"Competition has become fiercer." (Elon Musk, Tesla CEO)
As the earnings season for major U.S. big tech companies, starting with Tesla and Google Alphabet, kicks off in earnest, the start has not been smooth. Right after earnings announcements, so-called 'disappointment' sell-offs are pouring in during after-hours trading, overshadowing even positive news. Automaker General Motors (GM) also saw pessimistic earnings sentiment, with the "good times are over" narrative overshadowing an earnings surprise, closing the regular session down 6%.
Tesla's mixed earnings lead to 8% drop in after-hours... Robo-taxi unveiling postponed to October
According to Tesla's earnings released after the market close on the 23rd (local time), Q2 revenue rose 2% year-over-year to $25.5 billion, exceeding Wall Street's average estimate of $24.77 billion.
However, quarterly earnings per share (EPS) came in at $0.52, falling short of the expected $0.62. GAAP net income ($1.478 billion) plunged 45% compared to a year ago, and operating income ($1.605 billion) dropped 33%. Tesla confirmed that despite achieving record quarterly revenue amid a challenging operating environment in Q2, profitability deteriorated due to electric vehicle price cuts, promotional financing incentives, restructuring costs, and investments in artificial intelligence (AI).
This mixed performance immediately led to a sharp stock price decline. Tesla's shares, which closed down over 2% during the regular session ahead of the earnings release, plunged nearly 8% in after-hours trading. The decline deepened especially after comments from CEO Musk following the earnings announcement.
During the conference call, Musk explained the mixed results by stating, "Tesla has become more difficult. We are facing more competition." While maintaining the existing plan to produce a low-cost electric vehicle in the first half of next year, he postponed the anticipated robo-taxi unveiling from August to October. He also said that if former President Donald Trump's election victory in November leads to the Inflation Reduction Act (IRA) being reduced or repealed, it would be "fatal to competitors and somewhat damaging to Tesla." However, he emphasized Tesla's long-term value lies in 'autonomous driving,' urging, "If you don't believe in this, sell your shares."
Alphabet and GM plunge despite surprise strong earnings, why?
On the same day, Alphabet and GM attracted attention by posting earnings that beat market expectations but still saw their stock prices plunge. Alphabet's Q2 revenue and EPS were $84.74 billion and $1.89, respectively, surpassing Wall Street estimates of $84.19 billion and $1.84. Revenue grew 14% year-over-year, marking four consecutive quarters of double-digit growth. Notably, the cloud segment's quarterly revenue exceeded $10 billion for the first time ever. Q2 net income also increased by nearly 30%.
However, Alphabet's shares, which closed slightly higher during the regular session, fell over 2% after the earnings release. This was due to short-term profit-taking as the market had already priced in expectations fueled by cloud segment growth. Additionally, ongoing large-scale investments in AI technology with uncertain timing for revenue realization, and YouTube advertising revenue ($8.66 billion) falling short of Wall Street estimates, disappointed the market. Brent Thill, an analyst at Jefferies, said, "Most companies are still in the experimental stage," and predicted, "It is too early to expect AI earnings benefits; real AI revenue will occur in 2025-2026."
GM, which reported earnings before the market opened, posted revenue ($48 billion) and EPS ($3.06) exceeding Wall Street estimates but faced concerns about rising production costs in the second half and slowing sales due to reduced consumer spending power, leading to a stock price decline. GM's shares fell 6.42% during the regular session. Paul Jacobson, GM's CFO, said, "Raw material costs will seasonally increase further in the second half, and pricing pressure will intensify."
Meanwhile, the three major indices on the New York Stock Exchange closed slightly lower amid corporate earnings announcements, awaiting Tesla and Alphabet's post-market earnings reports. Earnings announcements from AT&T, General Electric (GE), Ford Motor, IBM, and Chipotle are scheduled for the following day. Microsoft (MS), Meta Platforms, Apple, and Amazon will release their quarterly results next week.
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