The Big Tech stocks are beginning the year’s earnings season with mild optimism. After signs from the White House that President Donald Trump may be softening his scorched-earth tariff plan, the Magnificent Seven stocks have been up more than 6% this week. On Thursday, Google parent Alphabet Inc. will report its numbers and set the tone for a delicate run of results reminiscent of the Covid era’s confusion.
One of the seven, Tesla Inc., has already reported — though its unique position, and the political antics of its chief executive officer, have made it a permanent outlier in the group. The gain of about 5% in its shares after abysmal results holds few useful clues for investors wondering about how the crop of more easily compared tech giants will fare. Those companies aren’t as able to fend off the gravitational pull of reality.
Analysts for all six of the other members — Alphabet, Amazon.com Inc., Meta Platforms Inc., Apple Inc., Nvidia Corp. and Microsoft Corp. — have lowered price targets since the tariff “Liberation Day” on April 2 threw projections into disarray. Apple has experienced the most severe cut: As of Wednesday, Bloomberg consensus data suggested analysts predict its stock will be $235.95 in 12 months, 7% lower than the expectation before the tariff tumult and what would amount to a valuation difference of $267 billion.
Whether or not the pulled-back predictions are proportionate isn’t likely to become all that much clearer by the end of this earnings season. But, while the companies can’t offer clarity on tariffs, investors will want firmer direction on the more practical business of breaking ground on new data centers to accommodate the growth of artificial intelligence.
Heading into the year, the Big Tech companies pledged capital investments of more than $325 billion, the biggest bet on an unproven technology in the history of the industry. Since then, there have been conflicting signals. Microsoft’s head of cloud operations, Noelle Walsh, wrote on LinkedIn that the company was “slowing or pausing some early-stage projects” as it related to building data centers. A Wells Fargo analyst note reaffirmed the Microsoft pullback and added that the other biggest player, Amazon’s AWS, had “paused a portion of its leasing discussions on the colocation side.” (Colocation, in this context, typically means leasing data center resources from a third party.)
However, AWS head of global data centers, Kevin Miller, took to LinkedIn to stress that any canceled or paused deals should not be read as indicators of much. The maneuvers were just part and parcel of the expansion process, something the company has been doing for “almost two decades.” “That experience has taught us to consider multiple solutions in parallel,” Miller wrote. “Some options might end up costing too much, while others might not deliver when we need the capacity. Other times, we find that we need more capacity in one location and less in another.”
Expect analysts on the earnings calls to seek greater clarity. In offering it, each company will strive to thread a needle: Costs can’t spiral, nor can they risk pulling back so far they fall behind in the race for the ultimate AI prize, whatever that may actually be.
As I wrote earlier this month, the AI cost equation has become even more pressurized thanks to the uncertainty that tariffs are bringing into the companies’ legacy businesses. Investors worry about developments like Chinese advertisers moving away from Meta’s platform; Chinese sellers stepping back from Amazon’s e-commerce store; and the entire supply chain eating into the margins of Apple’s iPhone. For Nvidia, which as always will arrive fashionably late in earnings season, on May 28, there is now the question of not being able to sell its H20 chip to China and what retaliatory measures might follow.
The big questions will go unanswered this season. Some nuggets of insight might come if top executives share with investors any details of their direct discussions with the president and his team, such as Apple CEO Tim Cook’s calls on tariffs or Nvidia CEO Jensen Huang’s meeting and photo op at Mar-a-Lago.
But if investors are waiting expectantly for meaningful forward guidance, they should temper those hopes. If there’s one similarity that can be drawn from Tesla to the rest of the pack, it’s that predicting the future in Trump’s economic regime is as futile as it was during the Covid pandemic, when companies threw their hands up and simply said they didn’t know what was coming next. On Tuesday, Tesla said it would not offer any guidance for 2025 until at least the next quarter’s earnings. Expect the same from the rest of the Magnificent Seven.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out some of our webcasts.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
More Asian/European Markets Topics >
