The good news: 79% of the companies that have reported so far have exceeded consensus expectations, slightly above the 5-year average of 77%. Earnings growth in the first quarter was around 5.5% compared to the first quarter of 2023. Revenue growth also exceeded forecasts, reaching around 3.8%.
Profits were particularly strong in the IT, communication services, and non-basic consumer sectors. This is not surprising given that the "Magnificent Seven" (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, Tesla) are all situated in these sectors.
In contrast to previous quarters, positive earnings surprises were on average less "rewarded", while stock prices fell more sharply in response to the few negative surprises compared to the average of previous quarters.
Why earnings surprises no longer spark fireworks in stock prices
In addition to company-specific factors, the strong rally beforehand likely prevented further price increases. Especially in growth stocks, the positive price momentum had already been exhausted, limiting further upward jumps.
For example, Meta Platforms (the parent company of Facebook) had already seen a price rally of around 40% since the beginning of the year (!) before releasing its quarterly earnings on April 24, 2024. After the earnings release, the stock lost more than 10% in a single day, wiping out about $220 billion in market value, despite earnings per share being roughly 9% above consensus estimates. Investors were concerned about the high upcoming investments in hardware for expanding AI (Artificial Intelligence) infrastructure.
The biggest beneficiary of the "Artificial Intelligence" trend is likely still Nvidia. The best performer among the "Magnificent Seven" continues to see unabated growth for its AI chips and currently boasts a gross profit margin of over 75%.
Nvidia is also the only company among the "glorious Seven" that has not yet reported earnings this year. According to the company's calendar, quarterly earnings will be released after the close of trading on Wall Street on May 22, 2024. Analysts expect earnings per share to increase sixfold compared to the first quarter of 2023, with quarterly revenue rising from $6.5 billion in the first quarter of 2023 to over $24 billion. "The bar is high" – "Let's hope that the beat goes on!"
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