Given Trump’s trade war, are Big Tech’s earnings estimates too high?

Analysts expect the so-called Magnificent Seven to deliver an average of 15 per cent profit growth in 2025. Photo by AP files

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The last time Big Tech delivered earnings, U.S. President Donald Trump had just started his term, stocks were soaring on expectations of a pro-growth government agenda and investors’ main worry was how long it would take companies to convert their artificial intelligence spending into profits.

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Three months later, they are facing a far bleaker picture.

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This week’s quarterly results from Microsoft Corp., Apple Inc., Meta Platforms Inc. and Amazon.com Inc. will land in a market obsessed with every twist of a trade war that has wiped US$5.5 trillion from the S&P 500 index. Artificial intelligence concerns have taken a back seat to angst over the possibility of a tariff-induced recession, while safe havens such as gold have become the trade de jour for investors too rattled to buy stocks on the cheap.

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Even with all the uncertainty, Wall Street isn’t giving the companies’ estimates much wiggle room. Analysts expect the so-called Magnificent Seven — which also includes Google-parent Alphabet Inc., Tesla Inc. and Nvidia Corp. — to deliver an average of 15 per cent profit growth in 2025, a forecast that has barely budged since the start of March despite the flareup in trade tensions.

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That raises the stakes for the four megacaps reporting this week, which collectively have a nearly 20 per cent weighting in the S&P 500. Traders are unlikely to forgive earnings shortfalls in an already fearful market climate, despite steep declines in the stocks’ share prices and improved valuations. Dire outlooks from the industry behemoths would also be poorly received, especially if they bolster fears of muted corporate spending ahead.

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“Any modicum of a weaker than expected number is going to cause a further selloff because of the concern around tariffs,” said Phil Blancato, chief market strategist at Osaic Wealth Inc., who believes this year’s weakness in megacaps is a buying opportunity.

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Markets got an early read on how Big Tech might be faring last week. Tesla reported its worst quarter in years, though traders cheered signs that chief executive Elon Musk intends to step away from his government work and focus more on the electric-vehicle maker. Alphabet beat expectations but offered little future guidance. The Bloomberg Magnificent 7 index jumped 9.1 per cent last week amid a broader market rebound, though it is still down 15 per cent in 2025.

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A deeper look comes during a two-day stretch that starts with results from Meta and Microsoft on Wednesday. While many executives have declined to predict how tariffs might affect their bottom lines, Wall Street has been doing its own math. Based on a 22 per cent tariff rate modeled by Bloomberg Economics, lower gross margins could result in a net income contraction of about seven per cent in 2025 for the S&P 500, compared with the current consensus estimate of nearly 12 per cent growth, wrote Bloomberg Intelligence chief equity strategist Gina Martin Adams.