Big Tech Earnings: The Week That Could Shift the Market
The tech-heavy S&P 500 is gearing up for its busiest week of the earnings season, with over 160 companies set to report their quarterly results. This comes at a crucial juncture, as investors are grappling with the recent rotation away from mega-cap tech stocks, like Microsoft and Apple, towards smaller and undervalued companies. This shift was triggered by disappointing results from Tesla and Alphabet, the parent company of Google, last week, which sent shockwaves through the market. Nevertheless, the overall earnings season has been positive so far, with 78% of the S&P 500 companies exceeding earnings expectations. But this week’s earnings releases from some of the tech giants may provide further insights into this market shift. Let’s dive into the key takeaways to keep an eye on.
Key Takeaways:
- What’s at Stake: The performance of big tech this week might be instrumental in determining the future trajectory of the market, as investors gauge the health of these tech giants amid a wider rotation in the stock market.
- The AI Factor: Companies like AMD and Microsoft are heavily invested in AI, and their earnings reports will be closely scrutinized for any signs of progress in this burgeoning field.
- Beyond Revenue Growth: While strong revenue growth will still be crucial, investors will also be looking for updates on companies’ AI initiatives, particularly Apple, which is expected to unveil its AI strategy during its earnings call.
- Cloud Showdown: With AWS (Amazon Web Services) and Azure (Microsoft’s cloud platform) in a fierce battle for market dominance, this week’s earnings will offer a valuable glimpse into the cloud computing landscape.
AMD: The AI Chipmaker’s Moment
Advanced Micro Devices is scheduled to report its earnings on Tuesday after market close. Expectations are high, as analysts anticipate a 17% year-over-year growth in earnings per share. Investors will specifically be looking for updates on AMD’s progress in the rapidly evolving AI chip market. Stifel analyst Ruben Roy believes that AMD has established a strong position in this sector and anticipates continued growth as the company expands its AI technology footprint. However, AMD has a history of volatile earnings, exceeding expectations 62% of the time, but shares, on average, suffer a 1.5% drop on earnings days.
Microsoft: Beyond Cloud
Microsoft’s earnings release, also on Tuesday, will be keenly watched, given its strong performance in cloud computing during the last quarter. Analysts expect revenue growth of over 14% year-over-year, fueled by the company’s focus on AI. Evercore ISI recently increased its price target on Microsoft shares, anticipating "double-digit top and bottom line growth." While the immediate impact on share price remains uncertain, analysts believe the company’s growth trajectory is promising. Microsoft has a solid track record on earnings, exceeding estimates 81% of the time and witnessing an average 0.4% gain in share price on earnings days, but investor sentiment is still guarded.
Apple: An AI Revelation?
Apple is set to report its earnings on Thursday after market close. While analysts expect modest earnings growth of around 6%, the real focus is on Apple’s plans for AI. Baird analyst Will Power believes that Apple’s AI strategy could significantly boost revenue and earnings growth, particularly in light of slowing upgrade cycles for iPhones. Apple has a strong history of beating earnings expectations (89% of the time), but share prices have fallen after three of the last four earnings days. The upcoming report could provide valuable insights into Apple’s future and its position in the evolving technology landscape.
Amazon: Cloud Dominance and E-commerce Resilience
Amazon’s earnings report, also scheduled for Thursday, is crucial for the company’s stock, which has faced recent pressure, losing over 5% this month. Analysts expect earnings growth of over 55%, with strong performance from AWS expected to underpin the results. BMO analyst Brian Pitz projects a positive outlook for Amazon, citing a surge in AWS growth, driven by businesses shifting their strategies. Amazon has a strong track record of positive share price reactions after earnings releases, but with the tech sector in a volatile state, this sentiment could shift.
The tech giants’ earnings reports this week will offer valuable insights into the broader market landscape, including the ongoing rotation away from mega-cap stocks. These reports will shed light on the companies’ progress in AI and their performance in cloud computing. With a strong track record of earnings beats, these companies could also provide the market with a much-needed boost. But with investor sentiment still apprehensive, volatility remains a significant factor in the near term. The tech giants’ performance this week will be crucial in determining the direction of the market, especially as investors navigate a landscape that is increasingly focused on AI and cloud computing.
