Wall Street in the grips of a tech sell-off as AI promise holds out – Earnings Scorecard

As investors navigate the madness of quarterly disclosures, the market’s turbulent anticipation for major tech earnings, a key Fed policy meeting and key employment data looms large. In a season marked by a whirlwind of corporate earnings announcements, stocks’ reactions amid macroeconomic events revealed a patchwork of mixed results across sectors such as communication services, consumer discretionary and technology.

This week’s earnings scorecard paints a mixed picture: 80% of companies beat earnings expectations, reflecting signs of strength despite broader economic headwinds. On the revenue side, more than half of reporting companies beat forecasts, indicating a mixed but generally positive trajectory for corporate earnings.

Despite these encouraging earnings reports, market sentiment suffered and stocks fell broadly as investors assess the potential consequences of a technology sell-off that saw the S&P 500 (SP500) post its biggest one-day loss of 2022. Investors attributed the months-long rally in big tech, which culminated in the third week of July, to modest gains by Tesla (NASDAQ:TSLA) and Google’s parent company Alphabet (NASDAQ:GOOGL).

Overall, Wall Street closed the week down about 1.76%. Of the S&P 500 sectors reporting this week, technology and consumer stocks are the biggest influencers, with Alphabet (GOOG) and Tesla (TSLA) both having an impact on the markets.

With several Magnificent Seven stocks coming out of this week’s earnings, there could only be more volatility on the horizon. With Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META), and Apple (AAPL) all set to report next week, the tech giants are expected to test investors’ appetite for upside and downside. While this year has been marked by gains from investments in generative AI, the second quarter has only suggested speculation about the companies’ extended valuations to come.

Big Tech Turbulence Amid Next-Generation AI Promises

Google parent Alphabet only fueled a flood of selling after shares fell Wednesday morning, despite the company reporting better-than-expected revenue and profit growth. Second-quarter revenue rose 14% to $84.74 billion, with cloud revenue topping $10 billion for the first time. The tech giant also reported profit of $1.89 per share, compared with profit of $0.45 per share in the comparable period a year earlier.

According to investment firm Wedbush Securities, the tech sell-off is likely to be “short-lived” due to the explosive growth of artificial intelligence and the cloud. Notably, the broker has repeatedly called the rise in AI spending the fourth industrial revolution, as the firm estimates that more than $1 trillion of the spending will come from companies, utilities, and the government.

International Business Machines (NYSE:IBM) was one of a handful of companies to rise 4% in extended trading on Wednesday, posting second-quarter results and guidance that beat expectations and raising its free cash flow forecast for the year. The company also reported a rise in profit and revenue from a year earlier, earning $1.99 per share on revenue of $15.77 billion.

Cars in sight

Tesla (TSLA) shares fell after the close of trading Tuesday after reporting lower-than-expected earnings per share and operating income. The company said revenue rose 2.3% year over year in the second quarter to $25.50 billion, but earnings fell $0.52 per share from $0.91 per share a year earlier.

The US auto industry saw mixed results, with General Motors (NYSE:GM) and Ford Motor Company (NYSE:F) reporting results within a week.

Driven by strong U.S. demand that offset continued weakness in China, General Motors (GM) reported a 60% jump in second-quarter profit, a $0.36 increase over Wall Street expectations. That, combined with a rise in GM’s (GM) 2024 earnings forecast, sent shares higher in premarket trading Tuesday, gaining nearly 5% before the open.

Shares of Ford of the United States (F) fell in the after-hours trading after the company reported a decline in profitability due to increased warranty costs and losses related to its electric vehicle division. Ford missed Wall Street estimates after the company reported a $0.47 per share drop in earnings, down $0.25 per share from the same quarter a year earlier. Total revenue rose 6% to $47.8 billion.

Wading through the flood

Looking at the airline sector, American Airlines shares (NASDAQ:AAL) and Southwest Airlines (NYSE:LUV) fell in premarket trading on Thursday, even as the companies reported improved earnings results for the quarter. AAL posted a mixed earnings report with earnings of $1.09 per share on revenue of $14.3 billion, compared to earnings of $2.05 per share on revenue of $14.1 billion a year earlier. LUV posted improved earnings and revenue results with earnings of $0.58 per share on revenue of $7.35 billion, compared to earnings of $1.09 per share on revenue of $7.04 billion a year earlier.

AT&T Communication Service Providers (NYSE:T) and Verizon (NYSE:VZ) were also part of the flood. AT&T shares gained ground before the open on Wednesday, delivering lower adjusted earnings compared with a year ago, falling to $0.57 a share from $0.63 a share in the same quarter last year, in line with expectations. Verizon reported a small increase in revenue and net income that barely met consensus in second-quarter results, sending shares down 6.7% on Monday.

Coca-Cola beverage company (NYSE:KO) rose in early trading on Tuesday after reporting better-than-earnings results, with earnings of $0.84 per share on revenue of $12.31 billion, compared with earnings of $0.78 per share on revenue of $12 billion.

At least 160 S&P 500 companies are scheduled to report earnings in the coming week, including McDonald’s (MCD) and ON Semiconductor (ON) on Monday. Microsoft (MSFT), Procter & Gamble (PG), Merck (MRK), Advanced Micro Devices (AMD), Pfizer (PFE), Starbucks (SBUX) and S&P Global (SPGI) are all expected to report on Tuesday. Meta Platforms (META), Mastercard (MA), Qualcomm (QCOM), Western Digital Corporation (WDC), Arm Holdings (ARM), Boeing (BA), eBay (EBAY), Altria (MO), Marriott International (MAR) are also expected to report on Wednesday.

On Thursday, Amazon (AMZN), Apple (AAPL), Intel (INTC), Block (SQ), DoorDash (DASH), Cigna (CI), ConocoPhillips (COP), Anheuser-Busch InBev (BUD), Roblox (RBLX) and DraftKings (DKNG) will report earnings. Church & Dwight (CHD), Chevron (CVX) and ExxonMobil (XOM) will report earnings on Friday.