Investors are getting ready for the most important part of the season where companies reveal how well they did in the first three months of the year. They're paying close attention to the biggest companies, especially in the tech industry.
Even though there have been some recent drops in stock prices, investors are optimistic that major tech companies will continue to do well. They're especially interested in how these companies are using artificial intelligence, which is still really popular on Wall Street.
According to Dan Ives, a senior analyst at Wedbush Securities, the next few weeks are going to be really exciting for the tech industry. He thinks this is a crucial time for tech companies to show off their strength and a great opportunity for investors to buy stocks.
Investors are eager for something new to boost stock prices, especially since things have been a bit dull lately. There's been a sell-off because of concerns about inflation and problems in the Middle East.
Here's what people on Wall Street are paying attention to as the first big tech companies get ready to report their earnings.
Tesla — April 23
Investors are feeling stressed about Elon Musk's car company as they approach earnings. There are several problems on the horizon, like a drop in car sales in the first quarter, controversy over Musk's huge $56 billion pay package, and recent layoffs that affected more than 10% of the company's employees.
The stock has gone down by 40% since the beginning of the year, and many banks have lowered their expectations for its future. This is because the company is shifting away from making cheaper cars and focusing more on projects like robotaxis and self-driving technology.
Despite this, Dan Ives from Wedbush is still optimistic about the company's future. However, he says that Musk needs to address some important issues during the earnings call next week to stop investors from selling their shares.
These issues include explaining why the company's growth in China has slowed down, giving clear predictions about how much the company will grow and how much money it will make, confirming the progress of the Model 2, and sharing detailed plans about artificial intelligence.
Alphabet — April 23
Bank of America is optimistic about the parent company of Google as they approach earnings. They mentioned in a note on Thursday that the limited number of job openings suggests that the company is managing its costs well. Analysts predict a potential increase of 13% in stock value, which is higher than the 11% growth estimated by Wall Street, mainly due to the strong performance of YouTube.
Furthermore, the bank is impressed by Google's strong search results, which they see as the second factor driving a positive sentiment towards artificial intelligence (AI) after a low point in March. This is especially promising with the Google I/O developer event still to come.
The note also acknowledges that while the use of AI poses long-term competitive risks for Google, they believe that by 2024, Google and its competitors are likely to see improvements in monetizing AI.
Meta — April 24
Meta recently introduced its latest AI chatbot, Llama 3, showcasing its improved performance compared to industry standards with upgraded reasoning abilities.
However, JPMorgan analysts, led by Doug Anmuth, cautioned that Mark Zuckerberg's company might experience a slowdown following the first quarter. This could be due to challenging comparisons with previous performance and a perceived lack of exciting new developments compared to 2023.
Anmuth noted that the anticipation of slower growth is already factored into Meta's valuation, which is considered reasonable by investors.
Although there's still a lot of talk among investors about generative AI, the focus is now shifting towards recognizing its early successes in improving coding efficiency and reducing costs rather than solely on generating new revenue streams and product enhancements, according to the analysts.
The note highlighted Meta as an exception, particularly regarding the implementation of AI in its advertising system, which is seen as a significant driver of growth for the company.
Microsoft – April 25
Wall Street views Microsoft as a major player in artificial intelligence (AI) as they head into their earnings announcement. The company plans to significantly increase its graphics processing unit (GPU) count in 2024, aiming to have 1.8 million AI chips by the end of the year.
Bank of America is optimistic about Microsoft's earnings release on April 25, raising its earnings estimate by 1%. This optimism stems from strong performance in Microsoft's Azure and Microsoft 365 divisions.
Despite this positive outlook, the bank has maintained its price target for Microsoft at $480, suggesting a potential increase of 20% from the stock's price at the end of trading on Friday.
Even though Microsoft's projected 2025 free cash flow ratio is high at 37x, the bank believes that the company's value will remain stable due to the rapid growth of the AI sector. It's expected to reach $944 billion by 2027, indicating a promising future for Microsoft in the AI market.
Amazon — April 30
JPMorgan's analysts expressed their confidence in Amazon, considering it their top recommendation despite it being widely held in their coverage.
The bank expects Amazon Web Services (AWS) to perform well in the first quarter. Anmuth mentioned that factors such as simplified optimizations, deploying new workloads, favorable comparisons to previous periods, and the early stages of generating revenue from artificial intelligence (GenAI) should contribute to AWS's growth continuing throughout 2024.