Alphabet and Tesla to kick off pivotal week for the Magnificent Seven
The high-stakes earnings season for the Magnificent Seven tech giants begins on Wednesday, as Tesla and Alphabet report after the closing bell.
With both companies under pressure to justify elevated valuations and market leadership, their results could set the tone for the rest of the sector’s global heavyweights – and for equity markets more broadly.
Tesla: A household name with a leadership problem
Tesla’s numbers are set to arrive against a backdrop of slowing vehicle sales, operational headwinds, and increasing discomfort with chief executive Elon Musk’s extracurricular ambitions.
Analysts expect revenue of $22.12bn for the second quarter, a decline of more than 11 per cent, while earnings per share are forecast at $0.44.
“Even if Tesla delivers a solid set of numbers, it’s unlikely to escape heavy scrutiny”, said Josh Gilbert, market analyst at eToro.
“The optimistic scenario is that cost-cutting efforts and developments in AI and autonomy provide some relief. Realistically, expectations are low”.
Global deliveries fell 13.5 per cent year on year to just over 380,000, missing analyst estimates and marking the third consecutive quarterly decline.
The much-hyped cybertruck has struggled to gain traction, with unit sales hitting their lowest point in over a year.
Gilbert pointed to the increasingly controversial presence of Musk himself. “Elon’s position as a Tony Stark-like personality at the head of the company was a boon for a long time, but it’s hard to argue that his prominence isn’t having some detrimental effect on the brand”.
Musk’s flirtation with launching a US political party and plans to transfer Tesla funds to his private AI firm, xAI, have also raised eyebrows.
Still, Tesla remains a global brand with an ambitious vision in autonomous vehicles and robots.
Its robotaxi programme and full self-driving updates are seen as critical to long-term growth, even if meaningful revenues remain years away.
“Tesla’s valuation, still more than 20 times that of General Motors despite delivering far fewer vehicles, reflects expectations of transformational growth”, Gilbert said.
“But if the company continues to under deliver, that valuation gap becomes increasingly difficult to justify”.
Alphabet: AI gains ground, but concerns remain
Alphabet heads into earnings with more momentum. The tech giant is expected to post revenue of $93.97bn and earnings of $2.20 per share, supported by strength in search, Youtube, and Cloud.
Google’s parent company has gained over 15 per cent in the past month as investors bet on its aggressive push into artificial intelligence.
The integration of Gemini AI into Google search, a growing presence in generative AI tools, and the expansion of Waymo’s autonomous rides business are seen as encouraging signs.
Yet Alphabet continues to face significant regulatory scrutiny, particularly around its dominance in search and advertising.
A recent court ruling found the company abused its monopoly position – a decision that could lead to sweeping changes in how it conducts business.
However, the challenge lies in execution. While Alphabet remains cash-rich and highly profitable, critics have warned that the costs of AI development are huge and that monetisation remains elusive.
With emerging rivals such as OpenAI and Anthropic gaining traction, Alphabet’s first mover advantage is under threat.
Still, for now, sentiment remains broadly constructive. Alphabet trades at a price-to-earnings ratio of 16.89, which is lower than some of its tech peers, suggesting a mix of optimism and caution has been priced in.
Tech titans carry the index
The results from Tesla and Alphabet will mark the beginning of a pivotal stretch for markets. Meta, Microsoft and Apple will report over the coming week, followed closely by Amazon and Nvidia.
According to S&P Global, the so-called Magnificent Seven are expected to drive the bulk of the S&P 500 earnings growth in 2025.
While earnings-per-share growth is forecast to slow from the blistering pace of recent years, it remains set to outpace both the broader index and traditional value stocks.
This continued leadership is underpinned by AI adoption across multiple industries, which remains central to the group’s revenue and profitability.
Yet elevated valuations across the Mag Seven remain a concern. S&P Global highlights that the tech giants trade at notably higher forward profit to earnings multiples than the broader market, leaving little room for earnings disappointments.
The firms also tend to be more volatile, amplifying both the gains and the downside risk for investors.
Tesla, for example, remains among the most widely held stocks on retail trading platforms, despite its year-to-date underperformance.
Alphabet has held up better, but still lags Nvidia, Microsoft and Meta – the latter trio seen by many as the leaders of AI investment.
A market waiting for reassurance
As the Magnificent Seven step up to deliver earnings, market expectations are high.
Collectively, the group is projected to post a 14 per cent rise in second-quarter profits, compared with flat performance from the rest of the S&P 500, according to Bloomberg Intelligence.
Yet the mood is more cautious than it may seem. “Earnings are going to have to be really spectacular to push these stock significantly forward from here”, said Jamie Cox, managing partner at Harris Financial. “I don’t know if that’s possible”.
If recent history is set to repeat itself, strong results from the group may keep equity markets pinned at record high.
But misses, especially from the more valued names, could shift sentiment just as quickly.