The quarterly reporting season has not yet ended, but Bloomberg analysts have already summed up some results in terms of changes in the dynamics of profit growth of companies included in the S&P 500 index. If, outside the big tech segment, company profits returned to growth for the first time since the fourth quarter of 2022, then the seven largest issuers in the technology sector, their profits increased by a moderate 35%.
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This may seem high in absolute terms, but over the past few quarters, US big tech profits have grown significantly faster amid the AI boom. In fact, the second quarter showed some cooling in the financial performance of the main players in the AI segment, while the economy of companies outside this sector, on the contrary, showed some recovery. At the very least, earnings for companies in the S&P 500 index excluding the Magnificent Seven rose by an average of 7.4%, showing positive growth for the first time since the end of the year before last.
The “magnificent seven” usually means Apple, Microsoft, Alphabet (Google), Amazon, Meta✴ Platforms, Tesla and Nvidia. The penultimate, although nominally an automaker, in its dynamics on the stock market is quite consistent with the stereotype of companies in the technology sector, since its head, Elon Musk, constantly talks about the high-tech essence of the brand’s products. Those companies in this group that have already reported second-quarter results have, in many cases, fallen short of analysts’ expectations—if not in terms of actual revenue, then in terms of forecasts for the current quarter.
In the second quarter, companies performed below market expectations in terms of revenue in 21% of cases, while a year ago this figure did not exceed 20%. In the case of earnings indicators, the reliability of forecasts is closer to the long-term trend, but revenues are more disappointing. Experts believe that in the face of declining revenue, companies will be forced to struggle to maintain profitability, and AI budgets will be cut to save money first and foremost. Investors are beginning to warm up to the idea of unrestrained funding in this area, as it becomes increasingly clear that it will not provide a quick financial return.