Tech Stock Earnings Diverge, Will the 'Mag Seven' of Wall Street Become the 'Mag Four'? [Learn Premium Weekly Review]

Despite an explosive increase in employment data, both the $S&P 500 Index(.SPX.US)$ and $NASDAQ(NASDAQ.US)$ climbed throughout the day, supported by strong defenses from tech giants.

Amidst the anticipation of earnings season, the “Big Seven” tech stocks reached new historical highs this week, boosting the broader market's rise. However, behind the frenzied surge lies a divergence in individual stock performances. This week, five tech giants released their earnings reports, and only $Meta Platforms(META.US)$ and $Amazon(AMZN.US)$ continued their post-earnings uptrend, achieving cumulative gains for the week. The other three— $Apple(AAPL.US)$, $Microsoft(MSFT.US)$, and $Alphabet-C(GOOG.US)$—turned negative.

Here's a more detailed look:

· $Microsoft(MSFT.US)$'s cloud business grew at a slower pace than expected, and the stock price fell 1.6% post-earnings, before recovering to a 1.8% increase overnight;

· $Alphabet-C(GOOG.US)$'s fourth-quarter ad revenue reached $65.5 billion, below the expected $65.8 billion, which caused market concern. There are also views that Google's earnings may show that it is falling behind Microsoft, leading to a 6.7% decline in its stock price, which fluctuated overnight but ultimately rose 0.58%, ending the week down 3.4%;

· After announcing record-high quarterly revenue growth of 25% that beat expectations, plans to buy back $50 billion in stock, and the first-time distribution of dividends, $Meta Platforms(META.US)$'s share price surged over 20% in early trading, and its market value soared by more than $200 billion during the session, marking the largest single-stock market value increase in the history of the U.S. stock market, surpassing the $190 billion gains of Apple and Amazon in 2022.

· $Amazon(AMZN.US)$, with stronger-than-expected fourth-quarter performance and first-quarter guidance, saw a strong rise after earnings;

· $Apple(AAPL.US)$ reported its first positive quarterly revenue growth in a year but also a 13% decline in sales in the Chinese market; management guidance suggested weak iPhone sales in the first quarter. Apple's stock fell over 5% after the earnings announcement but recovered during the following session, at one point erasing more than a 4% loss.

However, despite the mixed responses from the market, the sales and profits reported by the five tech giants have all shown strong growth. According to the media data, the companies' quarterly revenues have increased by an average of 15% with a total close to $500 billion.

Tech stocks have been on a roll this year, contributing to the lion's share of the gains in the US stock market: data shows that the Mag-7 accounted for 45% of the $S&P 500 Index(.SPX.US)$'s returns in January. This has sparked concerns about a potential replay of the "2000 dot-com bubble" crisis.

Big banks like JPMorgan Chase and Bank of America have sounded the alarm, comparing the concentration of today's big tech companies to the internet bubble of twenty years ago, and stating their growth rates might not be sustainable—Mag-7 stocks shot up by 80% in 2023, while the general $S&P 500 Index(.SPX.US)$ only saw an average increase of 3%.

Analysts at Bloomberg also back up this view. Bloomberg points out that thanks to the Mag-7's dominance in fields like e-commerce, cloud computing, and electronics, their profits are expected to grow at an average annual rate of 14% over the next three to five years. That's 4 percentage points higher than the projected growth for the $S&P 500 Index(.SPX.US)$.