Magnificent 7 Stocks: US Tech Earnings in Full

While
not
part
of
the
Magnificent
Seven,
we
also
saw
Netflix
(NFLX)
report
its

fourth
quarter
results
last
week.
To
complete
the
top
stocks,
we
will
have
to
wait
an
additional
month
for
Nvidia
(NVDA)
to
release
earnings
at
the
end
of
February.

(The
Magnificent
Seven
include: Tesla,
Meta,
Alphabet,
Amazon,
Apple,
Microsoft
and
Nvidia.)

Of
the
stocks
that
reported
this
week,
investors
were
more
excited
by
some
than
others.
Here’s
what
happened,
and
which
companies
delivered
on
expectations.

Magnificent
Seven
Stocks
–
Those
Earnings
in
Full

Meta
–
Dividend
Declared,
Fair
Value
Hiked

Key
Morningstar
Metrics
for
Meta

Fair
Value
Estimate:
$400.00

Morningstar
Rating:
3
stars
Morningstar Economic
Moat
Rating:
Wide
Morningstar Uncertainty
Rating:
High

On
Thursday
as
markets
closed
in
the
US,
three
of
the
largest
companies
dropped
their
fourth
quarter
earnings
reports,
and
one
of
the
highlights
was
Meta
(META).
The
owner
of
Facebook,
Instagram
and
WhatsApp
has
instituted
a
dividend
for
the
first
time
alongside
share
buybacks,
which
our
analyst
Ali
Mogharabi
is
commending.
Total
fourth-quarter
revenue
of
$40
billion
was
up
25%
from
last
year,
driven
by
both
advertising
revenue
(up
24%)
and
reality
labs
(up
54%),
which
was
helped
by
strong
holiday
sales
of
Quest
2
and
Quest
3
VR
headsets.
Operating
margin
expanded
to
41%
from
20%
last
year.

The
stock
is
up
16%
in
pre-market
trading
so
is
above
our
new
fair
value
estimate.

After
reviewing
the
results,
Morningstar
is
more
optimistic
about
Meta’s
profit
margin
expansion
and
increased
the
fair
value
to
$400
from
$322.
However,
Mogharabi
believes
the
stock
remains
overvalued.

“Meta’s
advertising
growth
may
benefit
in
2024
from
easier
comparisons
and
political
ad
spending,
but
we
foresee
a
slowdown
in
2025-28
as
economic
growth
moderates.
The
traditional
drivers
of
digital
ad
spending
growth,
such
as
online
users
and
mobile
expansion,
are
less
influential.
Innovations
like
artificial
intelligence
may
improve
ad
effectiveness
and
efficiency
but
won’t
significantly
accelerate
spending
growth
in
our
view.”

Amazon.com
–
Retail
Profits
Strong

Key
Morningstar
Metrics
for
Amazon

Fair
Value
Estimate:
$185.00

Morningstar
Rating:
3
stars
Morningstar Economic
Moat
Rating:
Wide
Morningstar Uncertainty
Rating:
High

Wide-moat
Amazon
(AMZN)
reported
strong
fourth-quarter
results
and
offered
a
mixed
outlook
relative
to
Morningstar’s
expectations,
including
in-line
revenue
and
better
profitability.
Profitability
was
impressive,
with
operating
profit
coming
in
at
$13.2
billion,
compared
with
the
high
end
of
guidance
at
$12.0
billion,
resulting
in
an
operating
margin
of
7.8%,
compared
with
1.8%
a
year
ago,
and
representing
the
best
fourth
quarter
in
at
least
a
decade.
Retail
profitability
was
stronger
than
anticipated,
and
Morningstar
sees
positive
developments
on
the
demand
front
in
areas
like
Amazon
Web
Services
and
advertising.
But
while
margins
were
good
across
segments,
Morningstar’s
analyst
Dan
Romanoff
believes
there’s
still
room
for
further
improvements.

The
earnings
report
seems
to
have
been
well
received
by
investors
as
the
stock
price
jumped
in
pre-market
trading.

After
looking
at
the
Q4
figures,
Romanoff
has
raised
the
fair
value
estimate
of
Amazon
to
$185
from
$155,
largely
based
on
raising
the
operating
margin
outlook
by
160
basis
points
for
2024,
and
similar
margin
expansion
over
the
next
several
years.
Relative
to
Morningstar’s
model,
online
stores,
third-party
seller
services,
or
3P,
and
advertising
drove
the
vast
majority
of
upside,
consistent
with
the
last
quarter.
Subscription
services
were
ahead,
AWS
and
other
were
in
line,
and
physical
stores
were
slightly
shy
of
Morningstar’s
assumptions.

Apple
Earnings
–
iPhone
Sales
Hold
Up

Key
Morningstar
Metrics
for
Apple

Fair
Value
Estimate:
$160.00

Morningstar
Rating:
2
stars
Morningstar Economic
Moat
Rating:
Wide
Morningstar Uncertainty
Rating:
Medium

Apple
(AAPL)
is
the
only
company
that
reported
this
week
where
our
analysts
maintained
the
same
fair
value
estimate.
According
to
analyst
William
Kerwin,
this
is
due
to
a
lowering
of
the
short-term
revenue
forecast
balanced
with
a
raised
expectation
for
profitability.
December
quarter
revenue
rose
2%
year
over
year
to
$119.6
billion.
Growth
was
led
by
iPhone
and
Apple’s
services,
up
6%
and
11%
year
over
year,
respectively.
The
firm’s
wearables
segment
declined
11%
year
on
year,
likely
due
to
patent
issues
with
Apple’s
Watch
lineup
that
temporarily
took
the
newest
line
of
products
off
shelves
in
the
quarter.

Apple
shares
went
about
3%
lower
following
results,
likely
due
to
weaker
China
results
and
lower
iPhone
expectations,
but
Morningstar
continues
to
see
the
stock
as
overvalued.

The
headwinds
in
China
are
a
result
of
elongated
personal
device
replacement
cycles
(ie
when
people
trade
in
their
old
smartphones)
and
more
aggressive
domestic
alternatives,
Kerwin
notes.
He
also
says
Apple’s
December
quarter
iPhone
revenue
and
gross
margin
exceeded
expectations,
but
he
still
believes
the
iPhone
will
see
a
softer
adoption
cycle
this
year,
therefore
lowering
the
fiscal
2024
year
forecast
for
iPhone
revenue
to
a
modest
decline.
However,
the
gross
margin
of
45.9%
was
impressive
and
driven
by
record
gross
margins
for
both
products
and
services.

Microsoft
Earnings
–
AI
Steals
the
Show

Key
Morningstar
Metrics
for
Alphabet

Fair
Value
Estimate:
$420.00

Morningstar
Rating:
3
stars
Morningstar Economic
Moat
Rating:
Wide
Morningstar Uncertainty
Rating:
Medium

Microsoft
(MSFT)
released
its
earnings
after
the
markets
closed
on
Tuesday,
boasting
results
that
beat
expectations
across
the
board.
Artificial
intelligence
was
yet
again
the
star
of
the
show
as
it
according
to
Microsoft
contributed
600
basis
points
to
the
growth
of
its
cloud
business
Azure
–
twice
that
of
last
quarter.
In
the
December
quarter,
it
recorded
$62.0
billion
in
revenue,
up
18%
year
on
year.
Productivity
and
business
processes
grew
13%,
intelligent
cloud
grew
20%,
and
more
personal
computing
grew
19%.

Despite
this,
the
company’s
share
price
fell
as
investors
were
hoping
for

even
better
results.

After
earnings,
Morningstar’s
equity
analyst
Dan
Romanoff
raised
the
fair
value
for
the
company
from
$370
to
$420,
finding
the
outlook
encouraging:
“Even
though
management
will
not
admit
as
much,
we
continue
to
see
indicators
that
the
demand
environment
has
improved
at
least
modestly,”
he
says.
Morningstar
has
also
raised
its
revenue
growth
and
margin
estimates
by
approximately
one
point
each
over
the
next
five
years.
Despite
this
increase,
Romanoff
still
sees
the
shares
as
fairly
valued.

Read
Dan
Romanoff’s
full
take
in
this
article.

Alphabet
Earnings
–
Google,
YouTube
Growth

Key
Morningstar
Metrics
for
Alphabet

Fair
Value
Estimate:
$171.00

Morningstar
Rating:
3
stars
Morningstar Economic
Moat
Rating:
Wide
Morningstar Uncertainty
Rating:
High

Alphabet
(GOOGL),
too,
dropped
its
Q4
earnings
on
Tuesday.
The
Google
parent
reported
total
fourth-quarter
revenue
of
$86.3
billion,
up
more
than
13%
from
last
year.
The
“network
effect”
was
the
big
winner,
driving
continuous
growth
at
Google
search
and
YouTube
during
the
fourth
quarter.
And,
increasing
demand
artificial
intelligence
accelerated
cloud
revenue
growth.
However,
continuing
weakness
in
Google’s
advertising
technology
business,
or
Google
network,
pressured
total
advertising
growth
a
bit.

Alphabet’s
stock
price
fell
after
the
results.

Ali
Mogharabi,
Morningstar’s
equity
analyst,
says
Morningstar
has
inceased
revenue
projections
for
Alphabet 
as
the
acceleration
in
cloud
revenue
growth,
further
monetisation
of
YouTube,
and
the
continuing
steady
growth
in
search
likely
will
more
than
offset
the
impact
of
declining
network
segment
revenue.
Model
adjustments
result
in
a
$171
fair
value
estimate,
up
from
$161.

Read
Ali
Mogharabi’s
assessment
of
Alphabet.

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