market analysts had anticipated a 14.35% YoY increase in EPS, projecting an EPS of $2.55 per share. Microsoft announced its earnings on July 26th.
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Alphabet
Alphabet, with a 35.7% stock increase this year as of June 30th, is another major player on the LLM side of the AI space, particularly with the release of Bard. Despite initial speculations of Alphabet lagging in the AI race due to ChatGPT’s early success, the company remains deeply committed to AI across various facets. This was highlighted in the last quarter’s earnings call where AI was mentioned 64 times.
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In an effort to expedite its AI development, Alphabet has combined the Brain Team in Google Research with Deep Mind, the company known for creating AlphaGo. AlphaGo’s groundbreaking Move 37 marked a pivotal moment in AI, showcasing its ability to not only emulate but also innovate beyond human thought patterns.
On the periphery of the AI business, Google Cloud’s revenue ascended 21.6%, from $5.8 billion at the end of Q1 in 2022 to $7.4 billion in the same quarter of this year. CEO Sundar Pichai emphasized Google Cloud’s importance during last quarter’s earnings call, saying that nearly 60% of the world’s top 1000 companies are Google Cloud customers.
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Alphabet announced its quarterly earnings on July 26th, with analysts previously forecasting an EPS of $1.33, marking a 9.98% YoY increase.
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META Platforms
Most of the buzz surrounding Meta Platforms Inc. (META) this year revolves around the recent launch of Threads, the company’s answer to Twitter. Its stock was still surging prior to that, recording a lift of 138.5% as of June 30th.
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The stock performance can partly be attributed to cost-cutting measures undertaken at the beginning of the year. Additionally, despite the recessionary concerns in the early part of the year, Meta has managed to grow its advertising revenue by 4.1% year over year.
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Continued growth is also evident in Meta’s Daily Average Users (DAUs), which increased by 3.9% year over year. Much like Apple, Meta has identified Asia as a significant region for expansion. The last quarter’s earnings report disclosed a 2.2% increase in DAUs in Asia.
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Analysts projected an EPS of $2.88, an impressive 16.88% increase from last year. Meta reported its earnings on July 27th.
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Amazon
Despite being relatively subdued in news compared to its “Magnificent Seven” peers, Amazon’s performance has been solid, with its stock up 55.2% as of June 30th. Like other big tech companies, Amazon kicked off the year with cost-cutting initiatives and undertook efforts to clean up its balance sheet in the first quarter.
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When it comes to Amazon, analysts often pay special attention to Amazon Web Services (AWS). A significant milestone for AWS was the launch of Amazon Bedrock, a platform where AWS customers can develop enterprise-grade generative AI applications. In terms of numbers, AWS accounted for 17% of Amazon’s net sales, and its revenue rose by 15.8% year-over-year in Q1.
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Looking at the balance sheet, Amazon made significant strides in reducing its free cash flow (FCF) deficit as it aims to generate positive FCF for the first time since June 2021.
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Analysts forecasted an EPS of $0.34, marking an astonishing 271% increase from last year’s EPS at this time. Amazon announced its earnings on June 28th.
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These companies have outperformed the broader market and have set a solid foundation heading into the second half. It’s evident that these industry behemoths are not just riding the wave of technological innovation, but they are the ones creating it. This earnings period provided further insights into their growth trajectories and sector-wide trends.
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