Apple (AAPL), Microsoft (MSFT), NVIDIA (NVDA), and the rest of their Big Tech cohorts are gearing up for what is expected to be one of the most eventful earnings seasons in some time. Generative AI will undoubtedly be a priority as efforts to monetize the technology continue and investors look for any indication that these billions of dollars of investment are starting to pay off.
“We’re forecasting about 8% growth, sort of a collective growth number for large-cap technology companies,” said Alex Smith, head of Canalys’ channel research department. “In terms of overall growth, Nvidia will significantly outpace the rest of the market.”
But generative AI is not the only concern of investors. Apple’s earnings are expected to be rocky after a rough start to the year for the company, with the iPhone maker facing a host of challenges, from antitrust lawsuits to slowing sales in China, one of its most important markets.
Meta (META) and Google parent Alphabet (GOOG, GOOGLE), in turn, will give Wall Street an idea of how the digital advertising market is evolving. Both companies saw sales increase in the previous quarter, but Alphabet fell short of analysts’ expectations. The search giant will have to reverse the trend this quarter.
Strap in because these are going to be crazy weeks.
Generative AI returns to the forefront
The explosion in generative AI is still reverberating across Wall Street as stocks of heavyweights like Nvidia and Microsoft continue to soar. But after a year of hype, companies will need to start showing that the hype is paying off.
“We can be absolutely sure that the first and most important thing that investors are going to observe is that companies are sort of taking their AI wash (saying that something uses AI even if it doesn’t “isn’t the case) and turn it into meaningful contributions at the top and bottom line,” Daniel Newman, CEO of technology consulting and research firm The Futurum Group, told Yahoo Finance.
Nvidia shares are up about 75% year to date and 225% over the past 12 months as hyperscalers like Google, Microsoft, Amazon and Meta grab as many shares as possible. company’s AI chips. This caused Nvidia’s revenue to explode. In the fourth quarter, Nvidia reported revenue of $22.1 billioncompared to $6.1 billion the previous year.
But the company will start seeing explosive growth this year, which could dampen investor enthusiasm even if it continues to outperform.
“You’ve had these massive eruptions, but as soon as you start getting through that first year of massive eruptions, the growth numbers will be more average,” said Bob O’Donnell, president of TECHnalysis Research.
This doesn’t mean Nvidia will give up its market lead anytime soon. It is still well ahead of its competitors AMD and Intel in terms of market share, and it has just launched its Blackwell Architecture at its GTC Developer Conference in March, which should allow it to go even further.
“They still have a lead and a significant share, and their influence is enormous, and they’re not slowing down, that’s to their credit,” O’Donnell said. “But the law of large numbers starts to kick in at a certain point.”
Then there are hyperscalers like Microsoft, Amazon (AMZN), and Google. Although they have jumped on the AI hype train, many of their generative AI software offerings are still in the works, meaning it’s a little early to get a full picture of the global adoption by businesses and consumer customers. Wall Street will still likely expect some revenue growth from companies’ investments in AI.
“To what extent is AI driving (Microsoft’s) Azure?” How Much Is AI Driving Google Cloud Growth? How much does it continue to help AWS, which has kind of seen its numbers slow down,” Newman said.
During its most recent quarter, Microsoft announced that AI services were helping 6 percentage points of growth in Azure revenue, up from 3 percentage points in the previous quarter. And you can bet analysts will be looking to see if the company can sustain that kind of growth in the current quarter.
Amazon also highlighted AI as a growth catalyst during its latest earnings call, saying revenue was “accelerates quickly” as customers have shown interest in technology. It will be interesting to see if the company provides more context around this acceleration during its upcoming earnings conference call.
Google, like Microsoft, will also likely face questions about sales of its AI-enhanced productivity suite and how customers respond. The company, which will hold its I/O Developer Conference in May, has also faced controversy over its AI deployment, withdrawing its Gemini AI generator after generating historically inaccurate images.
Apple on deck
Apple’s earnings will also be very interesting, but don’t expect the company to reveal anything about its future generative AI plans.
“Apple needs to disclose something, but the company has never been in any real hurry to placate industry investors,” said Patrick Moorhead, CEO of Moor Insights & Strategy. “I think they’ll wait until WWDC in a few months to release this.”
Outside of AI, investors are eagerly awaiting Apple’s iPhone revenue numbers and commentary on its lawsuits. On Monday, market information company IDC reported that Global iPhone shipments fell nearly 10% in the current quarter. This could have a significant impact on Apple’s overall revenue.
Sales in China are also a problem for the company. Apple said its revenue in its third-largest market fell 13% in the previous quarter. This, coupled with declining iPhone shipments, could spell trouble for the company’s profits.
Despite these headwinds, however, there could be a silver lining. According to Wamsi Mohan of BofA Global Research, Apple expected to post double-digit growth in its Services segment, which could help support overall sales.
The company’s upcoming earrings will also give investors a first look at Vision Pro sales, which should provide insight into early consumer and business interest in the AR/VR headset.
Digital advertising sales on the rise
Meta and Google will also be on deck to show if they can maintain the momentum in the digital advertising market. In the previous quarter, Meta’s ad sales jumped 24%, while Google’s ad sales, including YouTube ads, increased 11%.
Amazon, which has built its own impressive advertising business, could also see continued growth in ad sales. In the previous quarter, the company reported advertising revenue of $14.7 billion, up 27% year over year. Another performance like that could provide a boost to the company’s bottom line.
Analysts will also be watching to see if AI has an impact on ad sales.
“In theory, targeting should be better using AI, even with the cookie deprecation, but we haven’t seen that yet,” Moorhead said. “For me, the proof I should see is a higher cost per click or better CPM.”
We’ll find out all this and more when Big Tech results begin next week. Be ready.
Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.
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