Tech Giants Face Market Test After Tesla's Dismal Quarter

Following Tesla's dismal quarter, which saw a 26% plunge in its stock and warned of slower sales growth, other tech giants prepare to navigate their own hurdles. Companies such as Nvidia, Microsoft, Meta Platforms, Amazon, Apple, and Alphabet, known as the "Magnificent Seven," are set to report earnings this week.

Excluding Tesla, the Magnificent Seven is projected to achieve a combined 53.7% growth in fourth-quarter earnings year-over-year, significantly higher than the 10.5% decline anticipated for companies in the S&P 500 index. Microsoft and Alphabet's earnings will be released on Tuesday, while Amazon, Meta Platforms, and Apple will follow on Thursday. Nvidia will report its results on February 21.

Despite the market's reliance on the Magnificent Seven, investors remain cautious about the continuation of their dominance this year. The benchmark index's 26% total return in 2023 was primarily driven by these stocks, but the current year poses greater challenges.

Investors are focusing on cash flow as they assess the upcoming earnings reports. The combined market cap of the seven large companies without Tesla stands at roughly $12 trillion, more than 65% of the Russell 2000's market cap. Some investors believe that the group could extend its dominance even if the Federal Reserve doesn't cut interest rates as expected, given their status as reliable and safe stocks during turbulent times.

However, concerns persist about the second half of the year, especially when it comes to advertising demand and the potential for a recession. Despite the Federal Reserve projecting three rate cuts for 2024 and economic resilience despite high interest rates, caution remains over sustained market strength.