Magnificent 7 Monthly: April 24 - Growth dragged by Apple and Tesla

10 May 2024

MAG-7 declined -2.9% in April as equity markets sold off after three straight months of hotter-than-expected US inflation data. Similarly, the Nasdaq was down -4.5%, while the S&P 500 also dropped -4.5%. MAG-7 saw decelerating revenue and earnings growth for the quarter ending March 2024, dragged by AAPL and TLSA. 2Q24e guidance was for similar YoY growth. MAG-7 is also increasing its pace of share buybacks.
GOOGL (+7.3%) was the biggest gainer as it saw an acceleration in both Search and YouTube advertising revenue. In comparison, META (-11.8%) was the main laggard due to light 2Q24e revenue guidance and higher FY24e expenses.
AI-related demand remains robust across the board, with pricing for digital advertisements improving and Cloud demand starting to pick up. Demand for PCs is starting to recover, while iPhone demand is still soft. EV unit volume and pricing are hurt by increasing competition and a shift in the strategy of some OEMs to selling Hybrids instead. We maintain an OVERWEIGHT recommendation on the MAG-7.

Summary

The Magnificent-7 declined -2.9% in April as equity markets sold off after 3 straight months of hotter-than-expected US inflation data. Similarly, the Nasdaq was down -4.5%, while the S&P 500 also dropped -4.5%. With the focus heavily on AI, we are starting to see all 7 companies produce their own custom silicon as a way of optimising costs, reducing the reliance on fabless semiconductor companies like AMD and Nvidia, and having more flexibility with customising a particular chip for unique workloads. In addition to this, AI demand is also driving a renewed acceleration in Cloud growth as early adopters invest more in AI-related capabilities and enterprises continue transitioning from on-premise to Cloud.

Gainers: GOOGL (+7.3%) was the biggest gainer as its 1Q24 earnings results beat both top and bottom line estimates, driven by strength in YouTube and Search advertising and a lower cost base. The company also initiated a quarterly dividend of US$0.20/share and authorised another US$70bn in share buybacks.

Laggards: META (-11.8%) was the biggest laggard even though its 1Q24 earnings also beat top and bottom line estimates. Shares slide 12% after hours as the company issued lighter-than-expected 2Q24e revenue guidance and also increased its CAPEX and total expenses guidance for FY24e.

Quarter ending March 2024 Results (Figure 1): META, AMZN, MSFT, AAPL, and GOOGL all met or exceeded earnings expectations, while TSLA missed both top and bottom line estimates. META/GOOGL benefitted from stronger advertising demand, increasing monetisation of their short-form video platforms (Reels/YouTube Shorts), and more efficient cost structures – although both companies raised FY24e CAPEX guidance due to higher AI-related infrastructure spend. AMZN was helped by resilient consumer demand, operational efficiencies due to regionalisation of its logistics capabilities, and acceleration in AWS growth. MSFT benefitted from accelerating AI-related demand for Azure and a recovery in its PC and Gaming revenues. AAPL also met expectations for its results due to higher margins from its Services segment but still remained under pressure from weak consumer demand for its iPhones. Lower prices and unit volume growth continue to hurt TSLA due to increasing competition in the Chinese EV industry. At the same time, the initial ramp up of Cybertruck production remains a near-term margin headwind. NVDA has yet to announce its results. MAG-7 companies also increased the pace of their share buybacks to ~US$190bn in annual run rate, with AAPL/GOOGL each authorising additional US$110bn/US$70bn buyback programs.