What to expect from the Magnificent 7 earnings reports?

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The hype around DeepSeek, the so-called OpenAI killer from Chinese developers, has died down a bit. On Tuesday, Meta, Alphabet, and Nvidia stock futures rose in the premarket trading session, suggesting that the “buy the dips” mentality is in force and that the market may have overreacted.      

That said, the situation remains delicate, depending on how much DeepSeek’s AI breakthrough will impact chipmakers, assuming no critical data about the model’s development has been deliberately left out. It will be interesting to hear what Nvidia's CEO has to say after the quarterly report on February 26.        

In the meantime, attention turns to other important events this week. First, the Federal Reserve meeting, where the regulator will most likely keep interest rates unchanged at 4.25%-4.5% due to concerns about slowing disinflation.      

The key point will be what Chairman Powell says at the press conference afterwards. If the focus is on inflationary risks, the market could interpret it as a signal that rates might stay at current levels for longer, posing a threat to highly leveraged companies.       

As a result, the market could take a hit. However, it's worth noting that similar statements in the past — while they did cause volatility and a risk-off sentiment, like after the December meeting — were generally short-lived. After the dust settled, optimism usually returned.    

Other key events are the earnings reports from Tesla, Meta, and Microsoft, which report on Wednesday, and Apple, which reports on Thursday. If the results disappoint, we could see another market sell-off.      

Market consensus expects Tesla's earnings per share to be $0.75 and revenue to be $27.2 billion. This earnings report will likely significantly impact Tesla stock performance, as reflected in its recent price movements. As highlighted by Wells Fargo, the company's main risks are weak fundamentals and the potential repeal of the IRA tax holiday, which could negatively impact demand and margins in 2025.      

For Meta, expectations are for EPS of $6.78 and revenue of $46.97 billion. Aside from the weakness of the exchange rate, Meta's revenue growth in the first quarter is expected to slow, with a new guidance range of $39 billion to $41.5 billion. It will also be interesting to know the risks related to Deepseek.       

Microsoft expects EPS of $3.12 and revenue of $68.9 billion. Regarding risks, foreign exchange rate developments may limit revenue growth and operating margin outperformance. News on AI monetization, growing adoption of Copilot and agents, and the upcoming release of SQL Server will be in focus.      

Finally, Apple's expectations are for EPS of $2.35 and revenue of $124.11 billion. Key concerns include continued share losses in China, limited traction for AI features, a stronger dollar, and geopolitics. Even if Apple's services sector shows strong growth, weaker forecasts could pressure the stock.    

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