Challenges with big tech earnings may be overestimated
In early 2021, Big Tech was riding high. The new U.S. president had just taken office, stocks were soaring, and investors were optimistic about a pro-growth government agenda. But then the trade war hit.
This week, we'll see quarterly results from the likes of Microsoft, Apple, Meta, and Amazon - and they're landing in a market obsessed with the twists and turns of the trade war. The tariff-induced recession fears have overshadowed concerns about artificial intelligence, and safe havens like gold have become the go-to for jittery investors.
Even with all the uncertainty, Wall Street isn't giving Big Tech much wiggle room. Analysts expect these tech titans to post an average of 15 percent profit growth this year. But that raises the stakes, especially in this fearful market climate. Any shortcomings would be hard to forgive.
Last week, we got a glimpse of how these companies are faring. Tesla reported lackluster results, though Elon Musk's intentions to focus more on the electric vehicle maker cheered investors. Alphabet beat expectations, but offered little future guidance.
This week, we'll get a deeper look, starting with Meta and Microsoft on Wednesday. Despite executives' reluctance to predict the impact of tariffs on their bottom lines, Wall Street has been doing its own calculations. Based on models by Bloomberg Economics, a 22 percent tariff could potentially contract the S&P 500's net income by about 7 percent this year.
Another key area of focus will be spending: The big spenders - Microsoft, Alphabet, Amazon, and Meta - are projected to pour around $300 billion into capital expenditures this fiscal year. However, Microsoft's decision to pause work on some data centers suggests cloud computing providers may be rethinking their expenditures.
Apple, one of the companies most exposed to tariffs due to its reliance on China, may benefit from a pull-forward in demand from consumers seeking to avoid higher prices. But those sales are seen as a one-off benefit, with tariffs expected to dampen demand in future quarters. Amazon faces tariff risks to its e-commerce and advertising businesses, though earnings in its high-margin web services unit could cushion any hits to profits.
Despite the challenges, some see the tech giants as being better suited to weather an economic downturn. They have dominant industry positions, strong balance sheets, and lower valuations following the recent selloff. However, there are still many questions about earnings. Only time will tell how these tech titans fare in this tumultuous market.
- Amidst the ongoing trade war concerns, the outlook for finance in the business sector, particularly technology, remains uncertain, with analysts expecting an average of 15% profit growth for tech titans this year.
- The tech companies, such as Meta and Microsoft, landing quarterly results this week, face potential challenges from tariffs, particularly companies like Apple, which have a significant reliance on China.
- In addition to tariff concerns, spending patterns are a key area of focus, with the big spenders like Microsoft, Alphabet, Amazon, and Meta projected to pour around $300 billion into capital expenditures this fiscal year.
- While some believe the tech giants may be better suited to weather an economic downturn due to their dominant positions, strong balance sheets, and lower valuations, the extent of their earnings remains uncertain, and only time will reveal their performance in this tumultuous market.
