These five companies have an outsized impact on the S&P 500

This week will see a slew of Big Tech company earnings with names like Meta (META), Alphabet (GOOG,GOOGL), and Microsoft (MSFT). While only representing a small percentage of the tech sector, the weight of the companies on the broader market is significant.

Yahoo Finance Reporter Josh Schafer breaks down the upcoming week for tech earnings and what it could mean for the overall market.

For more expert insight and the latest market action, click here to watch this full episode.

This post was written by Nicholas Jacobino

Video transcript

SEANA SMITH: Tesla, Meta, Alphabet, and Microsoft are all on top. Now this group coming off of one of its worst weeks or its worst week on record. The Mag Seven combined to lose $950 billion in market cap and that's according to the latest [? ad ?] out from Dow Jones market. So here to talk about this is Josh Schafer, who better to ask then what exactly this means here for the market. But Josh, just walk us through some of these projections, the estimates that we're expecting to hear from tech and why would you see weakness like we did last week? Obviously, it's extremely concerning here for the broader market.

JOSH SCHAFER: Yeah, Seana, we went through a lot of stats there but I'll give you one more. I'll pile on a little bit. I found this stat from Ryan Detrick over at Carson Group, pretty interesting and it sort of puts tech in perspective for us. More than 300 stocks in the S&P 500 were in the green on Friday, yet the index was down almost 1%. And when you look at what stocks were down you, just mentioned them, but NVIDIA falling 10% matters a lot to this market and it matters a lot to the indexes.

This week specifically, we're going to be looking at different tech companies other than NVIDIA, the other big companies, Microsoft, Alphabet, Meta, and the expectations are really pretty sky high here. So when you look at the group of five, we'll call them, I'm not going to give them some fancy name, but I'm using the Mag Seven stocks, you take out Tesla and you take out Apple, those five stocks are expected to grow earnings 64% this quarter. That's according to FactSet.

When you remove them, the other 495 S&P 500 companies are expected to see earnings decline by 6%. So really, the large portion of S&P 500 earnings growth that we're hoping to see this quarter is just five stocks. It's really just still these five stocks. And you're going to hear from several of them this week. You're going to hear from Meta, from Microsoft, and from Alphabet. And I think it's important for them to not only maybe meet sort of where these high expectations are--

To give you a sense too of how high these expectations are, Meta is expected to grow earnings by almost 100%. That is not an easy print, right? Those expectations are very high. And we've seen the market react thus far to earnings season where even if companies are able to meet high expectations, if they're not able to guide something higher too, it hasn't necessarily brought good stock reaction. So I think that will be one thing to watch certainly later this week, is just what sort of reaction we see.

Also the commentary. When we think about the rally and how we got here over the last year, it's been about AI, right? What can these executives say about AI that either reassures people or brings some concerns about where we're at in that investment process if it's actually contributing to earnings.

- Yeah. Well, it's interesting because I'm looking at this note we just got from Bank of America saying that geopolitical shocks in particular should be bought and not sold. But there's this narrative in some of the notes that the rebound that we're seeing this morning is because the geopolitical tensions didn't bubble up over the weekend and I don't buy that that's the reason. I think people saw that NVIDIA was a little cheaper and they wanted to get in.

JOSH SCHAFER: Yeah, no. I mean, down 10%, having its worst day in four years, right? Going back to March, 2020. I think definitely has some people saying, OK, let's take out my shopping list and sort off see where-- because a lot of people could argue for a stock like that the earnings growth is still there, right? It's supposed to be still there. And I guess that's what the test is this week, is we've priced in this aggressive earnings growth for a lot of these tech companies. Are we going to actually see that and are they going to talk about that coming down the pipe too?

I think specifically about a company like Microsoft who hasn't really had AI transfer into actual revenue yet. They've sort of been telling investors later this year when it's going to be expected. But when you think back to earnings for the last couple quarters for them, they haven't really had AI surprises that have been to the upside in a very positive way. Meta has but Microsoft really hasn't. I think it'll be interesting to see what we hear.

SEANA SMITH: Yeah. And it's also so interesting because when you look inside each company, I mean, it is a very different story, right? It's tough to compare NVIDIA to really any of the other Mag Seven names just given the tremendous amount of growth that they have seen consecutively now for many quarters in a row. And then when you talk about kind of those longer term projections like where NVIDIA is going to be a year from now, I think that's where it's really going to get interesting listening to some of the commentary that we'll be getting later on this earnings season. But I think it's going to help put this AI discussion kind of in place right now and make it a little bit more realistic to how much of this optimism has likely already been priced into the market.

JOSH SCHAFER: It's a big week for NVIDIA because who buys their chips, right? It's these companies that are reporting this week that buy their chips. So if you want to have a little bit of a read through on where the demand's going to be, a large portion of that demand comes from these hyperscalers in Alphabet and Meta, right? Are they going to buy more? Are they investing more? And so it sort of is, I would argue, a pretty monumental week for the AI story and where it's headed.

SEANA SMITH: Yeah. And then many of those names are going to be making their own chips so then you can get into what exactly it means for NVIDIA then. That then--

JOSH SCHAFER: We've got to make our own chip.

- Oh, absolutely. I mean let's get Yahoo Finance.

JOSH SCHAFER: Let's put that on the list. Yahoo Finance chip coming soon.

- Your next big assignment, Josh. Thank you so much for joining us as always for that primer on the tech selloff and rebound, really appreciate it.