All Mag 7 stocks fell, and the Nasdaq plummeted! Did the earnings reports of the giants collapse?

Overnight, the Mag 7 experienced a significant drop, causing a storm in the U.S. stock market. The trigger for the plunge was the earnings reports, but the reports from the giants were not bad; they were just not good enough.

On Thursday, technology stocks, chip stocks, and AI concept stocks collectively fell, with the Nasdaq closing down 2.76%, marking the largest decline in nearly two months. October ended with a drop of 0.52%, ending a two-month streak of gains.

The "Tech Seven Sisters" all suffered losses. Meta closed down 4.09%, Microsoft down 6.05%, marking the largest single-day drop in two years. Nvidia closed down 4.72%, Alphabet-A down 1.92%, Tesla down 2.99%, Apple down 1.82%, and Amazon down 3.28%.

Analysts believe that the sharp decline of the Mag 7 is not due to poor earnings reports; both revenue and profit are outstanding. However, considering their current stock prices and valuation levels, the performance guidance they provided does not meet market expectations.

"Not Good Enough"

This week, technology earnings reports were released in quick succession. The first to report was Google, whose cloud revenue growth exceeded expectations, providing a pleasant surprise to the market and temporarily alleviating investors' "AI anxiety." However, the subsequent earnings reports from Microsoft and Meta doused the market with cold water.

The overall performance of Microsoft and Meta was not bad, with both revenue and net profit exceeding expectations. Among them, Microsoft's total cloud revenue grew by 22% year-on-year, with AI contributing 12 percentage points to Azure's growth, higher than in the second quarter.

What frightened investors was Microsoft's guidance on AI revenue and expenses for the fourth quarter. Microsoft expects Azure revenue growth to slow to 31%-32% in the fourth quarter; after a nearly 79% year-on-year increase in capital expenditures in the third quarter, Microsoft anticipates further quarter-on-quarter increases in the fourth quarter.

Meta's earnings report also intensified investors' concerns about excessive AI investment yielding insufficient returns.

Meta's Reality Labs, responsible for the metaverse and AI business, reported a staggering loss of $4.42 billion in the third quarter. Meta warned that it expects "operating losses in this department to continue to increase meaningfully."

Despite the worsening losses, Meta stated that the company will continue to invest heavily in AI, expecting "significant growth in capital expenditures by 2025."

Michael Arone, Chief Investment Strategist for State Street Global Advisors' U.S. SPDR business, stated, "These companies continue to perform excellently in terms of revenue and profit, but considering their current prices and valuation levels, their guidance is still not good enough."Arone stated that some risk factors being considered indicate that the pullback of large tech stocks will continue