Next week, Google and Tesla will determine the fate of US technology stocks

This week, under the pressure from both Biden and Trump, US technology stocks, especially chip stocks, experienced an exceptionally difficult week: The S&P 500 technology sector fell by nearly 6% over the past week, with a market value evaporation of approximately $900 billion.

Investors' enthusiasm for the "big winners" in technology stocks has gradually cooled, with funds flowing into sectors such as finance and small caps that have lagged behind this year.

As the earnings reports of the "Big Seven" in the US stock market kick off next week, will the gears of fate start turning again? By then, the global financial markets will focus on Tesla and Alphabet.

Both Tesla and Google's parent company, Alphabet, will announce their earnings on Tuesday, July 23, local time next week, with Wall Street analysts holding vastly different views on these two tech giants.

Boosted by Generative AI, Will Google's Performance Continue to Soar?

According to Zacks Investment Research, analysts expect Alphabet's second-quarter revenue to reach $70.55 billion, a year-on-year increase of 13.7%.

The expected earnings per share are $1.85, a 28.5% increase from the same period last year. It is worth noting that the earnings per share expectations have been raised by 0.5% in the past 7 days, indicating an increased confidence in Google's short-term performance.

In terms of business, Android, Search, and Cloud Computing are expected to continue their strong momentum. In particular, Google's continued investment and expansion in generative AI, including its powerful Gemini AI model, VertexAI development tools, Gemini Code Assist coding assistant, are expected to be significant drivers of performance this quarter.

Benefiting from the integration of generative AI technology and continuous optimization in the mobile search field, analysts expect Google's second-quarter search and other related revenue to reach $47.46 billion, an 11.3% increase year-on-year.

The application of Search Generative Experience (SGE) by Google may have a positive impact on its advertising business. Analysts predict a 10.5% year-on-year growth in Google's advertising revenue in the second quarter, reaching $64.28 billion.

Improvements in conversational experiences for advertising services products Google Ads and Performance Max may increase the usage rate of advertising clients. The YouTube business is also highly anticipated, with growth expected in both advertising and non-advertising revenue.

Google Cloud, as a key growth engine for the company, is expected to continue its rapid growth trajectory. Analysts predict that Google Cloud's second-quarter revenue will be $10.08 billion, a 25.5% increase year-on-yearIn addition, driven by the medical technology business, Google's other business revenue is expected to be $4.1482 billion, a year-on-year increase of 45.6%.

Tesla's Q2 Gross Margin May Fall Short of Expectations, Focusing on FSD, Robotaxi, and Energy Storage

Analysts surveyed by FactSet expect Tesla's Q2 revenue to be $24.3 billion, a 2.4% year-on-year decrease, with adjusted earnings per share of 61 cents, a 33% year-on-year decrease.

Earlier data revealed that Tesla delivered 444,000 vehicles in Q2, exceeding expectations, maintaining its position as the global leader in electric vehicle sales. However, the news of the two-month delay in the release of the robotaxi service Robotaxi caused a sharp drop in Tesla's stock price.

Cantor Fitzgerald analyst Andres Sheppard, in an interview with the media, stated that the delay in releasing Robotaxi is undoubtedly "disappointing," but since it is only a delay, once it is released later this year, it may still have a positive impact on the stock.

On the other hand, analysts at Guggenheim have a different view. In a recent report, they stated that the delay in Robotaxi could provide investors with an opportunity to "reassess recent (Tesla stock price) catalysts, which we believe lean towards the negative."

Guggenheim pointed out that Tesla's Q2 gross margin may fall short of expectations, ongoing price promotions will continue, and Q3 delivery volumes will continue to decline year-on-year, thus maintaining a sell rating on Tesla stock.

Sheppard, on the other hand, believes that although Tesla's Q2 sales are still below the levels of the same period in 2023, they have boosted investor morale and are consistent with the company's statement of a slowdown in growth rates this year.

Sheppard is optimistic about Tesla's Full Self-Driving (FSD) technology, expecting FSD to be widely adopted in Tesla's current models.

He believes that as Tesla continues to lower car prices, stable recurring revenue from FSD will help improve the company's profit margins and increase cash flow. Older models will also be equipped with FSD, opening up additional revenue streams. The cost of FSD is $99 per month or a one-time payment of $8,000.

Sheppard states that FSD is the "most polarizing" issue for Tesla bulls and bears, and it is also at the core of most questions he hears from customer investors.

Furthermore, Wall Street is also paying attention to news about Tesla's stationary energy storage batteries. Sheppard said that Wall Street is eager to hear about "the continued delivery and performance of energy storage, as well as the outlook for the second half of the year."