Fourth quarter balance sheet season It got very intense this week. But much of the market’s reaction could depend on the Wednesday and Thursdaywhen the first of the companies of the “Magnificent 7“start reporting results, amid expectations of slower growth and doubts about when the fruits of enormous investments in artificial intelligence will be seen.
Microsoft Corp, electric vehicle maker Tesla Inc. and Facebook parent company Meta Platforms Inc., They will report results on Wednesday. To complete the results of the week’s big technology companiesApple Inc. will do so on Thursday.
These results coincide with the efforts of big technology executives to get closer to President Donald Trump, while ambitions in artificial intelligence continue to be one of the main drivers for the industry and the market. Trump hopes to boost both, announcing plans last week for $500 billion in investments in AI infrastructure.
But as companies struggle to find ways to incorporate AI into almost everything they do, observers have debated whether it will be an endless source of profits and productivity, or a bubble laden with overhyped technology that threatens jobs, the environment and the economy. global information ecosystem. After technology companies They allocated billions last year for AI developmentanalysts debate whether this will be the year investors start demanding results. Some strategists have said 2025 could be that year. Others are not so sure.
Katie Nixon, chief investment officer for wealth management at Northern Trust, also said anyone expecting concrete results will likely face some disappointment. Additionally, he said he expected the Magnificent 7’s earnings growth to slow. “I’m not saying the Magnificent 7 are going to continue to dominate like they have the last two years,” he said. “But what I’m saying is: I wouldn’t bet against him“.
He also said he would be seeking more details about the possible impact of Trump’s AI announcement, under which OpenAI, SoftBank Group Corp. and Oracle Corp. will form a joint venture called Stargate. And outside of the Magnificent 7, he said tech sector profits could gain momentum, as IT budgets unfreeze and possibly as public spending cuts deepen. But he added that the possible impact of tariffs on semiconductors remains a topic of interest.
The BofA forecast
Beyond AI, BofA analysts said a “healthy jump in revenue” is expected from Microsoft’s Azure cloud services segment and its Office platform, as customers’ efforts to pursue migration projects to the cloud remain “constant”. But at Apple, they expressed concern about demand for new iPhones, in part due to the staggered rollout of Apple Intelligence’s AI features, which have yet to achieve widespread adoption.
Although Meta is moving away from Diversity, Equity and Inclusion (DEI), fact-checking and content moderation, Truist analysts said they expected AI, ad demand and TikTok’s current legal limbo to benefit the company on a financial level. And as Elon Musk’s relationships with Trump and OpenAI remain possible wild cards, Tesla is coming off its first annual sales decline, although some analysts remain optimistic about the prospects for autonomous vehicles.
Either way, those estimates are still better than anything expected from the 493 companies that make up the rest of the S&P 500. The best quarter for those companies is expected to be the fourth of this year, with earnings growth of 15.4 %.
Even as inflation and consumer concerns persist, fourth-quarter net profit margins for companies in the S&P 500 Index, as a whole, are trending at 12.1%, according to a FactSet report released Friday.
If that figure holds, it would mark the third consecutive quarter of profit margins above 12%. Margins exceeded those levels in 2021 and in parts of 2022 and 2023, raising questions about the role price increases played in supporting them.
However, current earnings expectations will follow strong quarterly results from big banks and Netflix Inc., which reported subscriber numbers well above Wall Street expectations.
“Stronger for longer,” Nixon said of fourth-quarter earnings so far.
The week in profits
By next week, 102 S&P 500 companies, including nine in the Dow 30, will report quarterly results, according to FactSet.
Among the most prominent companies are United Parcel Service Inc., looking for signs of improvement in the package delivery industry this year. Earnings from Visa Inc. and Mastercard Inc. will provide insight into consumer spending following the holidays and elections.
Levi Strauss & Co.’s financial comments will offer new insight into the company’s ambitions to sell more people on a “denim lifestyle” as it evaluates a possible sale of its Dockers business. Intel Corp. to report amid acquisition speculation after AI stumbles. And amid expectations of strong travel demand, Southwest Airlines Co. will report as it faces a government lawsuit over “chronic flight delays,” a dispute with an activist investor and questions about its stock price and finances, as it introduces assigned seating. and premium class in their flight cabins.
Defense contractors Lockheed Martin Corp., General Dynamics Corp. and Northrop Grumman Corp. will also report, amid questions about how the new Trump administration will handle defense spending. General Motors Co., JetBlue Airways Corp. and Norfolk Southern Corp. also will report. IBM will also report.
Source: Ambito
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