A funny thing happened this earnings season. All last year, the Magnificent 7 were a drag, delivering lackluster numbers and pull the rest of the market down quarter after quarter. But now, the group is collectively doing well enough to get the bulls running.

There’s a twist here, though. The winners are in the minority while the biggest names on Wall Street fumbled their reports and were punished for it. Yes, neither Apple (AAPL) nor Microsoft (MSFT) got any love this season. While the trailing numbers were fine, their outlooks look increasingly shaky as post-COVID distortions flatten out.

Gaming is faltering at MSFT. Services and iPhone sales at AAPL both look weak. That’s a problem when both stocks trade at a sharp premium valuation compared to the S&P 500.

After all, the past is the past. Smart investors look toward the future . . . and every quarter these multi-trillion-dollar giants raise the bar makes it harder for them to keep doing it. In effect, they’ve come as far as they have by focusing on incremental operational gains . . . efficiency instead of the transformational products that made them giants in the first place.

How long has it been since AAPL did something really innovative? When they do, how far can it realistically push the needle?

And then you’ve got Tesla (TSLA) and Alphabet (GOOG), which in their own ways failed to live up to their own hype. When you’re this big, shareholders are unforgiving. Every subcalculation on every line in the earnings report is scrutinized and when it doesn’t match your hopes, you sell.

GOOG whiffed its advertising revenue target by a heartbreaking 0.4% . . . not even a rounding error. The Google Cloud more than made up for that. All in all, the numbers beat expectations.

But that’s not what people are really looking at here. They’re looking for a reason to sell, an excuse. They looked until they found that slight shortfall on ad revenue and they pulled the plug.

We don’t own GOOG so I don’t blame them one way or the other. What’s important is the other side of the story: while these big names were flailing, META and AMZN were queuing up fantastic numbers.

Here’s how it plays out: this week, AAPL and GOOG are down big. But META soared over 20%. AMZN is up close to 8%. TSLA and MSFT are up a bit. Add them all up and the group is up almost 4%.

And since earnings season started, that gain pushes the overall gain above 5%. TSLA is the big loser but AMZN and META have been big winners. With a big win and a big loss in your deck, odds are still good that you’ll end up ahead of the game.

What’s special here is that most index funds have all of these names heavily weighted in the portfolio. They’re not necessarily holding all the aces, but they managed to deal a pretty good hand.

That’s how the market goes. As long as something is working really well, it pulls other stocks up with it. You get constructive rotation: money rotates from winner to winner and wealth gets created along the way.

Would I Buy META?

META tripled its earnings over the past year as Zuckerberg leaned into the “year of efficiency.” Head count is down 22% but revenue is up 24% since the end of 2022. That’s how you make shareholders extremely happy.

Just run the calculations. If a stock is a screaming buy when the earnings growth rate is higher than the earnings multiple, then META would be a steal right now at any level below $2800 per share.

Obviously that’s not where the stock is because nobody on Wall Street expects 200% growth to continue. For one thing, the “year of efficiency” is over. Margins have already been fortified as costs were cut, taking growth projects with them.

You rarely hear about the Metaverse these days. The term appears exactly twice in the latest earnings report: one as a risk factor and then as Zuckerberg says he’s made a lot of progress toward commercializing the concept. That’s it.

I’d be pleasantly surprised if earnings climb another 20% this year, which would support a multiple of what, 20X earnings today? That isn’t even the equivalent of $350. Only the fact that growth is so hard to find elsewhere in the market makes this stock look like a firecracker.

And now that about 13% of those earnings are going back to shareholders (mostly Zuck) in the form of dividends, that growth curve is going away . . . traded for the stability of a dividend-paying operation.

AMZN isn’t there yet. I don’t think it’s going to make that trade. The new management team has too much to prove. But I think moves like running ads on “premium” Amazon Prime are a mistake. You boost your numbers once. After that, they start to decline.

Who wants that? Maybe next quarter another of the giants rises and AMZN fumbles again. It’s a zero-sum game.

I’d rather be in the smaller stocks that are keeping up with the giants, believe it or not. And they haven’t even issued their quarterly numbers yet.