The core component in our thesis for investing in the 2020's. Because of advantage flywheels the companies that can afford to invest in technology will receive a greater and greater (hyper-Pareto) share of any available profits.*
From Investor's Business Daily, January 27:
With four Magnificent Seven companies reporting earnings this week, the group continues to dominate the S&P 500 earnings growth.
As a group, the Magnificent Seven are expected to report earnings growth of 20.3% for the fourth quarter. That dwarfs the 4.1% increase in year-over-year EPS growth of the rest of the S&P 500 index, FactSet Senior Earnings Analyst John Butters said in a report.
Q4 earnings for the entire S&P 500 are expected to grow 8.2%. The top five contributors to the increase include Magnificent Seven members Nvidia (NVDA), Alphabet (GOOGL) and Microsoft (MSFT).
Outside the Magnificent Seven, Micron Technology (MU) is another major contributor to S&P's quarterly earnings. Analysts' consensus profit estimate is $8.20 a share, an increase of 494%, per FactSet. Boeing (BA) is another top 5 contributor, even though the company is expected to post a loss of 44 cents a share — much smaller than its year-ago loss of $5.90.
While profit growth has slowed for most of the Magnificent Seven, their massive scale keeps those companies at the top of the S&P earnings pyramid.
Mag 7 Tower Over S&P 500
About 80% of the expected S&P 500 earnings growth in the fourth quarter rests on the technology sector alone, LPL Research said in a report. That excludes Alphabet and Meta Platforms (META) (both in the Communications Services sector) and Amazon.com (AMZN) (in Consumer Discretionary).Excluding automaker and AI company Tesla (TSLA), the six biggest technology and tech-oriented companies are expected to drive over 60% of S&P 500 earnings growth for the quarter by growing earnings an average of 19% each.
"That pace of growth from this group, which may end up north of 25% when all the results are in, will probably more than double the earnings growth rate that the 'S&P 493' will be able to deliver," LPL said in its report.
Growth outside of the top tech-oriented companies has improved slightly in recent quarters. The 493 S&P companies outside the Magnificent Seven grew earnings 11.8% in the third quarter. But the major AI companies may continue to deliver superior growth for at least the next few quarters, researchers added.
Magnificent Seven Earnings This Week
Four of the Magnificent 7 companies are reporting earnings this week: Tesla, Microsoft and Meta report after the close on Wednesday. Apple (AAPL) delivers results on Thursday. Apple, Meta and Microsoft earnings are seen rising 11%, 2% and 21% respectively. Tesla's EPS is estimated to fall 38%....
....MORE, including a dozen related stories.
*"The 'new normal' of growth stock dominance"
What our five years of blather regarding advantage flywheels is all about...
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