With earnings season in full swing, key companies worldwide will provide insights into sector performance. Investors will be particularly focused on updates from some of the ‘Magnificent Seven’, which will reveal whether the artificial intelligence (AI) trend continues.
The Mag 7 stocks have endured a challenging period, with the S&P 500’s (^GSPC) major players – Nvidia (NVDA), Microsoft (MSFT), Google (GOOGL), Tesla (TSLA), Apple (AAPL), Meta Platforms (META), and Amazon (AMZN) – experiencing a dramatic decline in market capitalisations. Amid a tech rout, these tech giants have collectively shed $1.128tn in market value, marking the largest such loss since May 2022.
With Tesla failing to impress, will the next earnings reports show strong performance or a lack of momentum? Here’s what to watch for:
Meta Platforms is scheduled to report its second-quarter earnings after the closing bell on Wednesday, with significant investor attention on advertising revenue performance and updates regarding its artificial intelligence (AI) initiatives following the announcement of its latest AI model.
The parent company of Facebook and Instagram is expected to report revenue of $38.35bn, reflecting a 20% increase compared to the same period last year, according to estimates compiled by Visible Alpha. Net income is projected to reach $12.31bn, or $4.71 per share, marking a substantial 58% year-over-year rise.
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Analyst estimates for Q2 2024:
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Revenue: $38.35bn (Q1 2024: $36.46bn, Q2 2023: $32bn)
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Diluted Earnings Per Share: $4.71 (Q1 2024: $4.71, Q2 2023: $2.98)
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Net Income: $12.31bn (Q1 2024: $12.37bn, Q2 2023: $7.79bn)
Meta’s second-quarter ad revenue is a critical metric, with Citi analysts predicting a 20.5% growth from the previous year, reaching $37.95bn. This growth is attributed to a stronger advertising environment, increased adoption of Instagram Reels, and new advertising products.
A survey conducted by Wedbush analysts revealed that most advertisers plan to either increase or maintain their spending on Meta platforms. This trend is expected to contribute to robust second-quarter results and set a positive trajectory for the company in the latter half of the year.
Earlier this month, Meta introduced its Llama 3.1 open-source AI model. JP Morgan analysts believe this launch could position Meta AI as the leading AI assistant by the end of the year. The upcoming earnings report will provide Meta an opportunity to reassure investors that its increased investments in AI are yielding significant growth opportunities.
“Mark Zuckerberg’s commentary is just as important as the numbers themselves. In today’s landscape, throwing cash at AI is the aim of the game, but Meta needs to convince investors there’ll be a worthy return at the end of the road,” Matt Britzman, senior equity analyst at Hargreaves Lansdown, said.
Apple (AAPL) — Reports third-quarter results on Thursday 1 August
Apple has seen adjustments in stock price targets from several firms ahead of its upcoming fiscal third-quarter earnings report.
JPMorgan has raised its stock price target for Apple to $265 from $245, maintaining an overweight rating on the shares. The firm has set a new year-end 2025 price target, moving away from its prior December 2024 target, as it anticipates investors will begin focusing beyond 2024. JPMorgan expects Apple to instil higher confidence with its forthcoming earnings report.
Its analysts believe that Apple will reassure investors about the upcoming AI replacement cycle, set to commence significantly in fiscal 2025 and intensify into fiscal 2026. They note that Apple is leveraging a stronger launchpad in fiscal 2024, bolstered by better-than-expected revenue drivers from the iPhone and the company as a whole.
The investment bank has placed Apple shares on “positive catalyst watch” ahead of the earnings report, with a favourable outlook on share price performance.
Barclays has also revised its stock price target for Apple, increasing it to $187 from $164, while maintaining an underweight rating on the shares. The firm has raised its forecasts for the September quarter, citing better performance in iPhone, Mac and Services, a trend not seen in several quarters. Barclays now projects a 9% revenue growth for Apple in 2025, following two years of relatively flat performance.
Despite the improved numbers and the potential positive impact of an artificial intelligence-enhanced iPhone on investor sentiment, Barclays remains cautious. The bank points out that Apple’s stock is trading at a 30-times price-to-earnings multiple, indicating less upside potential compared to other firms’ projections.
Apple’s AI services will be available starting this fall, but only for the current iPhone 15 Pro model, fuelling hopes for a new iPhone upgrade cycle.
Apple is expected to return to top-line growth for the June-ended quarter. The FactSet consensus is for revenue of $84.2bn, up 3% vs. the year-ago quarter. Adjusted profit is expected to rise 6% to $1.34 a share.
“A note of caution stems from competition in China after back-to-back quarters of revenue declines. Investors will be watching closely for how the demand picture is evolving. Despite an overall decline in sales in the region, the flagship iPhone saw growth last quarter. News that the iPhone 15 and iPhone 15 Pro Max were the best-selling smartphones in urban China suggests that Apple’s allure remains intact,” Britzman said.
Amazon (AMZN) — Reports second-quarter results on Thursday 1 August
Amazon is under the spotlight as Morgan Stanley projects the e-commerce titan to deliver robust Q2 earnings and provide optimistic guidance for Q3. Analysts at Morgan Stanley forecast that Amazon will exceed consensus estimates for earnings before interest and taxes (EBIT) by 17% for Q2 and 10% for Q3, driven by improved profitability in North American retail and accelerated growth in Amazon Web Services (AWS).
“North America retail profitability and the accelerating growth of AWS are key factors behind our projections,” Morgan Stanley analysts noted.
As Amazon leverages its strong retail operations and expands its dominance in cloud computing, investors are optimistic about its financial performance in the upcoming quarters.
JPMorgan analyst Doug Anmuth has also highlighted Amazon as a top pick for both the near and long term. Anmuth forecasts a near-term acceleration in AWS, predicting 20% growth in Q4 2024. This growth is expected to be fuelled by easing optimisations, new workload migrations, and the ramping up of GenAI monetization.
Anmuth also anticipates a 190 basis point expansion in Amazon’s North America operating income (OI) margin in 2024, supported by improvements in shipping and inventory placement, increased automation, and stronger advertising revenue. Amazon’s free cash flow is expected to reach $66bn in 2024 and $86bn in 2025.
For Q2, investors are eyeing net sales between $148bn and $150bn, with operating income ranging from $14bn to $15bn or more.
“There was also a strong showing from both the e-commerce and advertising segments over the first quarter, something investors will be keen to see continue. But markets were a little unhappy with the second quarter profit guidance of $10bn-14bn, anything toward the top end of that range will likely be met with a positive reaction,” noted Britzman.
Bank of England’s interest rate decision – Thursday 1 August
Obviously not a stock but one of the biggest market moving decisions in the UK. Traders are increasingly betting on the Bank of England (BoE) cutting interest rates this summer, driven by optimism that the US Federal Reserve is set to reduce borrowing costs.
Money markets now indicate more than a 50% chance that Bank of England policymakers will lower rates next week, with a 92% likelihood of a cut by September.
“While softer labour market data support the rates market pricing in 12.5 bp (50%) of a 25 bp rate hike at its meeting next week, sticky inflation suggests that rates need to stay higher for longer. However, the case for a rate cut is building and is expected to be a line-ball decision,” analysts at IG said.
Economists are also confident that the first interest rate cut in over four years will occur next week, according to a Reuters poll. The survey revealed that the vast majority of economists expect the BoE to reduce interest rates at their August meeting.
If the forecast is accurate, borrowing costs will decrease as the central bank-controlled interest rate drops to 5%. The current rate stands at a 16-year high of 5.25% after 14 consecutive hikes. The Reuters poll, conducted between July 18 and 24, showed that over 80% of economists (49 out of 60) anticipate the BoE will implement the rate cut.
You can read Yahoo Finance’s full calendar here.
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