Big Tech Earnings Preview: Microsoft, Meta, Google, Amazon On Deck As Market Eyes AI Impact, Job Cuts, Profit Outlooks

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Five tech companies have accounted for nearly two-thirds of the S&P 500's gains this year, with Wall Street prominent on this week's big tech news list.

Investors will be eyeing about $10 trillion in company earnings this week as Q1 reporting season kicks off, but none will deliver more than the four major technology updates expected over the next four days.

Microsoft ( MSFT ) - Get Free Reports , Google Parent Alphabet ( GOOGL ) - Get Free Reports , Meta Platform ( META ) - Get Free Reports and Amazon ( AMZN ) - Get Free Reports are expected to publish quarterly results for March this week after the market exit. closes on Tuesday as investors tried to translate a stagnant stock market into a spring rally.

In fact, big tech companies have played a key role in the S&P 500's rise this year, five stocks in all: Apple ( AAPL ) - Get Free Reports , Microsoft, Google, Meta and Nvidia ( Nvidia ) - Get Free Reports - account for nearly two stocks. . -a third of the benchmark's 8% gain, even though it accounts for only about a fifth of its market capitalization. On the other hand, the Nasdaq is up more than 16.2% this year.

Interestingly, the rise comes amid rising Treasury yields that lag interest rates forecast by the Federal Reserve, as well as broader concerns about the strength of national economies, advertising spending in global markets and slowing consumer spending.

"Tech Stocks, the new security business": Ives of Wedbush

“Tech stocks have become the new business in security, and big tech companies are capitalizing on this momentum,” said Dan Ives, analyst at Wedbush.

“The combination of huge cash and free cash flow potential, massive spending cuts in the valley led by Meta, Microsoft, Amazon, Google and others, and the conservative advice that was given during the January reporting season, “seize the moment.” Pavement and technology. In our view, the preservation of fundamentals in an unstable macroeconomic environment gives a green light to technology stocks,” he added.

Cutting costs is certainly critical to pushing Big Tech forward, due in part to Meta's decision to cut more than 11,000 jobs in what CEO Mark Zuckerberg is calling the "Year of Efficiency" in 2023.

Since then, the sector has become the leader in the number of layoffs in the US: according to the latest Challenger report published by Gray & Christmas, about 40% of all reported layoffs in the first three months of this year were related to technology companies. The speed is expected to exceed the annual rate recorded when the dot-com bubble burst in 2001.

Indeed, last week Amazon planned an addition to that list, taking action to cut hundreds of jobs at high-end grocery chain Whole Foods, which it bought in 2017 for $13.7 billion, over the next few months.

Amazon will release its first quarter results on Thursday, and analysts are expecting a net income of 21 cents per share on sales of $124.5 billion.

Meta, the parent company of Facebook, Instagram, and WhatsApp, is expected to report earnings of $2.03 per share in the first quarter, down 25% from last year, on revenue of about $27.62 billion.

“Many tech giants have spent 2022 cleaning up and shrinking revenue, so we expect positive reports this week,” said Nigel Green of London-based deVere Group.

“The results will identify companies that have managed to maintain margins. With higher interest rates longer than expected, some companies have struggled to maintain margins while others have succeeded,” he added. . “Based on the hard work put in over the past year, Big Tech is likely to offer a decent return.”

Technology Complements Your AI Efforts

However, cost is not the only issue investors will focus on, as tech companies also need to increase their investment and develop plans for an AI arms race. This competition has attracted industry attention since the launch of the ChatGPT resource model for large languages ​​earlier this year.

Microsoft, which released third-quarter results after the market closed on Tuesday, announced plans in February to release a new version of ChatGPT, a tool that uses human language to process instructions both in your internet browser and on its computer. find Integration Month.

Investors are betting that the introduction of artificial intelligence will help Microsoft, which generated just $3.2 billion in search revenue last year, challenge Google's dominance in a market that generates about $43 billion.

“Just two months after launching in late November, ChatGPT had 100 million monthly active users in January,” said Green of the deVere Group. “In comparison, it took Instagram 2.5 years to reach the 100 million mark.

“Therefore, there is pressure on all tech giants to expand their AI departments,” he added.

Google, which also reported after Tuesday's shutdown, has been testing a number of new search products over the past few months, including a test run last month of an AI-powered tool called Bard, and has also focused on adding those AI capabilities. . will support work-related products such as Gmail.

Meta is also likely to tap into the potential of AI on both reels, its rich TikTok video content found on Instagram, and its Advantage+ shopping campaign adding AI capabilities to its Facebook marketplace.

Google is expected to report net income of $1.07 per share, down 13% year-over-year on revenue of $68.84 billion.

Analysts expect Microsoft's net income to be $2.23, almost unchanged from the previous year, on revenue of about $51 billion.

However, short-term stock movement should be driven by growth in Azure's cloud division, which slowed to 31% year-on-year in the previous quarter. Microsoft is forecasting quarterly sales for its intelligent cloud computing division of $21.7 billion to $22 billion in March, excluding Wall Street estimates.

Overall, Big Tech's earnings could support market confidence in the coming weeks. Quincy Crosby, chief global strategist at LPL Financial, said investors will expect a Fed rate hike next month while keeping an eye on inflation, the banking sector and risks of a short-term recession.

“Over the last quarter, the market has resigned itself to lower profits as cost-cutting measures are factored into the forecasts. Margins are under scrutiny, especially as Tesla is under pressure as its margins have shrunk more than expected,” he said.

"This week could be the start of the latest round of tug-of-war between market trends and the economy."

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What to Expect from Big Tech Earnings This Week