- AI in focus ahead of next week’s results
- Questions around the resilience of the recent tech rally will be front of mind
- Advertising rebound possible
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown:
Alphabet, Q2 Results, Tuesday 25 July
“Alphabet has seen its year-to-date rally temper in recent weeks. The search engine giant is in a tricky spot when it comes to capitalising on AI. While it has a lot of potential, the path to profits from this venture are arguably less clear cut than other giants, with the likes of Microsoft and Amazon in strong positions at different parts of the AI infrastructure chain.
A core component to watch in next week’s results will be further commentary on AI. Google Cloud is hoping to squeeze incremental market share gains from bigger rivals in the coming years, and progress on that front could be evident in the numbers. That said, the highly competitive market could see demand rein in.
At the same time, the core advertising business is likely to have accelerated, especially as inflation in the US has continued to abate. Disappointment in this area is likely to move the share price, with investors remaining cautious and highly sensitive to uncertainty.
Microsoft, Q4 Results, Tuesday 25 July
“The ongoing efforts to buy Activision may have distracted from next week’s results, but now Microsoft’s performance is back under the spotlight. The shares jumped on recent news the tech giant will charge $30 a month for generative AI features. Not only does this suggest an incoming flood of revenue uplift, it speaks to the strength of demand for all AI products, and with its finger firmly in that pie already, Microsoft has a lot of growth potential.
Cloud revenue floated upwards by double digit percentages last quarter and that’s not expected to have abated. Declines in OEM and device revenue may well have continued as discretionary spend struggles. The area most likely to move the dial is cloud, with any signs of a corporate slowdown likely to result in a market reaction. As a core driver of the recent US rally, the market has very high hopes for Microsoft. Its market-leading AI proposition means much of that excitement is warranted, but it also heightens the risk of inciting a stormier mood among investors.
Amazon – TBC
“Next week all eyes will be on AWS. Amazon is firmly in the camp where good isn’t good enough, with a 16% revenue uplift in the division last quarter coming in behind expectations. Amazon has warned it expects demand for cloud services to slow as companies trim tech spending, and the extent of this weakness will be closely watch. Analysts will be hoping the tough economic backdrop will result in a financial graze, rather than a crippling bruise.
Broader uncertainty will also have ramifications for the retail business. The vast bulk of profit has been coming from AWS, and the potential for weakness there could see margins under pressure as the international retail arm looks to claw out of loss-making territory. Consumers’ discretionary spending is highly unpredictable at the moment, especially as people across the globe continue to deplete their savings. That could make boosting retail profit a tough ask.
Meta, Q2 Results, Wednesday 26 July
“Headlines may be preoccupied with Zuckerberg’s plans to fight Elon Musk, but investors are more concerned about whether the social media mogul has what it takes to deliver a sucker-punch to Meta bears. Growth has been slower at Meta for a while, but the market has largely moved to accept this. A 3% lift in revenue last quarter was met with celebration, despite a sharp fall in profits thanks to higher costs.
Restructuring costs are means to be around $90bn for the full year, and proof this goal post hasn’t moved will go down well with the market. As will talk of a better-than-expected advertising performance. Specifically, it would be good to see that the price of ads isn’t being slashed to such a degree, because this would signal a more organic level of demand recovery.
Finally, as has been the case for some time, further steer on plans for AI work will be the holy grail. Meta’s been very woolly on details and Meta investors will want to see some concrete progress and planning before too long.
