The tech sector is in the midst of a whirlwind of earnings reports, with some companies disappointing investors and others exceeding expectations. Last week saw a mixed bag of results, leaving investors to grapple with the implications for the broader market. However, the unfolding week promises to provide more clarity, with several tech giants scheduled to release their quarterly financials, offering valuable insights into the health of the sector. While some analysts remain cautious about the near-term future, others are optimistic about the long-term prospects of tech, particularly in the burgeoning field of artificial intelligence.
Key Takeaways
- Mixed Earnings: Last week’s earnings reports were a mixed bag, with some companies like Tesla, Inc. TSLA, Alphabet, Inc. GOOGL GOOG and STMicroelectronics N.V. STM falling short of investor expectations.
- AI Optimism: Despite some short-term headwinds, the AI revolution is expected to be a major driver of growth for the tech sector in the coming years, with billions of dollars in investment projected across various industries.
- Big Week Ahead: This week promises a flurry of earnings reports, including heavyweights such as Apple, Inc. AAPL, Microsoft Corp. MSFT, and Meta Platforms, Inc. META.
Analyzing Recent Earnings
The earnings season has kicked off with a focus on the tech sector, and the results so far have painted a mixed picture. While some companies have exceeded expectations, others have fallen short, leaving investors to make sense of the broader trends.
Tesla’s Earnings Disappoint
Tesla, Inc. TSLA reported earnings that were met with disappointment on Wall Street. While revenue beat estimates, earnings per share (EPS) missed the mark. A significant portion of Tesla’s earnings came from one-time regulatory credits, leading some analysts to question the sustainability of the company’s performance.
Alphabet Faces Capex Concerns
Google-parent Alphabet, Inc. GOOGL GOOG also dampened investor sentiment by announcing plans to increase capital expenditure (capex) significantly. This move is likely to weigh on margins and ultimately the bottom line, triggering concerns about future profitability.
STMicroelectronics Cuts Guidance
STMicroelectronics N.V. STM, a key supplier to the automotive industry, lowered its full-year guidance, adding to the negative sentiment surrounding the tech sector.
IBM’s AI Strength
However, not all news was bleak. International Business Machines Co. IBM saw its stock rise as investors embraced the company’s strong Artificial Intelligence (AI) bookings. This performance highlights the growing importance of AI in the tech landscape and its potential to drive future growth.
The Broader Picture
The picture for the tech sector is not entirely bleak. While some companies have faced challenges, several positive trends are emerging.
Earnings Surprise Rates
Data from FactSet reveals that, despite some setbacks, overall earnings surprise rates for S&P 500 companies are positive. 80% of companies have reported upside earnings surprises, a rate above the one-year, five-year, and ten-year averages. However, the magnitude of those surprises has been modest, with only 5.5% reporting upside revenue surprise, below historical averages.
Expected Earnings Growth
The blended earnings of S&P 500 companies are anticipated to grow by 9.7% for the June quarter, marking the fastest pace since the fourth quarter of 2021. This growth is expected to be driven by several sectors, including communication services, healthcare, IT, and financials, which are all projected to report double-digit earnings growth year-over-year.
Looking Toward the Week Ahead
The week ahead is set to be pivotal for the tech sector, with a cascade of earnings reports from major players. Investors will be keenly watching these reports for clues about the overall health of the industry and the trajectory of tech stocks.
Key Companies Reporting
According to FactSet, over 138 S&P 500 companies, including seven components of the Dow 30, are scheduled to release earnings this week. Notable names to watch include:
- Monday: McDonald’s Corporation MCD, ON Semiconductor Corporation ON, F5, Inc. FFIV, Rambus Inc. RMBS, Lattice Semiconductor Corporation LSCC, Chesapeake Energy Corporation CHK, Sanmina Corporation SANM, Tilray Brands, Inc. TLRY
- Tuesday: American Electric Power Company, Inc. AEP, Archer-Daniels-Midland Company ADM, BP p.l.c. BP, Illinois Tool Works Inc. ITW, JetBlue Airways Corporation JBLU, LGI Homes, Inc. LGIH, Logitech International S.A. LOGI, Merck & Co., Inc. MRK, PayPal Holdings, Inc. PYPL, Pfizer Inc. PFE, Procter & Gamble Company PG, Restaurant Brands International Inc. QSR, SoFi Technologies, Inc. SOFI, Advanced Micro Devices, Inc. AMD, Arista Networks, Inc. ANET, Caesars Entertainment, Inc. CZR, DoubleVerify Holdings, Inc. DV, Electronic Arts Inc. EA, First Solar, Inc. FSLR, Freshworks Inc. FRSH, Live Nation Entertainment, Inc. LYV, Match Group, Inc. MTCH, Microsoft, Mondelez International, Inc. MDLZ, Pinterest, Inc. PINS, Skyworks Solutions, Inc. SWKS, Starbucks Corporation SBUX, Qorvo, Inc. QRVO
- Wednesday: Altria Group, Inc. MO, AutoNation, Inc. AN, Barrick Gold Corporation GOLD, Bausch + Lomb Corporation BLCO, Boeing Company BA, DuPont de Nemours, Inc. DD, Garmin Ltd. GRMN, GSK plc GSK, Humana Inc. HUM, KKR & Co. Inc. KKR, Kraft Heinz Company KHC, Oshkosh Corporation OSK, Teva Pharmaceutical Industries Limited TEVA, Marriott International, Inc. MAR, Wingstop Inc. WING, T-Mobile US, Inc TMUS, Norwegian Cruise Line Holdings Ltd. NCLH, Albemarle Corporation ALB, American International Group, Inc. AIG, Arm Holdings plc ARM, C.H. Robinson Worldwide, Inc. CHRW, Carvana Co. CVNA, eBay Inc. EBAY, Etsy, Inc. ETSY, Host Hotels & Resorts, Inc. HST, Lam Research Corporation LRCX, Meta, MGM Resorts International MGM, NETGEAR, Inc. NTGR, QUALCOMM Incorporated QCOM, Teladoc Health, Inc. TDOC, Western Union Company WU
- Thursday: Anheuser-Busch InBev SA/NV BUD, Bausch Health Companies Inc. BHC, Biogen Inc. BIIB, ConocoPhillips COP, Dominion Energy, Inc. D, EVgo, Inc. EVGO, Hershey Company HSY, Hertz Global Holdings, Inc. HTZ, Mobileye Global Inc. MBLY, Regeneron Pharmaceuticals, Inc. REGN, Sirius XM Holdings Inc. SIRI, Cigna Group CI, Wayfair Inc. W, Amazon, Apple, Beazer Homes USA, Inc. BZH, BigBear.ai Holdings, Inc. BBAI, Block, Inc. SQ, Booking Holdings Inc. BKNG, Cloudflare, Inc. NET, Clorox Company CLX, Coinbase Global, Inc. COIN, DraftKings Inc. DKNG, Intel Corporation INTC, Microchip Technology Incorporated MCHP, MicroStrategy Incorporated MSTR, Opendoor Technologies Inc. OPEN, RingCentral, Inc. RNG, Roku, Inc. ROKU, Vertex Pharmaceuticals Incorporated VRTX, Twilio Inc. TWLO, United States Steel Corporation X
- Friday: Chevron Corporation CVX, Exxon Mobil Corporation XOM, Magna International Inc. MGA, Cinemark Holdings, Inc. CNK, Fluor Corporation FLR, AMC Entertainment Holdings, Inc. AMC
AI Revolution in the Spotlight
Investors will be especially attentive to the earnings reports of companies heavily involved in AI, looking for insights into the pace of this emerging technology’s revolution. Microsoft, Amazon, Inc. AMZN, Meta, and Apple are among those being closely watched for their commentary on the impact of AI on their businesses.
Analyst Perspective
Analyst Daniel Ives of Wedbush Securities is bullish about the tech sector’s long-term prospects, dismissing the recent sell-off as a short-term hiccup. He believes that AI investments will fuel a long-term tech bull run, predicting that companies, utilities, and governments will collectively spend over a trillion dollars on AI over the coming years.
Market Movements
The recent disappointment from tech earnings led to a sell-off in the sector last week, pushing tech-heavy indexes lower. The Invesco QQQ Trust QQQ, tracking the Nasdaq 100 Index, closed down 1.03% on Friday, while the SPDR S&P 500 ETF Trust SPY, tracking the S&P 500, closed up 1.12%. The week ahead will likely see further volatility as investors digest the latest earnings reports.
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