Big Tech Earnings Week Moves Index Funds and Retirement Accounts
Tesla and Meta report third-quarter results after the close on Wednesday, Oct. 21. IBM posts its report card the same evening. According to the World Market Stats earnings calendar, Tesla and Meta report side by side that evening, while Microsoft and Alphabet follow on Oct. 28.
A handful of companies has become an event for the entire market because of how concentrated the index has grown. The S&P 500, the benchmark of large U.S. stocks, holds about 500 companies, but its movement is now driven heavily by a small number of giant technology stocks.
According to Charles Schwab, the combined market value of the Magnificent Seven, Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta and Tesla, reached about $24 trillion as of August, roughly 34 percent of the S&P 500’s total of about $70 trillion. FinanceBuzz put the share in plainer terms. Of every $10,000 placed in an S&P 500 index fund, about $3,400 sits in just seven stocks.
An index fund is built to track an index exactly as it is, and the S&P 500 is calculated by giving larger companies a larger weight. As a big company grows bigger, its seat inside the index grows with it. When giant technology stocks rise or fall, the whole index is easily pulled in the same direction.
The structure connects directly to retirement savings. The 401(k), the workplace retirement account that invests money set aside from paychecks over the long term, often holds S&P 500 index funds. Even an account whose owner never picked an individual stock already carries a large weight in giant technology shares.
Market expectations are already set high. According to Reuters, analysts on average expect S&P 500 third-quarter profit to grow about 31 percent from a year earlier. Tajinder Dhillon of LSEG said two-thirds of that growth is expected to come from the technology sector and large artificial intelligence names. These are expectations formed before the reports, not facts the companies have confirmed.
The item analysts study longest this season is the gap between the speed of artificial intelligence capital spending and revenue growth. Capital spending means money spent on facilities such as data centers and servers. As the spending grows quickly, whether those facilities actually lead to revenue is verified alongside it.
The scale of the spending is already visible in each company’s annual outlook. According to an analysis of company guidance published by Insider Monkey, Alphabet has guided this year’s capital spending to between $195 billion and $205 billion. Meta has guided to between $130 billion and $145 billion, and Amazon plans about $220 billion.
Cloud computing is the checkpoint on the revenue side. According to the same analysis, Alphabet’s Google Cloud revenue grew 82 percent from a year earlier in the second quarter to $24.8 billion. Investors will look in these results for whether that growth is continuing strongly enough to cover the cost of building data centers.
Some analysis holds that guidance, the outlook a company gives for what lies ahead, will weigh more than the results themselves. World Market Stats said that in a season when expectations are already high, the outlook ahead is more likely to drive the market reaction than a beat on estimates.
Views on the spending are divided. Supporters argue that facilities must be built first to meet artificial intelligence demand. Skeptics say that as the spending piles up, the bar for verification rises with it. According to Reuters, Anthony Saglimbene of Ameriprise Financial said that because the AI trade stands on continued capital spending, the standard of verification rises with each passing quarter and scrutiny grows.
Tesla has already released its vehicle delivery figures, so analyst attention falls on profit margins and the outlook ahead. The two weeks of results are each company’s report card, and at the same time a gauge of which direction index fund and retirement account balances will move.
