Big Tech's earnings problem: Estimates may be too high

THE LAST TIME Big Tech delivered earnings, Donald Trump had just started his term, stocks were soaring on expectations of a pro-growth government agenda and investors' main worry was how long it would take companies to convert their artificial intelligence (AI) spending into profits.

- JERAN WITTENSTEIN

Three months later, they are facing a far bleaker picture. This week's quarterly results from Microsoft, Apple, Meta and Amazon will land in a market obsessed with every twist of a trade war that's wiped $5.5 trillion from the S&P 500 Index. AI concerns have taken a back seat to angst over the possibility of a tariff-induced recession, while safe havens like gold have become the trade de jour for investors too rattled to buy stocks on the cheap.

Even with all the uncertainty, Wall Street isn't giving the companies' estimates much wiggle room. Analysts expect the so-called Magnificent Seven—which also includes Google-parent Alphabet, Tesla and Nvidia—to deliver an average of 15% profit growth in 2025, a forecast that's barely budged since the start of March despite the flareup in trade tensions.

That raises the stakes for the four megacaps reporting this week, which collectively have a nearly 20% weighting in the S&P 500. Traders are unlikely to forgive earnings shortfalls in an already fearful market climate, despite steep declines in the stocks' share prices and improved valuations. Dire outlooks from the industry behemoths would also be poorly received, especially if they bolster fears of muted corporate spending ahead.

"Any modicum of a weaker than expected number is going to cause a further selloff because of the concern around tariffs," said Phil Blancato, chief market strategist at Osaic Wealth, who believes this year's weakness in megacaps is a buying opportunity.