- Lower earnings predicted across the board
- Share prices have rallied hard in 2023
- What they say is likely as important as the financials
Big US tech stocks saw their valuations rocket during the pandemic when demand for tech boomed, but 2022 was a year of reckoning.
We have seen the valuations of Google-owner Alphabet (GOOG:NASDAQ), Amazon (AMZN:NASDAQ) and Apple (AAPL:NASDAQ) plunge, which makes the latest earnings for the trio, after Wall Street closes this evening (about 9.30pm UK time) one of the most closely watched in years.
Growth prospects, which underpin their valuations, still look bleak in the short term as rising inflation and higher interest rates pressure spending by both consumers and businesses, which are tightening their belts in fear of a recession.
| Is big tech's rough ride over? | |||
| PE FY 2023 | Two-year average | Five-year average | |
| Alphabet | 19.4x | 20.9x | 21x |
| Amazon | 65.7x | 44.2x | 50.3x |
| Apple | 23.8x | 25.7x | 21.7x |
| Source: Koyfin, Bloomberg | |||
Inflation has started to show signs of easing since peaking last year, explaining Nasdaq’s 2% rally overnight and near-14% tear in 2023 so far.
Yet with average cost-of-living still running way ahead of 2% targets, investors should remain cautious - world economies are not out of the woods yet.
Alphabet, Amazon and Apple have all swung the axe at costs, with hefty layoffs announced, but what else should investors be watching? All three are expected to report lower earnings in the quarter, although revenue growth is anticipated, both on a year-on-year basis.
Below is a table outlining market expectations in terms of both revenue and earnings for the quarter. Relative hits or misses will steer share prices although it’s probably fair to say that the tone of forward commentary is just as likely to drive the direction of these widely held stocks.
| Market expects? | ||
| Revenue $bn | Earnings per share $ | |
| Alphabet | 76.1 | 1.18 |
| Amazon | 145.6 | 0.17 |
| Apple | 121.9 | 1.94 |
| Source: Investing.com | ||
To that end, how firm advertising rates and demand have been and are expected to be going forward will steer Alphabet to a large degree, while its Google Cloud business needs to keep growing to please investors. Amazon’s AWS cloud arm will be vital too for its stock, especially with its retail platform on such thin margins.
Look out for iPhone handset volume news and expansion of its manufacturing supply chain into India from Apple.
More information can be found in a Shares recent feature.
