The problem with Big Tech’s revenue is that estimates can be far too high
When Big Tech last made money, Donald Trump had just begun his term, surged to the growing government agenda and expectations of key investors’ concerns. This was how long it took a company to convert AI spending into profits.
Three months later, they are much more faced with Bleaker’s pictures.
Quarterly results this week Microsoft Corp., apple Inc., Meta Platform Inc. and Amazon.com Inc will land on a market obsessed with every twist of the trade war that wiped out $5.5 trillion from the S&P 500 index. AI concerns have won back seats to be worried about the possibility of a recession caused by tariffs, but safe shelters like gold have become trade for investors, unable to buy stocks at low prices.
Despite all the uncertainty, Wall Street doesn’t give much wiggle room for corporate estimates. Analysts expect what is called epic seven. This also includes Google-Parent Alphabet Tesla Inc. and nvidia Corp. – A forecast that was barely released since the beginning of March despite a flare-up of trade tensions to bring about an average profit growth of 15% in 2025.
This will increase the stakes in four MegaCaps reporting this week. This weighs nearly 20% collectively on the S&P 500. Despite the sharp decline in stock prices and improved valuations, traders are unlikely to allow for a lack of revenue in an already frightening market environment. The disastrous outlook from industry giants will also not be accepted, especially if they are strengthened.fearBeyond the moved corporate spending.
“People who are weaker than expected will cause more sellouts due to tariff concerns,” said Phil Blancato, chief market strategist at OSAIC Wealth, who considers the weakness of Megacaps this year as a purchase opportunity.
The market read early last week about how Big Technology operates. Tesla reported itThe worst quarterFor years, traders cheered on signs that CEO Elon Musk was planning to leave government work and focus more on electric vehicle manufacturers. alphabetI’ll hit my expectationsHowever, little guidance was provided for the future. The Bloomberg Magnigunt 7 Index rose 9.1% last week amid a broader market rebound, but still fell 15% in 2025.
Profits and Expenditures
A deeper look comes during the two days of stretching, starting with Wednesday’s meta and Microsoft results. While many executives refuse to predict how tariffs will affect their revenue, Wall Street has done its own mathematics. Based on a 22% tariff rate modeled by Bloomberg’s economics, a decline in gross profit margin could result in a net profit contraction of around 7% in 2025 on the S&P 500, writing Bloomberg Intelligence Chief Equity Strategist Gina Martin Adams.
Another important area of focus is spending. The four biggest spenders, Microsoft, Alphabet, Amazon and Meta, are projected to spend around $300 billion on capital investments in the current fiscal year. The company has promised to keep up that pace in 2025, but Microsoft’sSudden decisionPausing in some data centers suggests that cloud computing providers may be reassessing their spending.
One of the companies most exposed to tariffs due to their supply chain reliance on China, Apple could benefit from the range of demand from consumers trying to avoid higher prices. However, these sales are considered one-off profits, and tariffs will take away demand in future quarters. According to Jefferies analyst Brent Thill, Amazon faces tariff risks on its e-commerce and advertising business, but the hit to profit could be mitigated by revenue from the margin web services unit.
That said, given the high macroeconomic uncertainty, there is little hope that executives will be able to give estimates with all their confidence. American Airlines Group Inc. and Skechers USA Inc.AbandonedThis quarter is forecast.
Michael Shaoul, founder of the Ion Macro Fund, said it would be difficult to convince the market that management has a real view on financial performance in the coming quarters.
“I don’t think the experienced management team has even tried it,” he said.
The bullish argument, of course, is that the dominant industry position and robust balance sheet of the Tech Giants make it more suitable for enduring economic slump than other companies, even if the revenue picture is clouded. The spectacular Seven has been undervalued in abundance following recent sales, according to data compiled by Bloomberg. For example, the alphabet is a transaction with an estimated 17x profit over the next 12 months.
It can enhance its appeal to epic Seven dip buyers, especially when signs of ease appear in the World Trade War. That flash came last week when stocks surged after TrumpI saidThe contract with Beijing would significantly reduce tariffs posted on Chinese goods.
But for Keith Lerner, Co-Investment Director and Chief Market Strategist at Truist Advisory Services, it all comes down to the denominator of price and return.
“The ratings are more interesting here, but they haven’t attracted the trigger yet,” he said. “There are a lot of questions on the e-side of the equation.”
This story was originally introduced Fortune.com