- Five of the Magnificent Seven tech giants will report earnings this week.
- "Good is not good enough" when it comes to what investors are expecting, a strategist said.
- Business Insider asked market pros what they expect from the mega-cap results.
Five of the Magnificent Seven are reporting this week—Meta, Amazon, Microsoft, Google, and Apple— and with investors back to being bullish on tech and AI, expectations are high.
Anything less than stellar results and solid guidance from the mega cap tech titans could fuel fresh volatility and market losses, given that the small handful of companies account for such a high percentage of S&P 500 market cap. Google parent, Alphabet, along with Microsoft, Amazon, Meta, and Apple account for nearly a quarter of the S&P 500's valuation.
"When it comes to the megacaps, we continue to see a theme that good is not good enough," Freedom Capital Markets chief market strategist Jay Woods said.
JPMorgan analysts warned that they expect more post-earnings stock volatility than usual this season, flagging Meta, Amazon, and Microsoft as the potentially most volatile of this week Big Tech earnings reports, while Apple is expected to have the least dramatic move.
A beat, a raise, and a guide signaling you'll do it again
Nancy Tengler, CEO and CIO at Laffer Tengler Investments, said that mega cap tech stocks have big expectations to live up to.
"For companies, if you haven't beaten, beaten, beat, and raised, you've gotten slaughtered in this market. And even some companies that did beat, beat, and raise, it wasn't enough," she wrote.
"What we're going to look for is guidance. Margins are at historic highs, and we want to see if that can sustain," the strategist added.
Woods at Freedom Capital Markets also signaled the importance of not just surpassing estimates, but by how much. "It's about the guide and magnitude of the beat."
Bret Kenwell, eToro's US investment analyst, told Business insider that a company's conviction in the story also matters.
"For mega-cap tech companies, management needs to demonstrate that their massive investments in AI infrastructure have a clear path to growth and profitability," he said, noting that "It's not just in the numbers, expectations are being driven by conviction in the story ahead, too."
John Belton, a portfolio manager at Gabelli Funds, expects most Big Tech companies to deliver strong guidance, but not massively exceed Wall Street's estimates.
"Expect 2026 capex outlooks reiterated in most cases by the hyperscalers with possible upward tweaks given a slew of large recent agreements with foundational model companies," he said.
"Capex outlooks were given well above expectations three months ago; expect closer to expectations this time around," the investor added.
Bulls are back, AI update pressure is on
The tides have shifted from AI disruption fears dominating the narrative to a fresh wave of bullishness among investors. Earnings will offer mega-cap tech companies an opportunity to show how they're integrating the tech and that they're on the path to monetization.
"With the big tech giants specifically, there will likely be a lot of questions regarding the pace of the AI buildout boom as there is a lot of anecdotal news reported about how there are a lot of shortages in equipment needed to build and furnish those facilities which could end up disappointing the market," Morningstar chief US market strategist, Sekera, said.
Gabelli Funds' Belton said that recent headlines including Anthropic and OpenAI's jaw dropping valuations, and Google's new custom chips, have supported high expectations for cloud services growth.
"Expect the market will closely monitor cloud margins to assess the extent to which some of these newer AI revenue streams are dilutive to legacy cloud businesses," Belton said.
The post 'Good is not good enough': What market pros are watching as they brace for mega-cap tech earnings appeared first on Business Insider
