Six of the ‘Magnificent Seven’ US tech stocks have reported their second quarter earnings. Here's what our analysts made of the results.
The artificial intelligence boom has been central to Magnificent Seven earnings’ reports this year and a large part of their stock market success. But recently, their stock prices have been very volatile. Worries are increasing whether the US economy is heading into a slowdown and that has triggered a sell-off. All eyes are now on the Federal Reserve, economic data and the earnings report from Nvidia (NVDA), which will come at the end of August.
Tesla (TSLA) and Alphabet (GOOGL) were the first to report, but the big mover this earnings season was Amazon (AMZN), which tumbled 11% after releasing its report last week.
Apple – Fair Value Raised on iPhone Hopes
Key Morningstar Metrics for Apple Stock
• Fair Value Estimate: $185.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
We raised our fair value estimate for shares of wide-moat Apple (AAPL) to $185 from $170 after raising our medium-term iPhone revenue forecast. We continue to expect strong revenue growth in fiscal 2025 as users upgrade their iPhones to take advantage of Apple’s generative artificial intelligence features, requiring the latest and greatest hardware. We now forecast double-digit iPhone revenue growth in fiscal 2025 and another strong year of revenue growth in fiscal 2026.
September-quarter guidance implies roughly 5% year-on-year revenue growth, inclusive of double-digit services revenue growth. To meet this guidance, we expect iPhone revenue to rise in the low-single digits. We expect the release of Apple’s iPhone 16 lineup to occur in September and drive stronger growth in fiscal 2025, which starts in October. In our view, the firm’s suite of generative-AI features, dubbed Apple Intelligence and announced in early June, should drive consumers to upgrade to new models.
Read William Kerwin’s analysis.
Amazon – Fair Value Hiked but Shares Down
Key Morningstar Metrics for Amazon Stock
• Fair Value Estimate: $195.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High
We are raising our fair value estimate for wide-moat Amazon (AMZN) to $195 per share from $193 after the company reported solid second-quarter results. The company’s third-quarter outlook aligned with our revenue estimate and was better than our operating income estimate. Changes to our model are modest but centre around continued profitability enhancements in the near term. After a pullback that began in early July, we see shares as increasingly attractive.
Overall demand trends remain unchanged over the last year or so, with e-commerce showing signs of consumer stress. Second-quarter revenue grew 10% year-over-year as reported. Second-quarter profitability was impressive, with operating profit at $14.7 billion, compared with the high end of guidance at $14.0 billion. This resulted in an operating margin of 9.9%, compared with 5.7% a year ago.
Meta – Fair Value Raised, Aggressive AI Investing
Key Morningstar Metrics for Meta Platforms Stock
• Fair Value Estimate: $450.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High
Meta Platforms (META) continues to deliver solid results amid strong digital advertising demand while investing aggressively in AI-related infrastructure, technology, and products. The firm tightened its capital spending forecast to the upper end of its previous expectations and said that investment growth will be “significant” in 2025. Revenue increased 22% to $39.1 billion during the second quarter, beating the high end of management's forecast. The operating margin held steady with the prior quarter at 38%, up from 29% a year ago.
Meta reiterated that it believes the computing capacity it is building can be used for various tasks, with the flexibility to shift wherever the best opportunities emerge, a similar view that Alphabet has shared. We aren’t convinced Meta will earn strong returns on its infrastructure investment, but we expect the firm will continue to generate strong cash flow regardless of the direction AI takes. We were also pleased the firm maintained its expense forecast for the year. We are increasing our fair value estimate to $450 from $400. We continue to expect AI’s biggest impact on the firm will come from improvements the technology provides to the user experience and the ability of advertisers to reach targeted audiences.
Read Michael Hodel's analysis.
Microsoft – Fair Value Raised, Cloud Growth Acceleration
Key Morningstar Metrics for Microsoft Stock
• Fair Value Estimate: $490.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium
Wide-moat Microsoft (MSFT) continues to deliver with strong third-quarter results, topping both our top- and bottom-line estimates. Given stronger near-term growth and profitability, we are raising our fair value estimate to $435 per share, from $420 previously. With shares trading up 4% after hours, they remain in 3-star territory.
Results are impressive from most angles, but we highlight strength in AI, Azure, and gaming; a surge in bookings from large Azure deals (AI remains the focal point and contributed 700 basis points to Azure growth); and robust margin performance despite downward pressure from the Activision acquisition are our key takeaways. For the March quarter, revenue increased 17% year over year to $61.86 billion, compared with the midpoint of guidance of $60.50 billion. We calculate Activision added about $2.05 billion to revenue.
Alphabet – Fair Value Raised, Strong Search Growth
Key Morningstar Metrics for Alphabet Stock
• Fair Value Estimate: $182.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High
Solid ad revenue growth during the second quarter contradicts the notion that Alphabet (GOOGL) is losing its footing in the search business. Also, growth in the Google Cloud business accelerated again, reaching the fastest pace in 18 months as AI tools augment broader cloud adoption. After adjusting our model, we have modestly increased our fair value estimate to $182 from $179.
Total revenue increased 14% year over year, roughly on par with the prior quarter. Google search revenue increased 14% to $48.5 billion, with retailers again the largest source of growth. YouTube advertising growth slowed sharply to 13% from 21% last quarter. Alphabet also highlighted the early success of AI overviews within search results. Despite early snafus, management indicated that search usage and satisfaction have improved with the inclusion of overviews and that ads have been well received above and below overview boxes. In short, we’ve yet to see strong evidence that new forms of accessing information, like ChatGPT, are blunting search volumes or that other query-based advertising offerings, such as on Amazon, are increasingly eating into traditional search demand.
Read Michael Hodel's analysis.
Tesla – Affordable Vehicle Production on Track for 2025
Key Morningstar Metrics for Tesla Stock
• Fair Value Estimate: $200.00
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High
Tesla’s (TSLA) second-quarter results were largely in line with our view for the cadence of the year. Operating profits were down roughly 33% year over year due largely to lower average automotive selling prices, but up 37% sequentially versus the first quarter, driven by strong energy generation and storage profits and lower corporate expenses. With our outlook largely unchanged, we maintain our $200 per share fair value estimate. Our narrow moat rating also remains unchanged.
With regard to the affordable vehicle, management declined to offer vehicle-specific details and said that Tesla would reserve these details for product rollout events. However, management did say the vehicle remains on track to begin production in 2025. In our view, Tesla maintaining the vehicle production timeline is the key takeaway. We continue to view 2026 as the year when Tesla deliveries return to double-digit growth, driven by the affordable vehicle.
