Can Q3 Earnings Fuel a New Rally in "Mag 7" ETFs?

The third-quarter earnings season is underway, and the so-called “Magnificent 7" companies are in focus. The “Mag 7,” the stock market darlings in the first half of 2024, lost their steam in recent months due to the fading AI craze and investors' love for the sectors benefiting the most from rate cuts. 

The seven stocks are Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG, GOOGL), Amazon (AMZN), NVIDIA (NVDA), Tesla (TSLA) and Meta Platforms (META). Among the seven, Tesla will be the first to report, with the release scheduled after market close today. Alphabet is scheduled to report on Oct. 29, followed by Microsoft and Meta Platforms on Oct. 30, and Apple and Amazon on Oct. 31. NVIDIA is likely to report next month. 

The third-quarter earnings for the “Mag 7” companies are expected to be up 16.2% from the same period last year on 13.6% higher revenues. This would follow the 35.2% earnings growth on 14.7% higher revenues in the second quarter. 

Stay up-to-date with all quarterly releases:See Zacks Earnings Calendar.

Tesla

Tesla has an Earnings ESP of -1.28% and a Zacks Rank #2 (Buy). According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The electric carmaker saw no earnings estimate revision over the past 30 days for the to-be-reported quarter. The Zacks Consensus Estimate for third-quarter earnings indicates a substantial year-over-year decline of 12.1% and revenue growth of 9.5%. The earnings track record of the company is not good as it delivered a four-quarter average negative earnings surprise of 7.99%. The electric carmaker is down 5.7% in the last three months (read: Should You Buy Tesla ETFs Ahead of Q3 Earnings?).

Tesla returned to delivery growth in the third quarter after two consecutive quarters of decline and reported the third-largest quarterly number in the company's history. Investors are keenly waiting for specifics on the company's plans for an affordable EV below $30,000 and its long-term Cybercab vision after the recent Robotaxi event, which left investors disappointed due to the lack of concrete details regarding its ridesharing platform.

Alphabet 

Alphabet has an Earnings ESP of +1.57% and Zacks Rank #2. It saw no earnings estimate revision over the past 30 days for the to-be-reported quarter. The company’s earnings surprise track record over the past four quarters is good, with the average being 9.60%. Earnings are expected to increase 18.1%, while revenues are expected to grow 13.6% from the year-ago quarter. The Internet behemoth has plunged 9% in the last three months.

Google is facing headwinds from antitrust lawsuits and intensifying competition in the AI space. Analysts are concerned about the impact of generative AI on Google's core search business.

Meta Platforms

Meta Platforms has an Earnings ESP of +2.83% and Zacks Rank #2. The social media giant saw a positive earnings estimate revision of 2 cents for the to-be-reported quarter over the past 30 days. Analysts increasing estimates right before earnings — with the most up-to-date information possible — is a good indicator for the stock. The Zacks Consensus Estimate for the yet-to-be-reported quarter indicates substantial year-over-year earnings growth of 17.8%. Revenues are expected to increase 17.6% year over year. Meta Platforms delivered an earnings surprise of 12.61%, on average, in the last four quarters. Shares of META have gained about 23.5% over the past three months. 

Meta Platform is trading near an all-time high and several analysts raised the target price for META ahead of its earnings, showing strong confidence in the company’s growth. UBS raised the price target to $690 from $635, maintaining a Buy rating, while Guggenheim raised Meta's price target to $665 from $600 with a Buy rating. Jefferies and TD Cowen lifted the price target on Meta Platforms to $675 from $600 each and kept a Buy rating. KeyBanc increased the price target to $655 from the previous $560 while maintaining an Overweight rating on the stock.

Analysts cited enhanced user engagement and better monetization of video content, including the Reels feature on the platform. An increased ad load and overall usage rate for its Reels (short-form-video) offering would "continue to drive growth" for Instagram.

Microsoft

Microsoft has an Earnings ESP of -0.74% and a Zacks Rank #3. Microsoft saw a positive earnings estimate revision of a penny over the past 30 days for the to-be-reported quarter. Its earnings track record is impressive, with the four-quarter earnings surprise being 6.34%, on average. The Zacks Consensus Estimate indicates earnings growth of 3% and revenue growth of 14% from the year-ago quarter. Microsoft has shed about 4% over the past three months.

The world's largest software company is spending billions to construct new data centers to meet demand for cloud computing and power-hungry AI services. While Azure growth will continue to slow in the current quarter, chief financial officer Amy Hood said that investments in data centers and servers will let the company capitalize on demand and accelerate Azure growth in the second half of fiscal 2025. Microsoft expects revenues of $63.8-$64.8 billion for the first quarter of fiscal 2025, implying 13.8% growth at the middle of the range. 

Apple

Apple has an Earnings ESP of -17.71% and a Zacks Rank #3. Apple saw a negative earnings estimate revision of 6 cents over the past 30 days for the fiscal fourth quarter. The iPhone maker has a strong track record of positive earnings surprises. It delivered an average earnings surprise of 3.79% in the trailing four quarters. The Zacks Consensus Estimate indicates a modest year-over-year increase of 5.5% for earnings and 5.6% for revenues. The stock is up 4.9% over the past three months.

The iPhone manufacturer returned to revenue growth in fiscal third-quarter 2024 and introduced four versions of iPhone 16 based on AI last month. The new AI-based iPhones will likely kickstart the next big upgrade cycle, enhancing the company's performance and restoring investor confidence in Apple. The stock touched a new high this week on improving demand for its latest iPhone 16. The preliminary iPhone shipment data posted by International Data Corporation showed strong demand for Apple's previous smartphone models. Sales were also helped by Apple's rollout of iPhone 16 (read: ETFs to Tap Apple's Potential AI-Based Growth). 

Amazon

Amazon has an Earnings ESP of 0.00% and a Zacks Rank #3. The stock saw no earnings estimate revision over the past 30 days for the third quarter. The Zacks Consensus Estimate indicates a year-over-year earnings increase of 34.1% and substantial revenue growth of 9.8% for the to-be-reported quarter. Additionally, Amazon’s earnings surprise history is impressive, with the four-quarter average surprise being 31.1%. The stock has gained about 1.8% in the past three months.

Amazon remains the king of e-commerce, and its advertising unit is booming. The growth in Amazon’s cloud computing business — Amazon Web Services (“AWS”) — is also accelerating, driven by its AI capabilities. Like other tech companies, Amazon has been ramping up investments in data centers, chips and the power needed for AI workloads. The world's largest online retailer expects revenues in the range of $154-$158.5 billion for the third quarter of 2024.

ETFs to Tap

Given this, investors may want to invest in these stocks through ETFs. Below, we have highlighted some ETFs with the largest exposure to “Mag 7.”

Roundhill Magnificent Seven ETF (MAGS): It is the first-ever ETF offering investors equal-weight exposure to the “Magnificent 7” stocks. 

MicroSectors FANG+ ETN (FNGS): This ETN is linked to the performance of the NYSE FANG+ Index, which is equal-dollar weighted and designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. The note accounts for a 10% share in each of the seven stocks. MicroSectors FANG+ ETN has a Zacks ETF Rank #3 (see: all the Technology ETFs here).

Vanguard Mega Cap Growth ETF (MGK): It tracks the CRSP US Mega Cap Growth Index. It holds 71 securities in its basket, with the “Mag 7” collectively accounting for 57.9% of the total assets. MGK has a Zacks ETF Rank #2.

Invesco S&P 500 Top 50 ETF (XLG): Invesco S&P 500 Top 50 ETF measures the cap-weighted performance of the largest companies on the S&P 500 Index, reflecting the performance of the U.S. mega-cap stocks. It holds 53 stocks in its basket, with the “Mag 7” accounting for a combined 53.4% share. XLG has a Zacks ETF Rank #2.

iShares S&P 100 ETF (OEF): iShares S&P 100 ETF offers exposure to the 101 largest U.S. companies. The “Mag 7” stocks account for a combined 45.4% share. OEF has a Zacks ETF Rank #2.

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