War does not stop the new high of US stocks! 160 billion technology giants face a "big test" this week: continue to soar or bubble burst?

Attention, despite the ongoing disruption in the market caused by the Iran war, the largest tech stocks on Wall Street have pushed the S&P 500 index to a new all-time high. Investors, after experiencing a strong week in the market, are now welcoming the busiest earnings week of the season, the results of which will be crucial in testing the sustainability of this uptrend. Super Earnings Week Begins The core focus of the market this week is undoubtedly the earnings reports of five of the "Seven Tech Giants" of the large tech companies. Alphabet (GOOGL.US), Microsoft Corporation (MSFT.US), Amazon.com, Inc. (AMZN.US), and Meta (META.US) are set to report earnings on Wednesday, with Apple Inc. (AAPL.US) following on Thursday, and NVIDIA Corporation closing out the week on May 20. These five tech giants have a total market value of close to $16 trillion, accounting for a quarter of the market capitalization of the S&P 500 index. Keith Lerner, Chief Investment Officer at Truist Advisory Services, pointed out, "This will be a crucial week, as earnings need to validate the recent uptrend." In addition to the tech giants, the earnings calendar this week is also crowded with telecom operators Verizon and T-Mobile set to report on Monday and Tuesday, respectively; payment giants Visa and Mastercard to report on Monday and Thursday, respectively; and the earnings of energy giants Exxon Mobil Corporation, Chevron Corporation, BP p.l.c. Sponsored ADR, Phillips 66, among others, will provide clues about the impact of the Iran war on the energy market. Tech Giants Submitting Their Reports The "Seven Giants" of tech stocks have propelled the U.S. stock market benchmark index to rise for four consecutive weeks, with a gain of 13%. Since hitting a bottom on March 30, the stock prices of Alphabet, Amazon.com, Inc., NVIDIA Corporation, and Meta have all risen by over 25%. Prior to this uptrend, the large tech stocks had dragged down the S&P 500 index in the first three months of the year due to market concerns about their overspending on artificial intelligence. The sell-off cleared investors' positions in these stocks and compressed valuations, preparing the sector for a rebound. Allen Bond, Portfolio Manager at Jensen Investment Management, expressed that the economic risks brought about by the Iran war have pushed up oil prices and could lead to persistently high inflation, making the robust profit growth of tech giants even more attractive. Compiled data shows that analysts expect the earnings of the "Seven Giants" to grow by 19% in the first quarter, compared to a 12% growth for other components of the S&P 500 index. So far, this group has started off well. Last week, Tesla, Inc.'s first-quarter adjusted earnings exceeded Wall Street's expectations, but concerns about surging capital expenditures overshadowed this bright spot. NVIDIA Corporation, the world's most valuable company, will report earnings last on May 20. Brian Barbetta, Co-Head of Global Innovation Strategies at Wellington Management overseeing approximately $50 billion in assets, stated, "We believe that the capital being deployed has a very high return on investment, and over time, will lead to faster margin expansion." Market Focus on "AI Monetization Ability" However, the scale of investment is impacting cash flow. Amazon.com, Inc.'s first-quarter free cash flow is expected to be negative $13 billion, the largest deficit since 2022, when investments in warehouses and other areas surged to meet pandemic-driven demand. Meta's first-quarter free cash flow is expected to be $4 billion, the lowest level in nearly four years. To address this, some companies are tightening their spending. Meta and Microsoft Corporation are planning layoffs to offset the impact of increased AI expenses. After news of these measures emerged on Thursday, the stock prices of both companies fell. Investors may closely monitor the cloud computing businesses of these companies, as demand from AI startups such as Anthropic and OpenAI is driving rapid sales growth in this sector, surpassing supply. The largest cloud service provider Amazon.com, Inc. is expected to see a 26% increase in revenue from cloud services in the first quarter, while Microsoft Corporation's Azure and Alphabet Inc. Class C clouds are expected to see revenue growth of 38% and 50%, respectively. Last quarter, Azure's revenue growth of 38% was not enough to satisfy investors, leading to a 10% drop in Microsoft Corporation's stock price the day after earnings were announced. Changes in Valuation of Large Tech Stocks Bond of Jensen stated that the excitement over Anthropic's new AI services has alleviated concerns for many about whether such investments will ultimately pay off. He added that while these developments have increased anxiety about software makers facing disruptive risks, it is a positive factor for large tech companies actively investing in the future. Bond said, "These are extremely powerful businesses with high profit margins and strong consistency, and valuations do not seem to be overstretched. These giants exist in a different world in terms of attractiveness." Fed Rate Decision and New Chair Appointment On Wednesday of this week, the Federal Reserve will announce its rate decision. The market currently expects a 99.5% probability that the FOMC will maintain the interest rate range of 3.5% to 3.75%. Of note, this is not only Federal Reserve Chair Powell's second-to-last meeting he will chair, but political pressures have also shifted. The Department of Justice recently dropped a criminal investigation into Powell's handling of renovation costs at the Federal Reserve building. This clears the way for Kevin Warsh, nominated by Trump as the next Chair, to take over smoothly in May, removing a political obstacle. Jeffrey Roach, Chief Economist at LPL Financial, pointed out that the previous investigation "threatened Warsh's confirmation and heightened concerns about the politicization of the central bank." Now, Powell and the Fed have a clear path ahead, and the White House has preserved its reputation through a non-criminal investigation by the Fed's Inspector General. The Senate Banking Committee has scheduled an executive meeting for Wednesday morning at 10 a.m., where a vote on Warsh's nomination may take place. Powell's penultimate meeting as Chair of the Federal Reserve is expected to be relatively uneventful, as traders overwhelmingly bet that the FOMC will keep rates unchanged at the April meeting. While Powell had previously stated in March that data over the next six weeks was "very important" in assessing the economic impact of the Iran war, the market expects Federal Reserve governors to continue to "wait and see," as Powell put it. Additionally, the Personal Consumption Expenditures (PCE) Price Index data on Thursday will be closely watched, providing investors and policymakers with insights into the current state of sticky inflation. March data will be closely watched for the potential impact of the Middle East conflict.