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Mega-cap tech earnings kick off this week. Here’s what Wall Street is looking out for.

In Business
April 22, 2024
An illustration picture taken in London on December 18, 2020 shows the logos of Google, Apple, Facebook, Amazon and Microsoft displayed on a mobile phone with an EU flag displayed in the background.

Google, Apple, Facebook, Amazon, and Microsoft logos displayed in front of an EU flag.JUSTIN TALLIS/AFP via Getty Images

  • Wall Street is gearing up for the highlight of earnings season this week.

  • Mega-cap names that make up the Magnificent Seven will begin reporting, starting with Tesla.

  • Investors are looking for Elon Musk to soothe fears after a tough stretch, while AI will be front and center more broadly.

Investors are gearing up for what’s become the main event of earnings season in recent quarters, zeroing in on mega-cap firms as they unveil their first-quarter results.

Despite recent dips, investors are hoping major tech giants can keep the momentum rolling, with artificial intelligence in focus as the technology continues to captivate Wall Street.

“I think the next few weeks, this is a ‘get out the popcorn moment’ for tech,” Dan Ives, senior equity analyst at Wedbush Securities, told Bloomberg TV last Thursday, adding that this earnings period will be a “flex the muscles moment” for tech companies and a “golden buying opportunity” for investors.

Excitement is high as investors look for the next catalyst to help spur fresh gains for stocks amid a dreary stretch and a sell-off sparked by still-hot inflation and geopolitical turmoil in the Middle East.

Here’s what Wall Street is focusing on as the first crop of mega-cap titans gets ready to report.

Tesla — April 23

Elon Musk’s car company is causing investors a lot of stress heading into earnings, with a laundry list of woes on the radar, including a dive in vehicle sales in the first quarter, controversy over Musk’s $56 billion pay package, and recent layoffs that saw the company axe over 10% of its staff.

The stock is down 40% year-to-date, and a slew of banks have downgraded their outlook for the shares as it pivots from a more affordable vehicle model and toward initiatives like robotaxis and full self-driving tech.

However, Wedbush’s Dan Ives said he still remains bullish but emphasized that Musk must address key issues during the earnings call next week to keep investors from fleeing the stock.

That includes explaining China’s growth decline, providing clear guidance on growth, margins, and cash flow, confirming the development status of Model 2, and detailed plans for AI.

Alphabet — April 23

Bank of America is bullish on the Google parent heading into earnings, saying in a note on Thursday that limited job openings indicate cost management, but analysts foresee 13% upside potential above Wall Street’s 11% growth estimates, thanks to robust YouTube performance.

Additionally, the bank thinks highly of Google’s robust search results, seeing them as the second catalyst for a recovery in AI sentiment after the March lows, especially with the Google I/O developer event still on the horizon.

“AI use does pose long-term competitive risks for Google, but in 2024 Google (and peers) are likely to see AI monetization improvements,” the note said.

Meta — April 24

Meta recently dropped its latest AI chatbot, Llama 3, flexing its muscles with performance over industry benchmarks with upgraded reasoning skills.

JPMorgan analysts led by Doug Anmuth warned that Mark Zuckerberg’s company may be headed for a slowdown after the first quarter, driven by tough comparisons and a perceived lack of fresh catalysts compared to 2023.

“We believe slower growth is well-anticipated, & likely taken into account in META’s undemanding multiple,” Anmuth wrote.

Even though generative AI still dominates investor chatter, the buzz is shifting towards recognizing its early wins in coding efficiencies and cost savings rather than new revenue streams and product upgrades, the analysts said.

META is an exception, w/ implementation of AI in the ad stack perceived as an important contributor to growth,” the note said.

Microsoft – April 25

Microsoft is seen by Wall Street as a heavy hitter in AI going into earnings, as the company is gearing up to triple its GPU count in 2024, aiming to stack up 1.8 million AI chips by year-end.

Bank of America is upbeat on the tech giant’s April 25 earnings release, bumping its earnings estimate by 1%, fueled by strong performance in Azure and Microsoft 365 segments.

Meanwhile, the bank kept its $480 price target unchanged, signaling a potential upside of 20% from where the stock was trading late Friday.

Despite a hefty 37x projected 2025 free cash flow ratio, the bank believes Microsoft’s value will remain steady thanks to the rapid growth of the AI sector, which is expected to reach $944 billion by 2027.

Amazon — April 30

“Amazon is our Best Idea, even as it is most owned across our coverage,” JPMorgan’s analysts wrote in the note.

The bank anticipates that Amazon Web Services will be a bright spot for the first quarter.

“Easing optimizations, new workload deployment, favorable comps, & very early GenAI monetization should support AWS accel through 2024,” Anmuth said.

Read the original article on Business Insider

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