As Earnings Have Increased, the Magnificent Seven Have Become Less Magnificent. Probably the One That Needs the Most Explanation.

The group known as the Magnificent Seven, comprising Apple Inc., Nvidia Corp., Microsoft Corp., Tesla Inc., Google parent Alphabet Inc., Amazon.com, and Meta Platforms Inc., has been instrumental in driving the U.S. stock market since the surge in artificial intelligence (AI) stock investments last year. However, in the past week, these companies collectively suffered a staggering loss of $950 billion in market value, marking their most significant weekly decline ever, amidst what analysts describe as a sector-wide correction.

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This upcoming week, four of these companies - Tesla, Microsoft, Alphabet, and Meta - are slated to present their cases to investors and Wall Street analysts. Of particular interest will be Tesla's quarterly earnings report on Tuesday, following reports of impending staff cuts and concerns regarding profitability, increased competition, and softer demand for electric vehicles (EVs). Analysts emphasize the importance of Tesla CEO Elon Musk addressing these issues and providing a clear strategy and vision for the company's future during the earnings call.

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Meanwhile, Meta is set to report on Wednesday, with Microsoft and Alphabet following suit on Thursday. Analysts anticipate robust sales and profit gains for these companies in the long run, fueled by AI advancements and improvements in the online advertising space.

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However, concerns persist regarding the timeline for realizing the full benefits of AI investments and the potential negative impacts of an AI bubble on internet usability.

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Alphabet, in particular, faces scrutiny following a fourth-quarter performance that fell short of expectations in its digital ads business. Investors will be keen on insights into Alphabet's chatbot Gemini and its integration with Google's search ecosystem, as well as its competition with Meta in online searches and advertising, the state of YouTube amid competition with TikTok, and the performance of its cloud services segment against rivals like Amazon and Microsoft.

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Microsoft is expected to maintain its growth trajectory, driven by continued adoption of its cloud services and the introduction of its AI assistant, Copilot. Meta, on the other hand, recently announced its first-ever dividend and remains optimistic about future revenue growth, driven by improvements in AI-driven ad targeting and product innovation.

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According to FactSet Senior Earnings Analyst John Butters, five of the seven Magnificent Seven companies - Nvidia, Amazon, Meta, Alphabet, and Microsoft - are anticipated to contribute significantly to first-quarter profit growth in the S&P 500 Index. These companies are projected to report a collective earnings growth of 64.3% year-over-year for the first quarter, overshadowing the overall earnings decline expected for the remaining S&P 500 companies.

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Looking ahead, a total of 158 S&P 500 companies, including key players like Intel Corp., IBM, Ford Motor Co., General Motors Co., Visa Inc., Mattel Inc., Hasbro Inc., and Spotify Technology, are set to report quarterly results, providing further insights into the state of various industries and consumer spending patterns.

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Additionally, events such as Boeing Co.'s earnings call and United Parcel Service Inc.'s quarterly results will offer valuable information on aerospace and shipping trends, influencing broader market sentiments and economic outlooks.

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