What Lies Ahead of Mag-7 Earnings? ETFs in Focus

The Q4 earnings reporting season has accelerated this week, with more than 300 companies scheduled to release results. Among them are 102 S&P 500 constituents, including four members of the “Magnificent 7.” As a group, the Magnificent 7 are expected to post Q4 earnings growth of 16.9% on 16.6% higher revenues compared with the prior year.

Microsoft MSFT, Meta Platforms META and Tesla TSLA are set to report earnings after the market closes on Wednesday, Jan. 28, followed by Apple AAPL after the close on Thursday, Jan. 29.

Performance-wise, among the four reporting this week, all have underperformed the S&P 500 over the past year, with Meta showing notable weakness, while Apple, Microsoft and Tesla have fared relatively better.

Meanwhile, Alphabet GOOGL is likely to report on Feb. 4, and Amazon.com AMZN is expected to report on Feb. 5 after market close. Performance-wise, Amazon is a dampener with just 2.7% gains over the past year, while Alphabet shares rocked the show with 71.3% one-year advancement.

AI Strategy in Focus

Investor concerns around Microsoft, Meta and Apple largely stem from their positioning in artificial intelligence (AI). Microsoft and Meta are among the biggest spenders in AI, while Apple’s limited visibility in the space has raised questions about its long-term competitive viability.

Although Microsoft was initially viewed as an AI frontrunner due to its partnership with OpenAI, momentum has shifted toward Alphabet lately, particularly after regulatory pressures eased for the search giant last year.

Earnings Expectations: Apple

Apple is expected to post earnings of $2.65 per share on revenues of $137.5 billion, indicating year-over-year growth of 10.4% and 10.6%, respectively. Analyst estimate revisions have trended higher in recent weeks, signaling growing confidence ahead of the release.

Apple stock has a Zacks Rank #3 and an Earnings ESP of 0.98%. According to our methodology, a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) when combined with a positive Earnings ESP, increases the chances of predicting an earnings beat, while companies with a Zacks Rank #4 or 5 (Sell rated) are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings Expectations: Microsoft

Microsoft is projected to deliver earnings of $3.88 per share on revenues of $80.2 billion, suggesting year-over-year growth of 20.1% in earnings and 15.2% in revenues. There were no analyst estimate revisions for the quarter in the past seven and 30-day periods. MSFT has a Zacks Rank #2 and an ESP of 0.00%.

Earnings Expectations: Meta Platforms

Meta is expected to report earnings of $8.32 per share on revenues of $58.6 billion, indicating year-over-year growth of 3.7% and 21.1%, respectively. Earnings estimates for the December quarter have been revised upward over the past seven days from $8.15 to $8.32 per share. Two out of 13 analysts upped estimates over the past week.  META has a Zacks Rank #3 and an ESP of +5.51%.

Earnings Expectations: Tesla

Tesla is projected to deliver earnings of $0.45 per share on revenues of $25.1 billion, suggesting a year-over-year loss of 38.4% in earnings and 2.3% in revenues. The analyst estimate revision for the quarter declined over the past 30-day period from $0.47 to $0.45 per share. TSLA has a Zacks Rank #4 and an ESP of +1.11%.

Earnings Expectations: Alphabet

Alphabet is expected to post earnings of $2.58 per share on revenues of $94.7 billion, calling for year-over-year growth of 20% and 16%, respectively. GOOGL has a Zacks Rank #3 and an ESP of +1.57%.

Earnings Expectations: Amazon

Amazon is likely to report earnings of $1.97 per share on revenues of $211.5 billion, indicating year-over-year growth of 5.9% and 12.6%, respectively.  One out of 15 analysts upped estimates for the to-be-reported quarter over the past week, while two raised their estimates over the past month. None moved southward. Amazon has a Zacks Rank #2 and an ESP of -0.83%.

Valuation Premium Remains Elevated

Currently, the Magnificent 7 is trading at roughly 126% of the S&P 500 valuation multiple, implying a 26% premium to the broader market. Historically, the group has traded at premiums ranging from 24% to 71%, with a five-year median premium of 43%, suggesting elevated valuations but not extreme by historical standards.

ETFs in Focus

Investors having a strong stomach for risks and willing to tap the AI boom may tap the Mag-7 group with the exchange-traded funds (ETFs) likeRoundhill Magnificent Seven ETF MAGS, MicroSectors FANG+ ETN FNGS, Vanguard Mega Cap Growth ETF MGK and Invesco S&P 500 Top 50 ETF XLG. The pure-play Mag-7 ETF MAGS added 1.8% so far this year, in line with the S&P 500.

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This article originally published on Zacks Investment Research (zacks.com).

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