Big Tech Earnings Spotlight AI Investments and Revenue Potential

Tech Up After Amazon, Intel Earnings -- Tech Roundup

Shares of technology companies rose, recouping some of their losses from recent sessions, as investors restored their faith in the lucrative potential of artificial intelligence. Shares of Amazon surged after its investments in AI seemed to bear fruit in its latest quarterly report. Amazon's progress quelled fears raised by Microsoft and Meta Platforms, which struggled to justify the level of investment in AI with their earnings reports. "The expectations for spending on AI have gone up exponentially for the hyper-scalers, the mega tech names," said Quincy Krosby, chief global strategist at brokerage LPL Financial. There's a sense that "'this is how revolutions unfold, look at the industrial revolution, more and more capital expenditure is going to lead to more and more profound applications." Intel shares jumped 7.8% after it reported one of its largest losses ever, but offered guidance for sales growth in the current quarter that surpassed expectations. Apple shares fell after the consumer electronics giant's sales projection for the current quarter suggested an anticipated mass wave of upgrades to the iPhone 16 has not materialized. Microsoft affiliate OpenAI embedded a search engine in its popular ChatGPT chatbot, entering a space long dominated by Alphabet's Google as technology companies compete to use artificial intelligence to improve search results.

What We Learned About AI From This Week's Big Tech Earnings

AI has boosted growth at cloud computing units and, according to executives, is lifting sales and metrics in other segments of their businesses. Artificial intelligence was the focus of the five tech giants, cumulatively valued at more than $10 trillion, that reported quarterly earnings this week. Executives at Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG; GOOGL), Amazon (AMZN), and Meta (META) touted the progress their companies have made incorporating AI into their operations and rolling out new AI features for customers. They also spoke to the strength of AI demand -- and the challenges they've met trying to meet it. Investors now turn their attention to the last of the Magnificent Seven companies to report: Nvidia (NVDA), whose results are due Nov. 20. Its stock surged to a record high last month as investors anticipated that this week's earnings would contain evidence of booming demand for its AI chips. Big Tech's spending on infrastructure has skyrocketed this year. Cloud providers have raced to build out their AI operations and meet surging demand for cloud computing. Microsoft, Alphabet, Amazon, and Meta spent a cumulative $60 billion on property and equipment in the third quarter, a 60% increase from the same period last year, according to an Investopedia analysis. All four indicated that infrastructure investments would continue to increase next year. Surging infrastructure expenses hung over tech giants during their last round of earnings reports in July, when Wall Street was antsy to see evidence that investments were paying off. Those fears seem to have abated somewhat with this week's reports. A common refrain from tech executives this week was that they can't keep up with demand. Microsoft on Wednesday warned that growth at its cloud unit could slow in its second fiscal quarter. AI demand "continues to be higher than our available capacity," according to CFO Amy Hood. Her comments were echoed by Amazon CEO Andy Jassy on Thursday, who said Amazon Web Services was also having difficulty meeting cloud computing demand. A shortage of the most advanced semiconductors, Jassy said, was the main bottleneck. Despite capacity constraints, AI is still driving growth for tech giants. Microsoft CEO Satya Nadella said the company's AI business was on track to reach an annual revenue run rate of $10 billion in the current quarter, making it "the fastest business in our history to reach this milestone." Jassy on Thursday said Amazon's AI business is growing by triple-digit percentages, three times faster than cloud computing grew in its early stages. Alphabet executives said they expected AI investments to "translate to revenue in the fairly short term." AI Overviews in Google search were being monetized at "approximately the same rate" as older formats, he said, boosting confidence that AI can boost Alphabet's core ad business as well as its cloud unit. Meta also touted the benefits it's seeing from AI. CEO Mark Zuckerberg said AI-driven feed recommendations had increased the time users spent on Facebook and Instagram this year, and that businesses using Meta's generative AI advertising tools had seen an increase in conversions. Apple reported record September-quarter iPhone and total revenue on Thursday. CEO Tim Cook noted on a call with analysts that iPhone users were adopting Apple's newest operating system, the Apple Intelligence-enabled iOS 18.1, at twice the rate of its predecessor, which the firm took as an early indication of strong demand for its custom AI.

Apple, Amazon Take Spotlight in Mixed Week for Big Tech Earnings

(Bloomberg) -- 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. 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 essentially kept pace with the market this year. Apple dipped as much as 1.6% on Thursday while Amazon fell 3.7%. Technology was the worst performing of the main sectors in the S&P 500 Index, which is on track for its worst day since Sept. 6 with a decline of 1.6%. The stakes for Thursday's earnings reports from the pair have been raised after the market's negative reaction to results from Microsoft and Meta, which both pledged to continue to boost spending on AI computing gear. Microsoft tumbled on Thursday after the software maker gave a disappointing forecast for its Azure cloud-computing business. The stock fell as much as 6.1%, on track for its worst decline in two years. Meta's fourth-quarter revenue forecast fell short of some expectations after only narrowly exceeding the average of analyst estimates at the midpoint. Shares of the Facebook owner fell as much as 4.7%. 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 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." --With assistance from Subrat Patnaik, Jeran Wittenstein and Brandon Harden.

Tech Stock Roundup: Earnings Boost Tesla Stock; Big Tech Q3 Results Ahead

ARM and Qualcomm recorded mixed performances after the breakup. Tesla's stock surged by nearly 22% last week, fueled by a strong third-quarter earnings report and an optimistic outlook. ARM and Qualcomm recorded contrasting performances after their divorce. This week will be pivotal for big tech as the "Fabulous Five" are expected to report earnings. Investors will be closely watching their AI investments. With valuations soaring, any signs of underperformance could trigger market volatility. Tesla Stock Jumps on Earnings Tesla emerged as the top performer in the tech sector last week, with a nearly 22% gain, closing at $269.19. Its third-quarter earnings bolstered market confidence in Elon Musk's EV giant. In Q3, ending September 30, Tesla reported a 17% increase in GAAP net income, reaching $2.17 billion, up from $1.85 billion a year prior. This translated to GAAP earnings per share of $0.62, up 17%, with adjusted EPS growing 9% to $0.72. Revenue climbed 8% to $25.18 billion, slightly below analyst expectations of $25.34 billion, though Tesla exceeded EPS estimates, outperforming the forecasted $0.57 for GAAP EPS and $0.58 for adjusted EPS. Tesla's GAAP gross margin rose to 19.8%, and its operating margin jumped to 10.8% from 7.6%, reflecting greater operational efficiency. Looking forward , Tesla is gearing up to launch more affordable models by early 2025 despite economic headwinds and other manufacturers scaling back on EVs. Elon Musk also shared updates on the Cybertruck, which aims for high-volume production by 2026, with a target of two million units annually, potentially scaling up to four million. In addition to vehicles, Musk discussed plans for a driverless ride-hailing service and shared updates on Tesla's humanoid robot, Optimus. He envisions Optimus becoming "the most valuable product ever" as Tesla leverages its unique artificial intelligence capabilities to scale production. Analysts are optimistic about Tesla's trajectory. Matt Britzman of Hargreaves Lansdown noted Tesla's strong profits and resilience in maintaining margins despite competitive incentives. XS analyst Di Giacomo added that Tesla's Q3 performance and plans for 2025 lay a solid foundation for long-term growth, positioning Tesla as a leader in the evolving EV and AI markets. Arm and Qualcomm Show Mixed Performance After announcing their split, ARM and Qualcomm recorded contrasting performances on Wall Street last week. ARM, backed by SoftBank, dropped 5.6%, while Qualcomm managed a slight gain of 0.4%. The tension stems from ARM's decision to revoke Qualcomm's chip design license, escalating an ongoing legal battle. Qualcomm criticized ARM's move as a "strong-arm" tactic that could result in billions in lost revenue. A Bloomberg report highlighted that losing this license would prevent Qualcomm from creating and selling its own chips based on ARM's architecture -- a critical blow, as ARM's designs power nearly 99% of premium smartphones and have been integral to over 230 billion chips globally. The conflict traces back to Qualcomm's 2021 acquisition of chip design firm Nuvia for $1.4 billion. ARM argues that the custom chip design licenses it granted to Nuvia were non-transferable, meaning Qualcomm would need a new licensing agreement to use Nuvia's designs. Qualcomm, however, has continued utilizing Nuvia's architecture, sparking ARM's claims of intellectual property infringement. Big Week Ahead On Oct. 29, all eyes will be on Alphabet. The company faces questions about Google's search dominance as its stock lags behind July highs. Regulatory threats loom, with the U.S. government considering a breakup of its search business. Despite this, Alphabet's deep AI investments and growing cloud business could provide a boost as its AI-powered advertising tools show early promise. However, rising competition from Amazon in product search and other challengers in the AI space may pose risks to Alphabet's stronghold. Meta is expected to release its third-quarter earnings report on Oct. 30. Meta has aggressively cut costs, maintaining a leaner profile while continuing to grow daily active users by 7% in the second quarter. Investors will look for signs that its AI-driven advertising strategy is yielding results, especially given its hefty AI investments. With ad revenue growth expected to remain strong, Meta's shareholders hope to prove that its spending on AI is a vital investment rather than excess. Microsoft stands at the center of the AI boom, with its cloud division Azure expected to post impressive growth of 28-29%. The market will be keen to see how the demand for AI capacity translates to revenue, especially with Microsoft's CoPilot subscriptions surging. Continued investment in infrastructure will be crucial, but with cash flows at record levels, Microsoft appears well-positioned to handle the costs. Amazon and Apple Under Spotlight Amazon will release its results on Oct. 31. Amazon's AWS remains its main growth driver amid fierce competition in cloud services, with its Bedrock platform betting on AI dominance. Investors are also eager to see how Amazon's e-commerce margins perform following cost-cutting measures, though caution in consumer spending could weigh on results. AWS's sales performance will be critical as it drives Amazon's growth and signals its strength in the AI space. Apple will unveil its results on the same day. Recent iPhone sales have softened, and AI-enabled features that could drive upgrades won't arrive until next year, dampening near-term expectations. However, demand for Apple's high-margin services, like the App Store and Apple Music, has been robust, adding stability. Analysts hope the demand for iPhone 16 will help offset some challenges, with stronger service performance as a buffer. Susannah Streeter, head of Money and Markets at Hargreaves Lansdown, told CCN, "The week ahead is a key moment for big tech, and investors will be highly sensitive to the huge sums being poured into AI developments, keen to see the spend being justified." "Given the super high valuations these companies are currently trading at, signs of weakness and numbers which fall short of expectations are likely to spark jolts of volatility and may see positive sentiment seep away," she added.

Mag 7 earnings this week are pivotal as AI hype fades

Google-parent Alphabet will lead a key slate of mega-cap tech earnings this week as five of the world's biggest companies, representing around $12 trillion in investor value, will publish September quarter updates focusing on AI spending plans. The so-called Magnificent 7 tech stocks, which comprise around a fifth of the S&P 500, have driven outsized gains for the benchmark this year amid an ongoing AI investment frenzy. Many see AI as the most significant development in tech markets since the birth of the internet. The mega-cap cohort, however, has trailed other sector gains for much of the past three months, falling a collective 3.5% since early July. Investors have balked at the billions in capital spending needed to fulfill some of the group's bolder ambitions. Instead, they've favored mid-cap and defensive stocks that tend to outperform in a lower-rate environment. AI spending plans will remain front-and-center this week, given Alphabet (GOOGL) , Meta Platforms (META) , Microsoft (MSFT,) and Amazon (AMZN) , often referred to as hyperscalers, report September quarter earnings over the next four days. Apple (AAPL) will also publish its fiscal fourth quarter update, slated for after the close of trading on Thursday. AI will be a key investor theme in its earnings report. The demand outlook for its newly launched iPhone 16 will be the market's larger focus for near-term performance. Hyperscaler capex in focus "It would be an understatement to say it's a huge week for earnings as five of the largest companies in the world report," said Jay Woods, chief global strategist at Freedom Capital Markets. "It's so big that five of the six top market cap companies are set to report within a three day span." "Capex will continue to be a major focus as they spend feverishly due to strong AI demand," he added. "We know about the big spend, but are we starting to see the benefits of their investments?" Woods said. Related: Analysts update Microsoft stock price targets ahead of Q1 earnings AI-related technologies are expected to drive revenue gains for nearly all the world's biggest tech giants over the coming years as companies look to leverage their massive datasets in order to enhance sales of everything from drive-through dining to the most complicated pharmaceutical testing. Tapping into those data requires big investments in computing infrastructure, often based in virtual cloud computing environments, which are built and managed by so-called hypercalers like Alphabet's Google Cloud, Microsoft's Azure and Amazon Web Services (AWS). Lots more AI spending to come The four major hyperscalers represented around 80% of a record surge in tech capital spending plans over the second quarter, which grew by 51% from the same period last year, according to data from MTN Consulting. At that rate, spending is now pegged at an annualized rate of $226 billion, with hyperscalers purchasing servers for data center facilities that are already in place and new ones set for completion over the coming years. Meta's finance chief, Susan Li, said her company's 2024 capex would likely rise to between $37 billion and $40 billion, with "significant' growth from that level in 2025. Related: Analyst adjusts Meta stock price target with earnings on tap Google's Ruth Porat, meanwhile, said capex for each quarter this year would be "roughly at or above" the first quarter tally of $12 billion Amazon's Brian Olsavsky said 2024 spending would be "higher in the second half of the year," with the majority doled out on "support the growing need for AWS infrastructure as we continue to see strong demand in both generative AI and our non-generative AI workloads." Those spending plans, however, have dwarfed revenue gains for each of the five mega-cap tech names. Only Meta, which reported revenue growth of 24.3%, came close to its 33.4% capex surge (which was tallied at $8.472 billion). AI revenue needs to fill the gap for Mag 7 That could be why Meta shares, which are up 33% over the past six months, have outperformed hyperscaler peers Microsoft (+6.5%), Amazon (4.6%) and Google (flat) over the same timeframe. "As market giants gear up to report their latest earnings, the attention isn't solely on revenue numbers but on how AI spending is reshaping these companies' futures," said Lukman Otunuga, senior market analyst at London-based FXTM. "The potential for volatile price movements this week signals a critical juncture for these stocks, underscoring the market's sensitivity to both AI and broader economic pressures," he added. Related: Google breakup is on the table -- What happens next in DoJ's case Some of those post-earnings moves are likely to be tied to both updates on capital spending and, concurrently, the timeframe under which the biggest tech companies expect to see monetization of their AI strategies. The gap between, meanwhile, needs to be filled with earnings growth from core business units, such as advertising at Google and Meta and cloud computing at Microsoft and Amazon. More AI Stocks: This is also true for Apple, although the near-term concern is its ability to grow iPhone 16 sales. The iPhone 16 is seen as the conduit for its broader AI rollout, as it shares some of the development costs with app developers and search engine providers like Google and Microsoft. "In a nutshell, investors need to see the monetization of AI spreading to the rest of the tech landscape and the next few weeks will be the linchpin to confirmation that the AI "use case phase" have now begun within the enterprise world," said Wedbush analyst Dan Ives. "It starts with Big Tech ... but this is just the tip of the iceberg for this 1995 Moment but clearly not a 1999 Tech Bubble moment as the eye-popping tech capex is the yellow brick road for this tech bull market continuing into 2025," he added. Related: Veteran fund manager sees world of pain coming for stocks

Big Tech Earnings Begin

Listen on the go! A daily podcast of Wall Street Breakfast will be available by 8:00 a.m. on Seeking Alpha, iTunes, Spotify. This week is sure to be a roller-coaster ride for tech investors, with five Magnificent 7 stocks scheduled to report earnings this week. All five companies posting results this week will likely have a major impact on the broader stock market. Recall that the Magnificent 7 accounted for over half of the S&P 500's (SP500) gain last year. Results on deck: Alphabet (GOOG, GOOGL) is the first Big Tech firm to announce its results, expected after market close today, amid regulatory scrutiny and intense competition. Meta (META) and Microsoft (MSFT) come next on Wednesday, followed by Amazon (AMZN) and Apple (AAPL) on Thursday. The remaining Magnificent 7 stocks are Tesla (TSLA), which kicked things off on a high note, and Nvidia (NVDA), slated to report next month. Bigger picture: According to FactSet, four Magnificent 7 stocks are projected to be among the top 10 contributors to S&P 500 earnings growth for Q3 - Nvidia, Alphabet, Amazon and Meta. Interestingly, according to the latest Wall Street Breakfast survey, most respondents see Meta as the biggest beneficiary of earnings. All about AI: Artificial intelligence and cloud computing will remain in the spotlight as Big Tech spends heavily in these areas. "The debate continues to rage about whether the costs will ultimately be justified, and investors increasingly will ask companies to 'show me the money' in coming quarters," said Schwab Center for Financial Research. Adding to the AI buzz, key chipmaker results will also be out this week - AMD (AMD) on Tuesday and Intel (INTC) on Thursday. (1 comment)

Earnings Have Been So-So. Can the Mag Seven Turn Things Around?

Five of the Magnificent Seven will report earnings this week, with AI spending and monetization a likely focus for Wall Street. Corporate earnings are lagging a key historical average so far this season. That could change this week, with about a quarter of the S&P 500 -- including five of the hugely profitable Magnificent Seven companies -- set to report results. As of Friday evening, 75% of the S&P 500 companies that had reported third-quarter profit results had beaten Wall Street's expectations, slightly less than the five-year average, according to data from FactSet Research. In the aggregate, earnings have exceeded expectations by almost 6%, more than two percentage points below average. FactSet's senior earnings analyst, John Butters, estimates that the S&P 500 as a whole grew earnings by 3.6% last quarter. That would represent the benchmark index's fifth consecutive quarter of growth, though it would also mark its slowest growth rate of any of those quarters. Those results may have been underwhelming, but Bank of America analysts note that earnings calls tell a slightly different story. Mentions of weak demand have fallen to a two-year low, and mentions of "bottom" -- a reference to the bottom of the business cycle -- have jumped more than 50% from this time last year. "Historically, a jump in 'bottom' mentions has often marked an inflection in EPS," the analysts wrote in a note on Monday. This week has the potential to change the overall outlook, with companies accounting for nearly half of the S&P 500's total earnings set to report. This week's marquee reports will come from Big Tech, starting on Tuesday when Google parent Alphabet (GOOG; GOOGL) reports after the closing bell. It will be followed by Microsoft (MSFT) and Meta Platforms (META) on Wednesday, then Apple (AAPL) and Amazon (AMZN) on Thursday. (Tesla (TSLA) reported last week, while Nvidia's (NVDA) announcement is expected next month.) Taken together, the group is expected to report its slowest pace of earnings growth (+19%) since the beginning of 2023, according to BofA estimates. Still, nearly 20% growth far outpaces the rest of the index, which without the Magnificent Seven is forecast to report growth of just 1%. The focus for Wall Street will likely again be investment in artificial intelligence. Tech giants are forecast to increase their capital expenditures by 40% this year as they spend heavily on the infrastructure required to train and run AI models. Last earnings season, executives insisted that the risks of underinvesting in AI were far greater than the risks of overinvesting. Still, the sheer size of their investments unnerved investors and weighed on tech stocks then.