Tech Rally Faces Major Test Next Week as ‘FAAMG’ Earnings Loom

Check Out InvestingPro for More Insights on MSFT’s Earnings

Unsurprisingly, an InvestingPro survey of analyst earnings revisions points to mounting pessimism ahead of Microsoft’s report, with analysts cutting their EPS estimates 29 times in the last 90 days, compared to zero upward revisions.

Microsoft Earnings Forecast

Consensus estimates call for earnings per share of $2.23 for its fiscal third quarter, which would be less than 1% growth from a profit of $2.22 in the year-ago period amid rising operating expenses.

Meanwhile, sales are expected to grow just 3.4% year-over-year to $51.04 billion due to weak PC sales and as customers rein in cloud spending amid the uncertain economic environment.

As always, most of the focus will be on the performance of Microsoft’s Intelligent Cloud segment, which includes Azure cloud services, GitHub, SQL Server, Windows Server, and other enterprise services.

Wall Street expects revenue from the key segment to grow 18% y-o-y, slowing from 26% a year earlier, amid weaker corporate spending.

Perhaps of greater importance, revenue from Azure and other cloud services, which Microsoft does not report in dollars, will be closely watched after sales growth in the last quarter decelerated to 31% from 46% a year earlier.

Microsoft’s stock has been on a major uptrend since the start of 2023, rising 19.3% year-to-date as investors piled back into the battered growth stocks of yesteryear.

The tech heavyweight is also benefiting from its growing involvement in the emerging artificial intelligence space. Thanks to its $10 billion investment in ChatGPT-owner OpenAI, Microsoft has become the perceived front-runner in the AI chatbot race.

It officially launched its ChatGPT-powered Bing search tool in February.

Source: InvestingPro

With a Fair Value of $292.46 as per the quantitative models in InvestingPro, MSFT appears to be appropriately priced heading into next week’s earnings update.

Alphabet

• Earnings Date: Tuesday, April 25
• EPS Growth Estimate: -13.0% Y-o-Y
• Revenue Growth Estimate: +1.2% Y-o-Y
• GOOGL Year-To-Date Performance: +19.3%

Google-parent Alphabet is slated to deliver its first-quarter earnings and revenue update after the U.S. market closes on Tuesday, April 25, at 16:15 ET. Results are once again expected to take a hit from a sluggish online advertising market.

Check Out InvestingPro for More Insights on Google’s Earnings

Analysts have slashed their EPS estimates by approximately 29% from their initial expectations in the past 90 days, according to an InvestingPro survey. Of the 18 analysts surveyed, 16 downwardly revised their GOOGL earnings forecast, while only two made upward revisions.

Alphabet Earnings Forecast

Consensus estimates call for the tech giant to report a Q1 profit of $1.07 per share, slumping 13% from EPS of $1.23 in the same quarter a year earlier, amid elevated operating costs and charges tied to employee severance expenses.

Revenue is forecast to increase roughly 1% from the year-ago period to $68.81 billion due to the negative impact of the overall pullback in ad spending.

The market will stay focused on growth rates at Google’s core ad revenue business, which suffered an annualized drop of 2% in Q4 to $42.6 billion.

YouTube advertising revenue growth will also be eyed after falling significantly short of expectations in the last quarter amid heightened competition from the Chinese video-sharing app TikTok, which has captured a significant share of the social media video market.

Alphabet’s update on the performance of its Google Cloud Platform will also be of importance after growth slowed dramatically in the last quarter. The search giant has been investing heavily in its cloud business, which lost $480 million in Q4, as it plays catch up with Amazon Web Services and Microsoft Azure, the top two players in the market.

Perhaps of greater importance, investors will be eager to hear further details on the internet search leader’s AI-based Bard chatbot. Alphabet lost $100 billion of its market cap after its ChatGPT rival failed to answer basic questions in an introductory press conference in early February.

The Mountain View, California-based tech giant has been under pressure from the growing popularity of ChatGPT, launched late last year by Microsoft-backed OpenAI.

Alphabet shares are up 19.3% year-to-date to bounce back from 2022’s steep decline amid the broad-based rotation back into big tech. The company’s upbeat performance comes despite growing competition in the search and video space as well as weak near-term ad revenue growth.

Alphabet Fair Value Estimates

The average fair value price for the shares on InvestingPro stands at $130.71, a potential upside of around 24% over the next 12 months.

Meta Platforms

• Earnings Date: Wednesday, April 26
• EPS Growth Estimate: -28.7% Y-o-Y
• Revenue Growth Estimate: -1.0% Y-o-Y
• META Year-To-Date Performance: +77%

Facebook-parent Meta Platforms is projected to post first-quarter earnings on Wednesday, April 26, after the U.S. market closes at 16:05 ET.

Check Out InvestingPro for More Insights on META’s Earnings

An InvestingPro survey of analyst earnings revisions reveals growing optimism ahead of the report, with analysts raising their EPS estimates 16 times over the last 90 days while making just one downward revision.

Meta Earnings Report Forecast

The Mark Zuckerberg-led company is forecast to report earnings per share of $1.95, sliding 28.7% from EPS of $2.72 in the same period a year earlier, due to higher operating expenses and investments related to Meta’s hardware and virtual reality segment.

Revenue is expected to fall 1% year-over-year to $27.6 billion. If confirmed, it would mark Meta’s fourth straight quarter of declining sales amid a troubling performance in its core ads business resulting from the ongoing slowdown in online advertising spending and increased competition from TikTok.

As usual, Wall St. will pay close attention to Facebook’s update regarding its daily and monthly active user accounts – two important metrics for the social media giant. Facebook said daily active users (DAUs) rose 4% in the previous quarter to 2.00 billion, while monthly active users (MAUs) increased 2% to 2.96 billion.

In addition, investors will watch Meta’s update on the performance of its Reality Labs division, which is responsible for developing the metaverse and related virtual reality and augmented reality technologies. The unit lost $4.28 billion in the fourth quarter, bringing its total operating loss for 2022 to $13.72 billion.

Meta’s stock has been on a tear heading into its earnings report, with shares of the Menlo Park, California-based tech company hitting a series of 52-week highs in recent sessions.

Shares have roared back in the early part of 2023 along with the tech-heavy Nasdaq and are up a whopping 77% year-to-date, making META the best-performing ‘FAAMG’ stock of the year by a wide margin. Investors have been encouraged by aggressive cost-cutting initiatives implemented by CEO Mark Zuckerberg in recent months.

META Stock Fair Value Estimate

It should be noted that even after the stock more than doubled since late last year, META shares remain extremely undervalued at the moment according to the quantitative models in InvestingPro, and could see an increase of 28.6% from Thursday’s closing price.

Amazon

• Earnings Date: Thursday, April 27
• EPS Growth Estimate: +154.0% Y-o-Y
• Revenue Growth Estimate: +7.0% Y-o-Y
• AMZN Year-To-Date Performance: +23.6%

Amazon, which suffered its slowest year of growth in its quarter-century as a public company in 2022, is scheduled to release first-quarter financial results on Thursday, April 27 at 16:00 ET.

Check Out InvestingPro for More Insights on AMZN’s Earnings

Underscoring several near-term headwinds Amazon faces amid the current macro environment, analysts have slashed their EPS estimates 15 times in the 90 days leading up to the earnings update, compared to two upward revisions, as per an InvestingPro survey.

Source: InvestingPro

Consensus calls for the Seattle, Washington-based tech titan to post earnings per share of $0.22, compared to a rare loss of $0.37 per share in Q1 2022, thanks to the positive impact of several cost-saving measures implemented in recent months.

Revenue is expected to increase 7% from the year-ago period to $124.6 billion, reflecting ongoing strength in its cloud computing business.

Investors will stay laser-focused on Amazon’s cloud unit to see if it can maintain its pace of growth. Amazon Web Services revenue rose 20% in Q4, slowing from 27.5% in the preceding quarter. Amazon’s AWS is widely considered the leader in the cloud-computing space, ahead of Microsoft Azure and Google Cloud.

Advertising revenue, which has increasingly become another major growth driver for Amazon, will also be eyed after scoring annualized sales growth of 19% in the last quarter, outpacing online ad companies like Google, Facebook, and Snap (NYSE:).

In contrast, Amazon’s core e-commerce business will likely suffer another quarter of slowing growth after its online stores segment contracted 2% y-o-y in the last quarter due to slowing consumer discretionary spending amid an uncertain demand outlook.

Amazon’s stock has outperformed the broader market so far in 2023, with shares up 23.6% year-to-date, as high-growth technology stocks have come back in favor following last year’s brutal selloff.

Shares have run hot in recent weeks, with AMZN scoring a gain of almost 18% since reaching a mid-March low of $88.12.

AMZN Stock Fair Value Estimate

According to the InvestingPro model, Amazon’s stock is still relatively undervalued and could see an increase of 12.6% from current levels, bringing it closer to its fair value of $116.88 per share.

Apple

• Earnings Date: Thursday, May 4
• EPS Growth Estimate: -5.9% Y-o-Y
• Revenue Growth Estimate: -4.5% Y-o-Y
• AAPL Year-To-Date Performance: +28.2%

Apple will be the last ‘FAAMG’ stock to report quarterly results when it releases fiscal second-quarter earnings after the market closes at 16:30 ET on Thursday, May 4. A call with CEO Tim Cook and CFO Luca Maestri is set for 17:00 ET.

Check Out InvestingPro for More Insights on Apple’s Earnings

Not surprisingly, profit forecasts have been revised downward 20 times in the 90 days prior to the earnings release, according to InvestingPro, as the iPhone maker deals with several headwinds amid the challenging operating environment.

Source: InvestingPro

As per Investing.com consensus estimates, Apple’s earnings per share are expected to be $1.43, a decline of 5.9% from a year ago. Revenue is forecast at $92.88 billion, or a 4.5% decrease annually amid slowing demand for its high-end smartphones and computers.

If that is in fact the reality, it would mark the Cupertino, California-based consumer electronics conglomerate’s second consecutive quarter of declining sales amid the gloomy macroeconomic outlook.

Wall Street will pay close attention to growth in Apple’s iPhone business after sales fell sharply during the all-important fiscal Q1 December holiday quarter. Mac revenue, which shrank 28.6% y-o-y in the last quarter, will also be of interest amid a deteriorating PC market.

One bright spot is expected to be the company’s services business, which was the fastest growing segment in fiscal Q1 with annualized revenue growth of 6.4%. The unit includes sales from the App Store, monthly subscriptions, payment fees, extended warranties, licensing fees, and advertising.

Apple’s stock is trading near its highest level since August 2022, heading into the earnings report. Shares are up 28.2% year-to-date. With a market cap of $2.64 trillion, Apple is the most valuable company trading on the U.S. stock exchange.

Apple Stock Fair Value Estimate

Apple’s stock appears to be overvalued according to a number of valuation models on InvestingPro: the average fair value for AAPL stands at $147.86, a potential downside of 11.3% from the current market value.

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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY), and the Invesco QQQ Trust ETF (QQQ). I am also long on the Technology Select Sector SPDR ETF (XLK).

I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies’ financials. The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.