Microsoft, Meta, Amazon and other earnings will be the test of the Tech-Stock rally

Tech earnings season has arrived, and with the sector soaring, investors will be looking for reasons to stay optimistic past the first half of the year.

Over the next two weeks, five of the largest companies in the tech sector will report results for the June quarter that will set the tone for the second half of the year. Figures from Microsoft (stock ticker: MSFT), Alphabet (GOOGL), and Meta Platforms (META) are due in the first week, followed by reports from Apple (AAPL) and next week.

With all five stocks boasting huge year-to-date gains, the danger is that even small disappointments with results or guidance can lead to a round of profit-taking. Few major tech companies have checked in before the big ones, and the early signs are worrying.

Netflix (NFLX), for example, is down 10% since its last earnings report. While the live video streaming company reported much higher subscriber growth than Street expected, revenue growth and guidance both disappointed investors.

German software giant SAP (SAP) fell 6% after its June quarter results missed estimates as some customers remained reticent about IT spending. Chip equipment company ASML (ASML) fell after making a cautious comment, citing “continuing macroeconomic uncertainty.” Taiwan Semiconductor (TSM) shares fell after the contract chip maker said results were still affected by weak sales of mobile phones and computers, as well as rising inventories at customers.

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Here’s a look at the key issues for each of the Big Five tech companies:

Microsoft: There are three major factors at play for Microsoft, which reports results on Tuesday. The company is up 43% this year, mostly because investors are excited about its position in artificial intelligence software. Shares rose a few days ago after the company announced higher-than-expected pricing for its AI-based “Copilot” software for its suite of desktop applications. There’s not a lot of AI revenue at Microsoft yet, but any commentary about the technology’s future impact on the business could boost the stock further.

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In the meantime, investors will be looking for signs that the recent slowdown in growth in the company’s Azure cloud computing business has bottomed out. Here too, the demand for AI-related processing will be a factor.

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Offsetting will be continued weak demand for PC hardware, which is affecting the company’s Windows and hardware business. A wild card would be any signs of the AI-powered Bing chatbot gaining market share from Google in the Internet search market.

the alphabet: The company is the parent company of Google and YouTube, so its results will provide important clues to the health of the online advertising market. Recent comments on Wall Street indicated that online ad spending has improved in recent months, which could set Alphabet up for solid earnings.

As with Microsoft, AI has played a significant role in the stock’s 36% rise this year, so investors will be eager to get updates on how the company sees the trend. But there are also some concerns on the street that rival AI chatbots like ChatGPT and Microsoft Bing will eat away at Alphabet’s dominance in search and that the investment required to build AI software capacity will boost capital spending.

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Another factor is the growth outlook for the company’s cloud computing business. The company reported on the same day as Microsoft, another player in cloud computing.

Meta platformsFacebook, Instagram, WhatsApp, and now Topics have had a busy year, with the stock up nearly 150%. Much of that reflects the company’s push for a cost-cutting “efficiency year,” which included more than 20,000 cut jobs.

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Analysts see signs that Meta ad activity is improving as it finds ways around the issues created in recent quarters by Apple’s privacy push for iPhone users, which has made targeting more difficult. Investors will also be looking for signs of better monetization in Reels, the company’s TikTok clone. Another key would be to comment on how the company plans to make money from its large work on large language models for artificial intelligence.

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And what about the Metaverse? CEO Mark Zuckerberg was so enamored with virtual reality that he renamed the company, but there has been little chatter on that front in recent months. Not least, the Street will be eager to update Topics, the company’s new Twitter competitor, and any plans to start selling ads there.

Meta reports its earnings on Wednesday.

apple: Apple shares are up 48% this year, increasing its market value to more than $3 trillion. But the fundamentals of the business were soft.

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Revenue this quarter is expected to be down slightly from last year, amid market weakness for both mobile phones and PCs, although an easing of supply constraints could mean higher margins. Investors will look to the company’s services business to balance a tougher market for consumer devices.

The next turns in the Apple story will likely involve future products. That includes the launch of the iPhone 15 this fall, the debut of the Vision Pro mixed reality headset in early 2024, and possibly a push into the AI ​​chatbot market in competition with Bing, Bard, and ChatGPT.

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Apple Primary Card may include geography. The company’s close ties to China, which accounts for nearly 20% of sales, carry significant risks. Apple announces the results on August 3.

Amazon.comAmazon shares are up 55% this year, driven by optimism about improving performance from both its cloud business Amazon Web Services and its flagship online store.

Like the cloud companies at Microsoft and Google, AWS has seen slow growth in recent quarters as customers “optimize” their cloud spending. But the prevailing view on the street is that the process is nearing completion and that the advent of generative AI will accelerate demand in the coming quarters.

Meanwhile, declining inflation and strong consumer spending data bode well for online shopping. The company’s ad business should benefit from steady spend, as should Meta and Alphabet.

The point to watch is any updates on Amazon’s own plans for AI products. The company is already developing LLMs, and offers a suite of AI software tools to AWS customers. Amazon also reports August 3.

Write to Eric J. Savitz at [email protected]

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