With many market watchers’ attention focused across the pond on the upcoming tech reporting season, Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown shares her latest thinking and outlook as to what might be coming down the line as follows:
“Tech earnings are due amid surging macro and geopolitical uncertainty. Many of the traditional dashboard indicators are giving conflicting messages about the path ahead, which has the potential to upend appetite for growth stocks, if worst-case scenarios play out. But for now, things look broadly more accommodating, following last quarter’s largely optimistic data sets. Things like the interest rate trajectory tend to be the tide that lifts or dips all tech-ships. That said, growth forecasts on an individual basis are arguably the more potent bits of data, depending which camp you’re in, and there are some compelling – and challenging – individual stock stories due to play out in the coming days and weeks.
Netflix had a blockbuster fourth quarter, with subscriber numbers beating expectations and margin guidance upgraded. The media giant signalled hopes of double-digit growth in revenue for the year, with the market expecting growth of 13.6% in the first quarter. Helping that figure along should be expansion in Netflix’s cheaper ad-supported plan. This is starting from a much lower base, meaning there’s more room to run. Password sharing crackdowns have also been bearing fruit, and there should still be some juice left to squeeze, but the benefits are finite.
As ever, it’s subscriber growth and churn rate that have the potential to move the dial next week. There’s cautious optimism that attraction and retention of viewers will hold Netflix in good stead. This is helped by the group’s best-in-class original and local content slate.
Facebook owner Meta set the bar high last quarter after beating expectations. Guidance is that first quarter revenue will be $34.5bn – $37.0bn, and any deviation from that will be sorely punished. The group’s benefiting from a resurgence in digital advertising, which came off the boil during the worst of the uncertainty in recent years. A number that will be watched even more keenly than ad spending will be Meta’s expenses. The group has been forced to refocus on core activities and rein in its undefined and extravagant spending plans in recent memory, but it’s still looking to spend up to $99bn this year. There will be hope that some more detail on where this is being funnelled could be served up in next week’s results.
Another name that could stand to benefit from positive digital advertising activity, is Google parent Alphabet. That said, the lens will be closely trained on this area, after Alphabet failed to impress the market last quarter. Alphabet failed to capture as many advertising dollars as expected, and forward guidance was woolly, which creates uncertainty. One thing to be monitored is to what extent generative AI is diluting the potency of Alphabet’s platforms. Search engine culture risks being upended. We’re a long way from knowing how this will play out, but it’s something Alphabet bears are keeping a close eye on.
Microsoft has muscled its way to pole position in the AI race. The potential monetisation of AI is huge for the group, thanks to the fact the tech can be integrated into the majority of Microsoft’s existing products. This includes its enormous cloud platform. The market’s very excited by cloud, but it’s worth remembering that growth is expected to moderate this year. In upcoming results we’ll find out the extent of this. Any slowdown should be a blip, as customers trim spending while the economy’s trajectory remains uncertain, but more detailed forward guidance would be very welcome.
While the potential runway for Microsoft looks to be paved with gold – it won’t be a totally smooth ride. Costs are expected to snowball as it invests in AI capabilities. Big spending will be stomached by investors, so long as the deals and investments come with clearly defined purpose and compelling value.
Tesla sentiment has veered off-course following disappointing production and delivery numbers, with deliveries sinking 20% quarter-on-quarter. Some of these challenges were related to disruption in the Red Sea, so we should hopefully see some unwinding of the worst of the pain. However, there are Tesla specific concerns. The news that 10% of the group’s workforce is being cut has given additional weight to concerns about the effect of lower-priced rivals, and broader EV demand. While it’s unlikely all these concerns will be put to bed in upcoming results, there should be some clarity on expectations for the rest of the year. There is caution about the outlook for margins, which could impact the share price.
Retail sales in the US have been better than expected. This has tough ramifications for the economy and interest rate expectations but should hold Amazon in good stead. Its enormous retail business has been roaring back to life, helping margins in the process, and we expect positive consumer momentum to have continued. Of course, these days, Amazon is more about the prospects for AWS, and AWS’ position in the AI and cloud stack is a positive one. The substantial investment announced in AWS’ generative AI products speaks volumes to the expected pipeline of demand. But where there are bright lights ahead, there runs a higher risk of disappointment.”
