Mag7 Tesla and Alphabet Underperformed in Q2

“Magnificent” Tesla and Alphabet underperformed compared to the wider market in the previous quarter, but their earnings reports this and next week will provide insight into which company may catch up and which could potentially fall further behind.​

Underperforming Techs

The S&P 500 rose 36% over the last quarter, gaining 36%. However, “Magnificent Seven” Tesla declined by 9% over the same period while Alphabet lagged behind the benchmark at just 18% gain. For Tesla, though, the main stock-influencing events relating to deliveries and the anticipated Robotaxi launch occurred after the end of the quarter.

Analysts believe this pattern of lagging performance compared to the wider market will persist despite upcoming earnings results. Alphabet's projected share price implies additional double-digit increases, while Tesla's projected price remains below its current level.

The automotive-cum-AI company appears to be facing high expectations that are difficult to meet, with Tesla shares down 7% since the Robotaxi event, in which it disclosed fully self-driving (FSD) vehicles, buses and robots. However, the market's expectations were not fully realised. Analysts are also concerned that a slowing global economy could reduce discretionary consumer spending and thus impact automotive purchases. While Tesla did see deliveries increase for the first time this year in the third quarter, rising 6.4% over the previous year's third quarter and up 4.2% sequentially, this failed to meet projected increases of around 8%. As a result, Tesla's share price declined following this announcement.​

Numbers Markets Expect

Despite forecasts of higher sales, Tesla is anticipated to report a 12% decline in EPS to $0.58 when it announces its results on Wednesday after the market closes. Revenue is projected to rise almost 15% to approximately $25.4 billion. Traders will likely seek more information on the expected timing for the deployment of autonomous vehicles.

Alphabet is expected to disclose its results the following week on Tuesday, potentially diverting attention away from advertising revenue. In August last year, Alphabet was deemed to have an illegal monopoly. Now, the DPOJ is considering potential remedies, such as requiring the divestment of Chrome or Android. Investors will probably aim to obtain any updates on this matter and the company's plans. Otherwise, election years typically result in increased advertising income. The consensus is for net income to increase 18% year-on-year to around $1.84 per share, with revenue growing at a somewhat faster pace of 23% to approximately $83.6 billion.​

Tesla Shows Double Pattern

Tesla's long-term outlook appears positive if the inverse head-and-shoulders (iH&S) pattern is completed, especially as the structure resembles a cap-and-handle formation at the right end. Breaking above the double peak of $270 could trigger a bull market aiming for past the $300 handle and the $350 per share in the medium to long term, projected by the measured move of the right shoulder height to $180. This makes the short-term resistance at $240 even more important for further gains, while the $200 level offers potential support where a break may trigger a move back towards the head at $140.​

Source: SpreadEx TESLA MOTORS

Key Takeaways​

Both Tesla and Alphabet are set to report their earnings, with analysts expecting Tesla's revenue to rise 15% but earnings to decline 12%, while Alphabet is anticipated to see revenue increase 23% and earnings grow 18%. However, both companies underperformed the broader market in the previous quarter and traders will seek details from Tesla on the rollout of autonomous vehicles and from Alphabet on any potential remedies regarding its monopoly investigation and plans going forward.