Magnificent Seven Face 15% Profit Growth Target Amid Trade War Uncertainty

Big Tech companies are currently navigating a challenging earnings season, with the political and economic landscape significantly altered since their last reports. The market's focus has shifted from the potential of artificial intelligence investments to the complexities of a trade war that has led to substantial losses in the S&P 500 Index. Investors are now more concerned about the possibility of a recession triggered by tariffs, leading to a preference for safe-haven assets like gold over discounted stocks.

Despite these challenges, Wall Street analysts have maintained their expectations for the so-called Magnificent Seven—Microsoft, Apple, Meta Platforms, Amazon, Alphabet, Tesla, and Nvidia. These companies are projected to achieve an average of 15% profit growth in 2025, a figure that has remained steady since March, despite escalating trade tensions. The four megacaps—Microsoft, Apple, Meta Platforms, and Amazon—reporting this week hold a nearly 20% weighting in the S&P 500, making any shortfall in earnings potentially impactful on the market.

Phil Blancato, chief market strategist at Osaic Wealth, sees the current weakness in megacaps as a buying opportunity. He warns that any earnings report falling short of expectations could trigger further sell-offs, primarily due to concerns surrounding tariffs. Last week, Tesla reported its worst quarter in years, but investors were reassured by CEO Elon Musk's renewed focus on the electric-vehicle maker. Alphabet exceeded expectations but provided little guidance for the future. The Magnificent 7 index saw a 9.1% increase last week amid a broader market rebound, although it remains down 15% for the year.

The upcoming earnings reports from Amazon, Apple, Meta, and Microsoft will be closely scrutinized, particularly for their comments on tariffs. Tech executives have already begun to express concerns about the impact of tariffs on their businesses. The market is bracing for potential revelations about the toll these trade tensions are taking on the tech giants. The heightened uncertainty and the potential for reduced corporate spending add to the challenges these companies face in the current earnings season.