Silicon Valley Gears Up for Crucial Earnings Week

After a rotation that would impress the gymnasts in Paris, what’s next for the market? 

Investors have spent recent weeks largely fleeing Big Tech, who have a lot going on this week. On Tuesday, Microsoft will hold its next quarterly earnings call, followed by Meta on Wednesday and Amazon and Apple on Thursday. Wall Street is dying for any hint that heavy investment in artificial intelligence is paying off.

Earn Notice

The so-called Magnificent Seven — the aforementioned four tech firms, plus Alphabet, Nvidia and Tesla — nearly single-handedly powered a bull market in the early months of 2024, at one point accounting for nearly 80% of all market gains. A little top-heavy, no? By the end of February, Apollo chief economist Torsten Slok called the AI bubble “bigger than the 1990s tech bubble,” a bold declaration that just so happened to coincide with Silicon Valley’s executive and insider class initiating a broad selloff of shares.

Now everyone else is catching up. After briefly surpassing Microsoft and Apple by market cap, Nvidia has seen its share price fall roughly 17% since a June peak. Meanwhile, Google-parent Alphabet failed to quell fears when it reported last week; AI spending ballooned to $2.2 billion in the quarter, with little guidance on if or when it would begin making a return. Meanwhile, Meta hasn’t given much indication that its own state of play looks all that different. Also last week, the Facebook owner announced it was taking a — cue the 2001: A Space Odyssey soundtrack — potentially long, long, long view on AI, opting for an open-source free-for-use approach, while also yadda yadda’ing the billions its sunk into development. An overall rapid rotation out of Big Tech has now dragged the Nasdaq 100 Index down 8% in about the past two weeks.

Some of that money has thus far flooded elsewhere — and may continue to flood elsewhere, pending this week’s results. Though, so far at least, not every corner of the non-tech economy has scored equal love from Wall Street:

• Since July 10, industrials in the S&P 500 are up 3.5% while the KBW Regional Banking Index is up over 18%. Consumer staples, meanwhile, haven’t quite gotten a boost; the S&P 500 consumer staples sub-index is up just 1.5%.
• The rotation to other sectors is likely to continue in the coming years. According to recent Goldman Sachs data, Big Tech firms saw annual earnings-per-share growth of 57% in 2023 compared to an S&P 500 Median annual EPS growth of just 4%; by 2026, Goldman projects the gap will narrow to 13% and 9%, respectively.

Fed Up: Supercharging all this, of course, is both another jobs report from the Bureau of Labor Statistics and another Fed meeting that may finally bring about the Godot investors have been waiting for: an interest rate cut. Buckle up. It’s going to be a big, big week.