Q4 tech giants’ reveal: Impact of Tesla, Apple, Google + more on ASX

Explore the 'Magnificent Seven' Q4 earnings and their broader impact on Australian investors and the ASX.

The Australian Stock Exchange (ASX) has been a hive of activity, reflecting significant movements in the global market.

A striking observation comes from the benchmark S&P/ASX 200 index, which soared more than 0.4%, reaching a notable peak on Tuesday.

The index reached 7626.7, just a few points shy of its August 2021 closing high of 7628.9. This surge, though still shy of the intraday high, hints at a robust market sentiment.

International counterparts like the S&P 500 (+0.76%), Dow Jones (+0.59%), and Nasdaq (+1.12%) also showed upbeat trends.

So what's really driving the market?

Market rising: The role of the "Magnificent 7"

The recent surge in the S&P 500 is closely linked to the performance of the "Magnificent 7" – a group of dominant tech companies. The majority of these firms have seen their stock prices reach new heights, significantly contributing to the S&P 500's overall value.

Here they are arranged in alphabetical order:

6 out of these 7 companies are projected to be the primary drivers of year-over-year earnings growth for the S&P 500 in Q4 2023 (as seen in the table above).

Collectively, the group (NVIDIA, Amazon, Meta Platforms, Alphabet, Microsoft and Apple) are anticipated to report an impressive year-over-year earnings growth of 53.7% for the quarter as per earnings insights from Factset.

Note: Led by Microsoft, the group comprises seven of the largest companies in the world by market capitalisation. Read more about it here.

Tesla's Q4 earnings miss

Tesla's Q4 2023 financial results were a talking point in the market, with the company slightly missing its earnings expectations.

The reported earnings were $0.71 per share on a non-GAAP basis, against a Wall Street consensus of $0.73 per share. Revenue also fell short, coming in at $25.167 billion, against the anticipated $25.640 billion.

Here's what it means:

So, Tesla recently shared how much money it made, and it's like when you check your scores after a big test. The expectation (or the 'Wall Street consensus') was that it would earn 73 cents per share, but it actually got 71 cents. It's a bit like expecting a solid A but getting an A-.

And then there's the whole thing about revenue – that's the total cash it made. Think of it as allowance. Everyone thought it would bring in $25.640 billion, but it ended up with $25.167 billion. It's like saving up for a new skateboard but finding you're a few dollars short.

In the big world of business, these might seem like small differences, but just like in our lives, a few cents and dollars here and there can add up to a lot!

In the report that went live on 24 January, the electric car maker indicated a cautious outlook for 2024. The company acknowledged that its vehicle volume growth rate might be "notably lower" than the robust growth seen in 2023.

This led to some recalibration of expectations regarding Tesla's near-term growth trajectory, particularly as it navigates the competitive and rapidly evolving automotive market.

Tesla's share price has plummeted by more than 10% in the past 5 days, currently trading around US$190.

However, the overall market sentiment remains positive. This optimism brings us to a broader, more profound aspect of the current market dynamics.

Concentration in the US equity market: A risk?

Referencing the same FactSet earnings insight, the companies in the 'Magnificent 7' account for more than half of the total shares' earnings for the S&P 500. This high concentration in the index introduces increased risk in the US equity market.

Peter Garnry, the head of Equity Strategy at Saxo Invested, said:

"A frightening truth lies behind this fact. The outperformance cannot continue unless this small group of US technology companies take over the entire economy and continue to outperform steep growth expectations in 2024."

"The high index concentration also makes the US equity market riskier as returns are increasingly driven by a narrow set of risk factors with sentiment on technology stocks being one of them. Our key idea in 2024 is to be underweight US mega caps."

US and Australian markets

In light of these global market trends, the ASX's reaction becomes even more pertinent. Speaking to Finder, head of global equity research at Halo Technologies Clay Carter shared some insights that can shed light on the S&P/ASX interplay and its significance for Aussie investors.

"Just because the US market is in rude health doesn't mean Australian investors will reap the same benefits in their home market, Carter said. "The US market is a growth market. The Australian market is essentially an 'income' market."

There are stark differences between the two markets. For example, while tech giants in the US like Apple and Microsoft boast market values of over US$2 trillion, the largest Australian stocks, such as Commonwealth Bank (ASX:CBA) and BHP Group (ASX:BHP), have market caps of around US$123 billion and US$156 billion respectively.

This disparity in scale and focus illustrates why Australian markets, heavily weighted towards stable, dividend-paying stocks, may not experience the same growth trajectory as the more diversified and tech-heavy US markets.

"The ASX 200 is a market of banks and miners. Very little else. The US market is diverse and deep and holds the largest and most dominant technology companies in the world."

"Australian investors need to diversify outside the ASX 200 and into the U.S. and other global markets."