Google Stock: Will This Week Be an Important One for Big Tech?
Amazon.com AMZN -1.25% (NASDAQ:AMZN), Google parent Alphabet GOOGL -0.01% (NASDAQ:GOOGL), Microsoft MSFT -2.18% (NASDAQ:MSFT), and Facebook parent Meta Platforms META -0.83% (NASDAQ:META) are all scheduled to announce their profits for the first quarter this week, and the results have the potential to send the major U.S. indices swinging.
It wouldn’t be the first time the firms have influenced the market as a whole in such a way. The combined market capitalization of Amazon, Alphabet, Microsoft, and Meta has increased by between 18% and 70% so far this year. Their combined market capitalization accounts for approximately 15% of the whole market capitalization of the S&P 500 index.
These stocks have a significant impact on the movement of the S&P 500 index, which has gained over 8% of its value so far in 2018. Overall, the Big Tech sector may be credited for driving a significant portion of the index’s gains: In comparison, the Invesco S&P 500 Equal Weight Exchange-Traded Fund (RSP), which gives the same amount of weight to each stock included in the index, has increased its value by only 2.6% so far this year.
“Investor attention has been rightly focused on the earnings of both big and regional banks to date,” wrote Carol Schleif, chief investment officer at the BMO Family Office. “It will soon start to shift to big tech earnings, as these stocks have been largely responsible for the broader market’s gains so far this year,” she added. “Regional banks have been largely responsible for the gains in the broader market so far this year.”
Earnings in the technology sector have the potential to impact the market as a whole due to the nature of the results themselves. The majority of Alphabet and Meta’s revenue comes from advertising, and the quantity of global consumer spending may frequently be inferred from the companies’ advertising revenue. The same can be said for Amazon, whose revenue is mostly generated by online shopping and other forms of electronic commerce. When demand for their products and services falls or grows, business customers of Microsoft may choose to cut or increase the amount of money they allocate to their technology budgets.
Considering that businesses are bracing themselves for a slowdown in demand in the face of increased interest rates, which are intended to curb inflation by cutting into economic demand, investors could pay extra attention to the dynamics relating to demand at this time.
Alphabet Inc Class A (NASDAQ:GOOGL)
When Alphabet announces its earnings on Tuesday, market players will have the opportunity to analyze the company. According to generally accepted accounting standards, market analysts predict that the company will generate $1.08 in profits per share on sales of $68.87 billion. They forecast that total advertising sales for the period will amount to $53.64 billion. Even after recent layoffs, it is anticipated that total sales will only increase a little from one year to the next, while earnings per share will fall due to a narrower margin of operational profit. Margin and cost discipline are two areas that should be of primary concern to Alphabet investors.
The current valuation of Alphabet implies optimism about future earnings growth; however, because the stock trades at an expensive price of just over 19 times forward EPS forecasts, up from just under 17 times at the beginning of the year, the current valuation leaves the stock exposed to bad performance.
The question that needs to be answered for the entire market is whether or not Alphabet’s advertising sales will reach or exceed expectations. Evercore analyst Mark Mahaney noted in a research note that those sales could fall short of expectations since “our intra-quarter checks are mixed for Search,” and “Skai’s Paid Search spend seeing a modest deceleration in Q1, driven primarily by a notable deceleration in March.”
Microsoft Corp (NASDAQ:MSFT)
On Tuesday, investors in Microsoft will be eager for the company to report earnings that exceed expectations. The consensus among market analysts is that revenues will increase marginally to $51.11 billion, but that operating margins will narrow. This will result in earnings per share (EPS) of $2.24, which is a marginal improvement of just two cents compared to the same quarter in the previous year. Additionally, the price of this stock is quite high, coming in at just over 27 times earnings, which is up from just over 23 times earnings at the beginning of the year.
The broader market is interested in seeing evidence that Microsoft’s clients are maintaining robust levels of expenditure on information technology, as this may be an indication of healthy demand in the economy.
Meta Platforms Inc (NASDAQ:META)
When it reports on Wednesday, Meta will likewise be front and center in the limelight. The consensus among industry experts is that total sales will come in at $27.62 billion, which is slightly lower than last year’s total. Even with a reduction in manpower, the company’s operating margin is expected to shrink, which will lead to a predicted loss in EPS of $2.68, or a decrease of 26%.
Investors in Meta want to see cost discipline and confirmation that revenues have not dropped by a greater amount than anticipated. Investors are anticipating a significant increase in profits, but if the company’s results do not meet expectations, the stock price of Meta could be at risk for a significant decrease. At the beginning of 2023, Meta shares traded for a little about 15 times profits, but now they are trading for almost 20 times earnings.
“our bias leans more cautious into META’s print next week,” RBC analyst Brad Erickson wrote regarding the market as a whole being concerned about the ad and consumer expenditure. Our most recent checks have revealed some unanticipated inconsistency or weakening just since the end of the quarter; as a result, our near-term tone adjustment has been dictated by these findings.
Amazon.com, Inc. (NASDAQ:AMZN)
Then there is Amazon, which will release its quarterly results on Thursday: The consensus among market watchers is for total revenue of $124.55 billion and adjusted earnings per share of approximately 27 cents. Because it trades at 57 times earnings, compared to just under 47 times earnings at the beginning of 2023, this company may also require a significant profit beat. The overall market would want to see sales from online stores meet or exceed the forecasted amount of $50.69 billion.
This week is a huge one for big tech, and there’s a good chance it will translate into a major move in the market as a whole.
Featured Image: Unsplash @ Brett Jordan
