Market watchers look to them for strength after mixed results from Microsoft and Meta
Investors are gearing up for Apple Inc. and Amazon.com Inc.’s earnings reports, which is anticipated to be pivotal in shaping market sentiment around big tech as reported by BNN Bloomberg.
As the last of the so-called "Magnificent Seven" to report this earnings season, the two tech giants could either solidify confidence in megacap tech stocks or heighten concerns over whether high valuations can still be justified. This comes after Microsoft Corp. and Meta Platforms Inc. reported mixed results that failed to meet Wall Street's expectations, adding downward pressure on tech stocks.
Apple is expected to reveal demand trends for its AI-integrated iPhones, which analysts hope could boost the company’s growth trajectory. Meanwhile, Amazon will disclose growth patterns in its e-commerce and cloud businesses, especially in Amazon Web Services (AWS), amid investor expectations that AI-driven developments can drive competitiveness in the cloud market.
“The bar is already very high simply because valuations are very high. 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,” AJ Bell investment director Russ Mould said.
Both companies have seen stock fluctuations, with Apple dipping as much as 1.6% and Amazon falling 3.7% on Thursday, contributing to tech’s position as the worst-performing sector in the S&P 500 Index, which was tracking its steepest decline since early September.
Thursday’s reports could prove even more significant given that Microsoft and Meta both recently highlighted increased AI spending, which failed to buoy their stock prices. Microsoft shares fell after a disappointing Azure cloud forecast, while Meta’s revenue guidance barely met the midpoint of analysts’ expectations, leading to declines of 6.1% and 4.7%, respectively.
Apple faces high expectations in particular, even with a forecasted revenue growth below 2% for 2024. With a valuation over 50% above its 10-year average, the pressure is on Apple to show how its new AI offerings could reinvigorate growth. Downgrades from KeyBanc and Jefferies this month reflect growing caution among analysts about overblown expectations for its AI-focused products.
Meanwhile, Amazon’s outlook depends heavily on AWS’s performance, with analysts predicting $27.5 billion in revenue—a 19% increase year-on-year, according to Bloomberg estimates. A miss on this front could fuel concerns over AWS’s competitiveness, as John Belton of Gabelli Funds noted, “If Amazon misses those expectations, you could see this narrative of AWS being a share loser in cloud infrastructure gain some steam.”
Profitability is another focal point for Amazon investors, who are monitoring margins closely in both its cloud and retail businesses for signs of positive momentum.
“Amazon needs to show some degree of positive momentum in margin improvement,” said James Abate, chief investment officer at Centre Asset Management LLC. Rising AWS margins would be a critical point for Amazon amid investor concerns over its costly cloud expansion.
