Will the Magnificent Seven start shooting blanks?

Investors love giant tech stocks including Apple, Microsoft and Meta, but some analysts say their short-term outlook is shaky.

Elon Musk’s Tesla is a member of the Magnificent seven. Picture: Ryan Collerd/AFP

The world’s most popular stocks — the US tech giants — have handed down strong profits, but their share prices are stumbling.

Six of the seven biggest giants have just reported quarterly earnings, with NVIDIA to come later this month, and despite all six beating expectations investors are increasingly worried by their forward guidance and heavy AI spending.

Market analysts says while Australia’s tech sector is dwarfed by the US, movements in the so-called Magnificent Seven — Apple, Amazon, Alphabet (Google), Meta, Microsoft, Tesla and NVIDIA — impact stock markets everywhere.

Tiger Brokers Australia chief strategy officer Greg Boland said he was cautiously optimistic about their outlook, as US markets traditionally rallied after US presidential elections, but the road ahead could be bumpy.

Nvidia CEO Jensen Huang. Picture: Ian Maule/Bloomberg

“The six Magnificent Seven stocks that have reported in the past week have all beaten EPS and revenue forecasts for Q3, but forward guidance, higher AI costs and supply constraints have pushed Microsoft and Meta lower,” Mr Boland said.

“Apple fell on its inability to meet analysts’ expectations of adding AI features to iPhones thus limiting consumers’ motivation to upgrade,” he said.

“Google gained after stronger-than-expected performances in Search, Cloud and YouTube while Amazon jumped on actual and forecast growth of its AWS cloud capability as well as better-than-forecast operating margin.”

Tesla was the star performer so far, with its shares leaping 22 per cent the day after it delivered “stellar forward guidance”, Mr Boland said.

He said the tech giants’ AI narrative had been one of the biggest drivers of US and global markets and this would continue.

“The S&P500 is up 19.6 per cent year-to-date with tech giants NVIDIA up 168 per cent and Meta up 60 per cent.

“Bullishness in the US markets is good for global markets including Australia.”

Other analysts are not as positive given the huge uncertainty this week around the US election and the US Federal Reserve’s interest rate decision.

Moomoo market strategist Jessica Amir said the latest “sea of red” in equity markets could continue depending on the outcome of those two events.

“Remember the market is forward-looking,” she said.

“Although from the outset big tech companies such as Apple, Meta and Microsoft reported stronger-than-expected profits — like many of the other companies in the S&P 500 — they’ve all guided for less revenue growth ahead.”

“Markets, traders, and money managers are readjusting their books, preparing for slower revenue growth from the world’s biggest companies.”

IG market analyst Tony Sycamore said Microsoft was his biggest concern, with charts suggesting it could slide even lower after falling 13 per cent since July.

He said stocks faced uncertainty in the coming days: “it’s the biggest week in markets all year — it’s absolutely enormous”.

Markets were concerned about the tech giants’ forward guidance and also AI spending, Mr Sycamore said.

“The more they spend, the more they will see their profits under pressure, but they have got to keep spending and developing the technology — it’s a bit of a catch-22,” he said.

Markets wanted the AI revolution but “it’s got to be done sustainably”, Mr Sycamore said.

“The Nasdaq 100 hasn’t been able to break to new highs – the Dow Jones and S&P 500 have,” he said.

“The Magnificent Seven, which led us higher in the first half of the year, hasn’t been able to replicate that.

“My base case is we will see a pullback in these tech stock now. It looks like the stocks are a little bit tired, and people are concerned about spending-at-all-cost and it weighs on the stocks going forward.”

Mr Sycamore said while the ASX did not have a large tech sector, it was affected by US moves more broadly.

Originally published as Will the Magnificent Seven start shooting blanks?