Now that Nvidia (NVDA:NASDAQ), the world’s largest company by market cap, has reported earnings, we can weigh up how well the ‘Magnificent Seven’ did in terms of delivering on forecasts (you can read Steven Frazer’s in-depth look at Nvidia’s earnings further on in this week’s mag).
On average, earnings per share growth for the group was 26.6% in the second quarter compared to the previous year.
That was well ahead of the 13.9% forecast on 30 June, but below the average of 31% for the same seven stocks over the previous four quarters according to information provider FactSet.
By comparison, average earnings growth for the other 493 companies in the S&P 500 was just 8.1% in the second quarter.
Six out of seven companies beat forecasts, with electric vehicle-maker Tesla (TSLA:NASDAQ) the only outlier although it missed forecasts by just 7% this time compared with a whopping 57% the previous quarter.
The biggest ‘beat’ was at Amazon (AMZN:NASDAQ), which topped earnings estimates by more than 26% thanks to strong sales growth in North America and overseas along with rising demand for its AWS cloud services.
‘Our AI progress across the board continues to improve our customer experiences, speed of innovation, operational efficiency, and business growth, and I’m excited for what lies ahead,’ said president and chief executive Andy Jassy on the results call.
According to FactSet, four of the ‘Magnificent Seven’ – Amazon, Meta Platforms (META:NASDAQ), Microsoft (MSFT:NASDAQ) and Nvidia – were among the top six contributors to overall S&P 500 earnings growth in the second quarter.
The other two companies making a major contribution were pharmaceutical firm Vertex (VRTX:NASDAQ) and media group Warner Bros. Discovery (WBD:NASDAQ), both of which benefitted from easy comparisons due to weak earnings in the same quarter last year after each took a large provision.
As we have written previously, one of reasons so many companies are able to beat forecasts is analysts tend to set the bar artificially low.
Looking ahead to the next four quarters, the average growth forecast for the ‘Magnificent Seven’ ranges from 14.5% to 16.8% which would suggest most of them should keep beating expectations.
Excluding these seven stocks, the average growth forecast for the other 493 companies in the S&P 500 index is around 5% for the next two quarters of 2025 and around 10% for the first two quarters of 2026.
Once again, this seems fairly undemanding and should ensure the majority of companies are able to post better-than-expected earnings.
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