The top investment bank on Wall Street, Goldman Sachs Group's stock strategy team recently released a report on the Intelligence Finance App, stating that as US-listed companies prepare to release second-quarter earnings data, they face the toughest profit expectations threshold in nearly three years, and the soaring US stock market is about to face an extremely difficult "performance battle." This means that the financial market is becoming increasingly demanding for the performance expectations of S&P 500 index component companies, which is not good news for the Magnificent 7 tech giants that have repeatedly hit new highs in the US stock market, as well as the S&P 500 index.

The Goldman Sachs strategy team stated that higher expectations mean that the performance of S&P 500 index component companies, especially large technology giants with high weights in the index such as Nvidia, Microsoft and Google, that exceed expectations will significantly decrease, which will probably cause the stock price return resulting from exceeding expectations to decrease by a large margin compared to the previous few quarters, and may even push the stock price down significantly even for slightly exceeding expectations. In this situation, only exceeding expectations by a large margin can promote a substantial increase in stock prices - like Nvidia's performance has exceeded market expectations for four consecutive quarters.

Goldman Sachs Group's strategy team led by Chief Stock Strategist David Kostin wrote in a report on June 28 that the company's compiled Wall Street expected data shows that the average profit increase of S&P 500 index component companies during the period from April to June this year is about 9%, which will be the largest year-on-year expected increase since the fourth quarter of 2021.

"The degree to which the overall earnings per share (EPS) of S&P 500 index component stocks exceed market expectations may be greatly reduced, as the market generally expects them to be much higher than the previous few quarters. "We also expect that the "stock price return" presented by companies that exceed expectations during the Q2 earnings season will once again be lower than the average level in the past few quarters.

Under the joint push of the Fed's interest rate cut betting and the investment fever around artificial intelligence, the benchmark index of the US stock market - the S&P 500 index has repeatedly hit historical highs this year and is currently near its historical high. However, in addition to the strong Q2 earnings expectations, market profitability expectations for the next 12 months have never been so high.

During the Q1 earnings season, investors had a lukewarm reaction to the Q1 earnings season. Despite the fact that up to 80% of S&P 500 index component companies announced profits better than expected, according to the median of the rise data compiled by Bloomberg Intelligence, the stock price performance on the day of performance announcement was actually about 12 basis points lower than the benchmark index.

Kostin and other Goldman Sachs strategists said that this time, the confidence index calculated by Goldman Sachs is already near historic highs.

"Investors still focus on artificial intelligence, although the optimistic sentiment of cyclical earnings growth has eased," said the team led by the strategist. "Therefore, the stock price reward for "exceeding expectations" during the Q2 US earnings season should be lower than the average level and may not be as extreme as the rate of return in the first quarter."

Under the increasingly strict trend of market expectations, there have been "victims of star stocks."

Micron Technology (MU.US) can be regarded as a "victim of star stocks" under the increasingly strict trend of market expectations. Even if the latest performance of Micron can't achieve a perfect score of 100, it can get at least 95 points. In some investors' eyes, it can even get 99 points. However, Wall Street sold off Micron sharply after this strong financial report came out, just because this storage chip giant's performance expectations appeared in the past few quarters to be negligible "deficiencies", showing that the market, under extremely high expectations for this chip giant, even minor deficiencies may have a significant impact on the stock.

After the largest US computer storage chip manufacturer Micron Technology announced its latest financial report, the stock price fell more than 7% in the trading day after the financial report was released. The company's quarterly performance data and performance outlook both showed an extremely strong financial basis. In the frenzy of global enterprises to invest in AI, storage chips have entered a phase of rapid growth.

Benefiting from the wave of global enterprises investing heavily in AI technology, Micron has comprehensively benefited from the unprecedented AI investment boom since 2023. Its increase since 2023 has reached as high as 165%, with demand for HBM storage system and strong enterprise-end data center DRAM and NAND storage demand showing almost endless growth. In terms of product structure, the operating income of products ranging from CNY 1-30 billion were CNY 401 million, CNY 1.288 billion and CNY 60 million, respectively.

However, Wall Street's expectations for this financial report and performance outlook are very high. Analysts expect not only a continuous surge in demand for HBM storage, but also that the "first year" of AI PCs and AI smartphones in 2024 may drive the storage demand of these two traditional markets into an explosive growth phase. Although Micron's core performance indicators exceeded expectations across the board, the performance outlook for the next fiscal quarter failed to meet the extremely high expectations of some investment institutions on Wall Street.

In the third quarter of fiscal year 2024 ended May 30, Micron's total revenue scale achieved a substantial growth of 82%, reaching USD 6.81 billion. However, regarding the performance outlook for the next fiscal quarter, the company indicated in the performance announcement's outlook section that it expects revenue scale to reach USD 7.4 billion to USD 7.8 billion. The average analyst expectation is about USD 7.58 billion, which is basically in line with the average expectation, but some analysts expect it to exceed USD 8 billion. This is also an important logic for the sharp drop in Micron's stock price after the release of the outlook, for example, Citigroup, a major player in Wall Street, listed Micron Technology as a "preferred stock" and expects its fourth fiscal quarter revenue to exceed USD 8 billion.

If the performance of tech giants fails to meet expectations, the S&P 500 index may have a sharp correction.

As the stock market enters the trading phase of the second half of the year, more and more Wall Street analysts are worried that the sectoral width of the market is still too narrow and that chip stocks such as Nvidia are over-expanded, which may finally trigger the burst of the "AI bubble" and cause the overall rise of S&P 500 index to rely too heavily on large-cap tech stocks with high weightings. From a more macro perspective, the main dilemma that the S&P 500 index may face in the second half of this year is that the US economic growth rate has slowed down significantly, and multiple unfavorable factors such as the vast downgrading of overall EPS expectations for US enterprises may occur.

Therefore, even under the vigorous promotion of large-cap tech stocks such as Nvidia, Google, and Microsoft, the US stock market has just ended a strong second quarter, which still prompts more and more Wall Street analysts to be more cautious about the US stock market in the second half of this year.

So far, the factors that have promoted the rise of the S&P 500 index and the expansion of overall EPS expectations have not changed significantly, and they are still the "Magnificent 7" led by Nvidia and Microsoft. The "Magnificent 7" include Apple, Microsoft, Google, Tesla, Nvidia, Amazon, and Meta Platforms. Global investors have been flocking to the Magnificent 7 in 2023 and the first half of 2024. The main reason is that they have bet that due to the huge market size and financial strength of these tech giants, they are in the best position to use AI technology to expand their revenue.

According to their recent research reports, their main concern is that if macroeconomic factors cause large tech companies such as Microsoft, Google, and Apple to fail to achieve extremely optimistic expectations given by the market, these tech stocks with high weights may drive the S&P 500 index into a sharp correction.

By entering the second half of 2024, the total market value of the Magnificent 7 tech giants in the US stock market exceeds USD 10 trillion, and it is these high-weighted giants that make the seemingly tepid US stock market so hot. If these tech giants and important chip companies fail to meet the high expected threshold given by the market, it may trigger a wave of decline.

Marko Kolanovic, a strategist from JPMorgan, emphasized that under the influence of unfavorable factors such as the slowdown in economic growth and high performance expectations, the overall EPS of the S&P 500 index may be downgraded, and the S&P 500 index may fall over the next few months. He and his team of JPMorgan's chief market strategist stated in the mid-year outlook on Friday that the S&P 500 index is expected to fall to 4,200 points by the end of the year, a drop of about 23% from Thursday's closing point of 5,483 points. Kolanovic's view is actually a reiteration of his prediction for more than a year, although other Wall Street institutions have raised their point forecasts for the S&P 500 index to keep pace with the market's soaring pace.