MARKET CALL: Will DeepSeek Sink The Unsinkable Mag-7?

The Q4-2024 earnings reporting season is going well so far. It started out two weeks ago with better-than-expected big bank earnings. As a result, industry analysts increased their consensus expected Q4 earnings growth rate for the S&P 500 companies collectively from 8.2% y/y to 9.1% y/y (chart). We raised our expected earnings growth rate from 10.0% to 12.0%.

The next round of fun begins this week and next week when the Magnificent-7 report Q4 results: Microsoft, Tesla, and Meta (Wed, Jan 29), Apple and Amazon (Thu, Jan 30), and Alphabet (Tue, Feb 4). Nvidia won't report until Feb 26. The question is whether they will disappoint because their capital spending on AI is soaring faster than are their revenues. That could squeeze their collective profit margin. The forward profit margin of the Mag-7 has soared from 18.0% at the start of 2023 to 25.5% during the January 25 week.