With the (not insignificant) caveat that Nvidia’s yet to report, the handful of US companies which collectively shoulder the burden of what, on many metrics, is a very heavy equity rally, just failed to beat analysts’ sales estimates for the first time in years.
To be sure, the mega-caps rang up enormous revenue between them last quarter — $552.29 billion to be precise about things. That’s the sum total of sales for Meta, Microsoft, Alphabet, Apple, Tesla and Amazon for last quarter.
Half a trillion’s still a lot of money even in our inflationary world, but it didn’t constitute meaningful upside to consensus.
As the figure above, from Goldman, shows, total revenue was merely in line with company analysts’ estimates during the final quarter of 2024, the first time since late 2022 that the collective Mag7 haul (again, ex-Nvidia) didn’t surprise.
2022, you’ll recall, was a rough stretch for the best companies on the planet. The group’s shares were beset that year as investors recoiled at the rather demanding juxtaposition between lackluster sales growth (against impossible comps, I should note) and an extraordinarily aggressive Fed hiking campaign.
Things turned around smartly in 2023, and thanks to the AI hype cycle, it’s been a veritable bonanza since. But some worry the party’s due for a pause, particularly in light of new questions about the ROI on hundreds of billions spent chasing Jensen Huang’s “new industrial revolution.”
As discussed here, the six companies mentioned above plan to spend $331 billion on capex this year, and another $359 billion in 2026. It better be worth it.
The figure above, from Morgan Stanley’s Mike Wilson, shows earnings call mentions of AI adoption hit a record this month, but government survey data suggests just 6% of US companies are currently using AI, and just one in 10 plan to over the next six months.
Remember, one justification for elevated multiples is high forecasted sales growth, and while some of the Mag7 companies are still growing sales at a brisk rate, some aren’t. Apple’s holiday quarter revenue grew just 4%, for example, and Tesla’s not growing the top-line at all.
As for earnings growth, the gap with the rest of the market’s poised to narrow, and quite dramatically at that.
The figure above, again from Goldman, shows company analysts expect the gap to be just 7ppt this year and 4ppt next, down from 33pt last year.
There are two ways to look at that. If you’re a glass half-full type, it’s potentially good news: A broader rally’s a healthier rally.
But that assumes the market’s capable of a rally in a scenario where EPS growth for the names which comprise 35% of market cap collapses by 20ppt, albeit to a still very healthy 16%.
