Investors seeking clues about the stock market's trajectory in the coming weeks will receive a rapid-fire update as soon as trading ends on Wednesday. Four of the largest U.S. companies—Alphabet Inc., Amazon.com Inc., Meta Platforms Inc., and Microsoft Corp.—are scheduled to report earnings after the closing bell. If their reports align with the timing of last quarter, the entire process could unfold in just 80 seconds.
High Stakes for Market Direction
The implications of these earnings reports are vast. These companies are part of the Magnificent Seven tech giants, which also include Nvidia Corp., Apple Inc., and Tesla Inc. Together, they have propelled the S&P 500 Index to repeated record highs in recent weeks, putting it on track for its best month since November 2020. Moreover, they are the four biggest spenders on artificial intelligence computing infrastructure, making chipmakers and memory storage device manufacturers the hottest trades on Wall Street.
Focus on AI Capital Expenditures
Traders will prioritize details on capital expenditures and revenue growth from AI over core business metrics like e-commerce, digital advertising, and software. The reason is that these large outlays have become a double-edged sword in the tech sector. On one hand, an entire ecosystem of suppliers depends on Big Tech's continued spending. The Philadelphia semiconductor index has surged 32 percent in April, fueled by an 18-session winning streak, putting it on track for its best month since February 2000. Semiconductor and storage-related companies account for the 11 best-performing stocks in the technology-heavy Nasdaq 100 Index this year, all tied to ballooning revenues from AI capex.
Shareholder Concerns
On the other hand, shareholders are worried about the vast amounts being spent and when the companies will see larger returns from these investments. ChatGPT-owner OpenAI reportedly missed internal targets for new users and revenue, according to a Wall Street Journal report, raising concerns about its ability to meet massive infrastructure funding commitments. Following this news, the Philadelphia semiconductor index fell 3.6 percent, its worst single-day drop in a month.
Market Strategist Insights
“If capex is paired with positive revenue, measurable revenue, and outlooks that show that earnings and revenue are being guided higher, then I think increased capex will be OK for the stocks,” said Anthony Saglimbene, chief market strategist at Ameriprise. “But if we see any slippage on the outlooks, that will lead to more volatility and pressure the S&P 500.”
Company-Specific Expectations
Microsoft
Microsoft's shares are coming off their worst quarter since 2008, and their 11 percent drop this year makes them the weakest performers among the seven most valuable companies in the S&P 500. The software giant has been under pressure due to concerns about disruption from AI, even as it invests heavily to boost computing power for the technology.
“I can’t remember a time where you had this many names in one shot,” said Michael O’Rourke, chief market strategist at Jonestrading. “It’s going to be hectic.”
