Alphabet (GOOG, GOOGL) earnings out later today will likely mark a moment of truth for tech investors.
That is, whether to stick with a renewed “Magnificent Seven” bull trade or buy the steep sell-off in semiconductor stocks and perhaps load back up on both by the year’s end
Quick insight: Over the past month, the performance gap between semiconductor stocks and Magnificent Seven stocks has expanded, as seen in the Yahoo Finance AlphaSpace chart below. The Magnificent Seven comprises Apple (AAPL), Alphabet, Microsoft (MSFT), Amazon (AMZN), Meta (META), Tesla (TSLA), and Nvidia (NVDA). The divergence reflects investor indecision on whether the previously virtuous circular relationship between chips and hyperscaler capex is sustainable, given that hyperscaler forward free cash flow is likely to turn negative in this quarter, Evercore ISI strategist Julian Emanuel explained in a new note on Wednesday. “With Korea’s KOSPI [index] setting the tone for a ‘buy the dip’ bid to semis, Alphabet’s report this afternoon takes on added significance,” Emanuel added. “Can an earnings beat and strong capex intentions lift both the Mag 7 and the semi stocks together, catalyst for new highs in the rangebound S&P 500?
Our base case is ‘yes’, but the time for conjecture is over. The moment of truth has arrived.” Inside the action: Semiconductor stocks are under heavy pressure as investors worry that the AI spending boom may be cooling. The sector has experienced years of extraordinary growth and soaring valuations.