Apple, Amazon take spotlight in mixed week for earnings of big tech firms

By Ryan Vlastelica and Carmen Reinicke

  Whether this Big Tech earnings season turns out to be a success or disappointment will likely come down to results from Apple Inc. and Amazon.com Inc. later Thursday.

  The earnings reports — the last from the so-called Magnificent Seven companies aside from Nvidia Corp. — come a day after results from Microsoft Corp. and Meta Platforms Inc. failed to impress investors, sending their shares lower and weighing on the broader market. That followed better-than-expected results from Alphabet Inc. on Tuesday and Tesla Inc. last week.

 

Apple Stores Ahead Of Earnings Figures

   

Strong reports from Apple and Amazon.com could cement the narrative that the megacap tech group remains Wall Street’s most reliable trade. Disappointments, coupled with the pair’s index weight and multiples, could dash hopes of the market returning to record levels.

 

“The bar is already very high simply because valuations are very high,” said Russ Mould, investment director at AJ Bell. “Investors have become accustomed to the Mag7 and tech and AI-related names not just beating forecasts but smashing them — and then raising guidance for the next quarter.”

 

Investors are looking to Apple to at long last provide concrete information about demand for iPhones with artificial intelligence features, a product cycle investors are counting on to propel the company out of a low-growth era. 

 

Amazon’s report will give insight into the state of the consumer with its e-commerce business, while results from its cloud-computing business will show any tailwind from AI, following similar reports from Alphabet and Microsoft.

 

Shares in Apple and Amazon have kept pace with the market this year, rising more than 19%, as has the Nasdaq 100 Index.  

 

Apple, Amazon Shares Roughly In-Line With Nasdaq 100 Index | The tech giants report earnings Thursday after market close

The stakes for Thursday’s earnings reports from the pair have been raised after the market’s negative reaction to Microsoft, which posted stronger-than-expected revenue growth, and Meta, which showed a sales beat.

 

Microsoft tumbled in US premarket trading Thursday after the software maker gave a disappointing forecast for its Azure cloud-computing business and reiterated higher spending to expand AI services. Meta slumped after flagging ramped up investment in AI and other futuristic technologies.

 

Apple, in particular, could be vulnerable. Revenue is expected to grow less than 2% in its 2024 fiscal year, and while Wall Street sees that accelerating to 7.6% in fiscal 2025, that’s well below other megacaps, which have consistently delivered double-digit growth. Yet, the company trades at 31 times estimated earnings, a premium of more than 50% over its 10-year average. 

 

Wall Street has been growing cautious, especially amid signs of limited immediate interest in the AI iPhone. The stock has been downgraded twice this month, with both KeyBanc and Jefferies saying optimism has gotten excessive. Amazon received a rare downgrade of its own this month, as Wells Fargo Securities cited margin concerns that its cloud business may not be able to compensate for. 

 

Amazon Deliveries Ahead Of Earnings Figures

 

Amazon shares could also be in a precarious position — the stock has clawed back losses following its August report, but remains below July highs. Alphabet’s report could be seen as a good sign for Amazon’s AWS cloud segment, as investors will also be watching for payoff from the company’s heavy spending on artificial intelligence.

 

“What I heard on the Google call made me pretty optimistic,” said Mark Malek, chief investment officer of Siebert Financial Corp. “Assuming Amazon can talk similarly about the cloud, how they’re monetizing and their clients, I think that is gonna be critical for them.”

 

Analysts expect about $27.5 billion in AWS revenue in the quarter, up more than 19% on the year, according to estimates compiled by Bloomberg. If Amazon misses those expectations, “you could see this narrative of AWS being a share loser in cloud infrastructure gain some steam,” said John Belton, a portfolio manager at Gabelli Funds. 

 

Amazon investors will also be watching margins closely — across its cloud and retail businesses — for signs of growth. 

 

Amazon needs to show “some degree of positive momentum in margin improvement,” said James Abate, chief investment officer at Centre Asset Management LLC. “The fact that we’ve seen margins continue to move higher in AWS is a really very important point given that heavy infrastructure investment that they’re making.”