Weekly Preview: Earnings to Watch This Week 4-21-24 (GOOG, META, MSFT, TSLA)
Stocks might have ended Friday's trading session somewhat mixed, but with the Nasdaq Composite index suffering its sixth consecutive decline, the market has seemingly decided being in “risk-off” mode is the preferred approach ahead of the first quarter earnings season. With the tech-heavy index enduring its lengthiest slump in over a year, this could also signal that tech is oversold.
While concerns linked to geopolitical tensions and persistent inflation hasn’t helped, heading into the Q1 earnings season, the market will be watching whether tech powerhouses like the Magnificent Seven can energize stocks. These mega-cap tech giants consisting of Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA) have been big winners over the past year. But since the start of April, it’s been a different story.
On Friday the Nasdaq Composite declined 319.49 points, or 2.05%, to close at 15,282.01. The index was pressured downward by a 10% drop in Nvidia and a 9% decline in Netflix (NFLX). With both tech giants under pressure, the broader S&P 500 also suffered, losing 43.89 points, or 0.88% to close at 4,967.23. Notably, both indices have fallen for six straight days, with the S&P 500 dipping below 5,000 on Friday. The Dow Jones Industrial Average, however, managed a 0.4% gain, adding 211.02 points, or 0.56%, thanks to American Express's (AXP) post-earnings rise of over 5%.
For the week, the S&P 500 lost more than 3%, netting its worst weekly performance since March 2023. As it stands, the S&P 500, which as posted three straight weekly losses, is now down more than 5% from its 52-week high. The Nasdaq Composite fell 5.5% for the week, logging its fourth straight down week and its longest negative streak in more than two years. For the week, the Dow gained 0.01%, with the blue-chip index posting its first positive week of the last three week.
Aside from geopolitical tensions and persistent inflation, the market is now expecting the Federal Reserve to be more hawkish and possibly delay its plans to cut interest rates. At this point, it’s hard to imagine there will be three rate cuts, which was the expectation at the start of the year. But it’s possible that tech earnings can revive sentiment. As for the market’s next direction, many of these questions will be answered in the coming weeks as we enter the first quarter earnings, particularly the numbers coming up from large-cap tech. Here are the names I’ll be watching.
Tesla (TSLA) - Reports after the close, Tuesday, Apr. 23
Wall Street expects Tesla to earn 51 cents per share on revenue of $22.34 billion. This compares to the year-ago quarter when earnings came to 85 cents per share on revenue of $23.33 billion.
What to watch: Unlike its Magnificent Seven tech peers, Tesla stock has driven in reverse since the start of the year, falling 40% year to date, compared with the 5% rise in the S&P 500 index. The shares have also fallen 14% in thirty days to a new 52-week low, while the S&P 500 index has fallen just 3%. Earlier this week, Deutsche Bank analyst Emmanuel Rosner lowered his rating on Tesla from Buy to a Hold citing the likelihood of the Model 2 launch being delayed in favor of prioritizing the Robotaxi business.
"Without any new vehicles, we feel that Tesla could face more headwinds to growth, as competition arise in China and from other OEMs, to which the company may not be able to respond due to limited free cash flow," added Rosner on the short-term outlook.
Wedbush Securities analysts Dan Ives also weighed in, noting that the Model 2 initiative was key for Tesla’s growth over the next few years. Implications of lower the pricing on the company's FSD package, and an announcement by Elon Musk of a 10% global job cuts are factors investors are weighing. As such, the company’s profit margins will be closely-watched.
But I believe the depressed price is a buying opportunity for investors who have waited for a better entry point. The company is betting heavily on FSD which will be the birth of the autonomous vehicle evolution and is designed to automate Tesla vehicles so they can operate without a driver behind the wheel. Once FSD can navigate autonomously, it will not only boost Tesla’s profit margins, it will be a profit center of recurring revenues for Tesla through the company’s ambition for Robotaxis. As such, with Tesla stock trading at near 52-week lows, betting on a rebound in the next 12 to 18 months looks very attractive.
Meta Platforms (META) - Reports after the close, Wednesday, Apr. 24
Wall Street expects the Facebook parent to earn $4.31 per share on revenue of $36.14 billion. This compares to the year-ago quarter when earnings were $2.20 per share on revenue of $28.64 billion.
What to watch: Meta Platforms has already enjoyed year-to-date stock gains of almost 40%, besting the 5% rise in the S&P 500 index. Meanwhile, over the past year, the Facebook, Instagram and WhatsApp parent company has surged 125%, crushing the 20% rise in the S&P 500 index. Wall Street analysts are bullish on the company's potential for further monetization.
Meanwhile, investors are seemingly all in on the management’s various cost optimization initiatives. In that regard, the company maintains its momentum in enhancing efficiency, with my calculations indicating that the recently announced round of layoffs will contribute $30 billion in value to shareholders. Additionally, META has entered the generative AI competition with its newly unveiled Llama 3 language model and an image generator.
These initiatives not only puts the company in a much stronger financial standing in the near term, suggesting there is still value to be realized in the stock. Meanwhile, Citigroup analyst Ronald Josey recently reiterated his Buy rating on the stock and raised his target price to $590 from $525. “With Meta’s newer ad innovations (Adv.+ Creative, Reminder Ads, longer form Reels, etc.), a new AI video architecture, and greater overall advertiser adoption, we believe advertiser demand for Reels (and Meta) continues to improve,” Josey wrote in the note to investors. As such, the company on Wednesday must continue to show gradual improvements in these areas, while demonstrating its prominence among big tech for the quarter and full year.
Alphabet (GOOG , GOOGL) - Reports after the close, Thursday, Apr. 25
Wall Street expects Alphabet to earn $1.51 per share on revenue of $78.57 billion. This compares to the year-ago quarter when earnings came to $1.17 per share on revenue of $69.79 billion.
What to watch: Stabilization of its advertising segment combined with favorable AI trends have boosted Alphabet’s growth prospects. Investors are expecting this to be the case, among other growth developments evidenced the stock’s strong run over the past thirty days. After gaining 60% over the past year, shares of the Google and YouTube parent have risen 11% year to date, besting the 5% rise in the S&P 500 index.
The stock has been driven by, among other things, a revival in digital advertising. But it’s also Google’s recently launched Gemini, its latest large language model, which has gotten investors really excited. The generative AI market is currently growing at 42% and could hit $1.3 trillion by 2032, according to Bloomberg Intelligence estimates. The bulk of the revenue growth from generative AI, estimated $247 billion by 2032, will come from demand for the infrastructure needed to train AI models.
What's more, estimates suggests that the AI-assisted digital ads business could reach $192 billion in annual revenue by 2032, while revenue from AI servers could hit $134 billion. Google plans to license Gemini to its customers through the Google Cloud platform so customers can leverage them in their own applications. Gemini will also power Google’s ad products, the Chrome browser, and other Google assets, all over the world. In essence Gemini is the future of Google. On Thursday, investors will look for the company to provide clearer details about Gemini’s money-making capabilities.
Microsoft (MSFT) - Reports after the close, Thursday, Apr. 25.
Wall Street expects Microsoft to earn $2.82 per share on revenue of $60.76 billion. This compares to the year-ago quarter when earnings were $2.45 per share on $52.86 billion in revenue.
What to watch: Shares of Microsoft have gone on an impressive run since the start of the year, steadily climbing from approximately $370 to $425, marking a nearly 15% increase in just four months. This surge has propelled the software giant to surpass Apple (AAPL) as the world's most valuable company by market capitalization. A pillar of the of Magnificent Seven, Microsoft's stock has become a staple in both retail and institutional investors' portfolios.
On the other hand, the stock's frothy valuation has left value investors wondering if there is any value to be realized. The company's advances in generative artificial intelligence, as well as the billions it has spent as part of its investment in OpenAI’s ChatGPT continue to be the driving factor. Microsoft has also begun to monetize AI, and has since launched Copilot, which leverages AI to enhance its productivity software suite. Currently used by 40% of Fortune 100 companies, and priced at $30 per month, analysts estimating that at $30 per user per month, Copilot could boost Microsoft’s fiscal 2025 revenue by as much as $9 billion.
What’s more, in terms of cloud growth, as of Q3, Microsoft Azure has 24% market share for cloud infrastructure. Microsoft undeniably boasts a well-established history of success and appears poised for a promising future. Through strategic investments in gaming, cloud technology, and artificial intelligence, the company is positioned to sustain profitability amidst the continually changing technological landscape. On Thursday, the company’s guidance will nonetheless gauge how confident the management feels about its long-term growth potential.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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