Technology giants' financial reports are exploding! Can the "four super giants" with a market value of 11 trillion US dollars continue the myth of the S&P hitting a new high?

Understanding that the benchmark index of the US stock market, the S&P 500 Index, has recently frequently refreshed historical records, setting new highs in the last few trading days. This index, along with the "Nasdaq 100 Index" which has also been setting new highs recently, will face a key test this week: Four large tech giants with a combined market value of $11.3 trillion will release their earnings reports over the next two days, focusing global investors' attention. Undoubtedly, the current US stock earnings season has started off well, but all eyes are on Microsoft Corporation (MSFT.US) and Facebook mother company Meta Platforms (META.US) who will release their earnings after the close on Wednesday, as well as Apple Inc. (AAPL.US) and Amazon.com, Inc. (AMZN.US) who will report their earnings on Thursday. These four tech giants, along with Tesla, Inc., Alphabet Inc. Class C, and the "chip giant" NVIDIA Corporation, which will release their earnings at the end of August, collectively hold a weight of over 35% in the S&P 500 Index, making them the core driving force behind the bull market in the US stock market. The earnings data from these four tech giants releasing their reports this week will provide investors with crucial insights into the core business health of consumer electronics, AI application software, cloud computing, and e-commerce that global investors are focusing on. The so-called "Magnificent Seven" of the US stock market, which includes Apple Inc., Microsoft Corporation, Alphabet Inc. Class C, Tesla, Inc., NVIDIA Corporation, Amazon.com, Inc., and Facebook mother company Meta Platforms, account for nearly one-fifth of the weighted S&P 500 Index. Meta and Microsoft Corporation are among the top three contributors to the S&P 500 Index's gains so far this year, following NVIDIA Corporation with a gain of up to 30%. As their valuations continue to rise, the market is not only watching whether their earnings for the second quarter can significantly exceed expectations but also whether their earnings outlook for the coming quarters can also surpass expectations. The threshold for exceeding expectations has become quite high, especially for the seven tech giants. If they want to sustain the upward trend of the S&P 500 Index since April, these four tech giants must deliver outstanding performance. Earnings reports from companies like Texas Instruments Incorporated have shown that meeting expectations is no longer enough to drive the market higher, it must significantly surpass expectations. Goldman Sachs Group, Inc. points out that there is a significant negative asymmetry in this earnings season, particularly in the semiconductor, cloud computing, and internet sectors, where good news might lead to moderate gains or even declines, and bad news could result in substantial stock price drops, as seen with Texas Instruments Incorporated's stock plunging over 13% after earnings that met expectations but did not exceed them significantly. The latest statistics show that these four members of the "Magnificent Seven" have a weight of about one-fifth in the market-cap-weighted S&P 500 Index. Meta, Microsoft Corporation, and Alphabet Inc. Class C are the top three contributors to the S&P 500 Index's gains this year, second only to NVIDIA Corporation's gain of up to 30%. As their valuations continue to rise, the market is not only watching to see if their actual earnings for the second quarter can significantly exceed expectations, but also if their earnings outlook for the future quarters can similarly surpass expectations. The earnings expectations for the second quarter were revised downward before the intensive release of earnings reports. Compared to the analysts' predicted annual earnings growth rate of 7.5% in March, the overall estimated annual earnings growth rate for the S&P 500 is 4.5%. This downward revision of earnings expectations is considered a positive factor in the current earnings season's surpassing expectations. With the high valuations given to these tech giants and optimistic earnings expectations, the pressure on large tech companies has increased. Anthony Saglimbene, Chief Market Strategist at Ameriprise Advisor Services, believes that many companies will need to provide very optimistic outlooks to justify their valuations. He stated that they will likely indicate positive outlooks for the second half of the year or the next quarter, either reaffirming their optimistic earnings expectations or revising them upwards. Under the current AI craze, the tech giants are diverging, and the "fire of stock price differentiation" may continue to burn brighter during the earnings season. With AI once again becoming the dominant theme shaping winners and losers in the global stock market, some tech companies among the "Magnificent Seven" have not met the strong AI monetization expectations given by the market this year, which may lead to investors betting that the AI losers among the seven might continue to be underperformers compared to the S&P 500 Index, such as Apple Inc., Tesla, Inc., and Amazon.com, Inc. Meta, Microsoft Corporation, and NVIDIA Corporation have contributed nearly half of the S&P 500 Index's gains this year, while Apple Inc., Tesla, Inc., and Amazon.com, Inc. have seen weakening stock prices due to their struggles in AI monetization. This differentiation was particularly evident last week, as Alphabet Inc. Class C's stock price surged due to strong earnings driven by better-than-expected AI revenue, whereas Tesla, Inc. saw a major drop in stock price due to dim prospects in electric vehicle sales and uncertainities in AI monetization. Analysts predict that Meta, Microsoft Corporation, Amazon.com, Inc., and Alphabet Inc. Class C will together invest a total of $317 billion in capital expenditures this fiscal year, which represents a 35% increase over the already strong AI spending in 2024. Analysts' average estimate is that this figure will rise to $350 billion by 2026. Goldman Sachs Group, Inc. states that the tech giants' capital expenditure data will verify whether the logic behind the AI computing investment theme remains flawless. The next focal point for investors is the capital expenditure expectations from Microsoft Corporation, Meta, and Amazon.com, Inc. announced this week. Investors are eagerly awaiting returns from these aggressive AI investments, especially Meta, whose stock price has already risen about 22% this year. However, Gabriela Santos, Chief US Market Strategist at JPMorgan Asset Management, believes that investors ultimately need to see actual returns from AI monetization. She stated that at the current valuation levels, especially for large tech stocks, investors need to see consistent profits, not just promises for the future. The overall expected P/E ratio for the "Magnificent Seven" is 28x, lower than the peak of 34x in December last year but higher than the S&P 500 Index's expected P/E ratio of approximately 25x. Despite the seemingly high expected P/E ratios of large tech stocks, when taking into consideration earnings growth, high free cash flow, strong expectations for stock buybacks, and a robust return on investment, they still remain attractive investments in many cases. Tony DeSpirito, Head of US Fundamental Equities at BlackRock, Inc., wrote that these large tech stocks, although seemingly high in expected P/E ratios, are still attractive investments considering their strong fundamentals.