US tech stocks are plummeting, next week's financial report will be crucial
US technology stocks encountered selling pressure this week, as Wall Street prepares for the earnings reports of tech giants next week. It is expected that the "Big Seven" (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla) will see a significant 38% increase in first-quarter profits. Investors have high expectations for earnings and guidance, and if the financial results disappoint, the market may further enter oversold territory. This week, the market capitalization of the "Big Seven" evaporated by $950 billion, with Nvidia experiencing the largest loss in market value. Analysts expect tech stock earnings reports to be a key catalyst driving the rise of US tech stocks. Meanwhile, some companies like ASML and TSMC have already released unfavorable signals
As the US stock market's "Seven Sisters" face selling pressure, Wall Street is preparing for the upcoming wave of financial reports from tech giants next week.
According to media think tank data, the "Seven Sisters" - Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla - are expected to see a 38% surge in first-quarter profits. Excluding these seven companies, profits for the rest of the S&P 500 index are projected to decline by 3.9%.
Quincy Krosby, Chief Global Strategist at LPL Financial, stated:
"Investors are not only expecting strong earnings but also strong guidance. Any disappointing performance from the tech giants reporting earnings could push this week's oversold market into even deeper oversold territory."
With expectations of a delayed Fed rate cut weighing down, the combined market value of the "Seven Sisters" evaporated by $950 billion this week, setting a new all-time high record. Nvidia suffered the most significant market value loss, evaporating $300 billion this week, surpassing AMD's market value. Stock prices of the "Seven Sisters" plummeted across the board, with Tesla leading the decline, dropping by over 14% this week.
The usually optimistic Wedbush analyst Dan Ives said that his "extensive field research" has given him great confidence that "AI has begun to enter the next growth phase," transitioning from semiconductors to software.
"Ives believes that the first-quarter report will be a significant catalyst for tech stocks," potentially driving a 15% increase in US tech stocks by the end of 2024. He mentioned that AI-related spending accounted for less than 1% of IT budgets in 2023 and is expected to rise to 8% to 10% by 2024.
Unfavorable Start for Tech Stock Financial Reports
The first-quarter financial reports of tech giants will still revolve around AI. However, prior to this, ASML, TSMC, and AMD have already released unfavorable signals.
Dutch lithography giant ASML reported a decline in revenue and profits in the first quarter, while also lowering its second-quarter revenue expectations. The financial report showed that the total value of new orders in the first quarter fell far below expectations, with a sharp 61% decrease compared to the previous quarter.
The world's largest chip foundry, TSMC, had a mixed bag in its first-quarter financial report. Benefiting from strong AI demand, TSMC saw its net profit increase for the first time in a year, but it lowered its global wafer foundry industry growth expectations.
"Tenfold stock in a year" AMD stated in a brief press release on Friday that it will announce its third-quarter performance on April 30 However, the company broke the convention of providing preliminary performance results, which raised concerns among investors, leading to a frenzy of selling the stock. On Friday's closing, AMD plummeted by 23%, hitting a new low in over two months.
Next week, these four tech stocks are worth watching:
Tesla will announce its first quarter financial report for 2024 ending on March 31 next Tuesday, kicking off the earnings season for tech giants.
Barclays analyst Dan Levy predicts that Tesla's first quarter report may show the first negative free cash flow since the first quarter of 2020, with a gross margin excluding regulatory credits possibly dropping to 14.6%, a decrease of 2.6 percentage points from the previous quarter. This indicates that Tesla's car profitability will return to the level shortly after the launch of the Model 3 in 2017.
In terms of deliveries, Levy predicts that Tesla's delivery volume in 2024 will remain flat, mainly due to the inventory backlog issue: there were about 100,000 unsold cars at the beginning of the year, and an additional 45,000 to 50,000 cars were added in the first quarter.
Meta Platforms will announce its new quarterly financial report early Thursday morning.
Benefiting from more precise AI-driven advertising, Meta's stock price has risen by nearly 40% this year. Dan Niles, founder of Niles Investment Management, believes that Meta's valuation is still not high, with a future P/E ratio in the low 20s and revenue growth in the mid-teens.
At the same time, Meta continues to benefit from the "Year of Efficiency" plan in 2023, which has led to a reduction of over 20% in its workforce. However, the increase in seven-figure AI engineers and high-end AI hardware expenses will compress profit margins.
Niles believes that if Zuckerberg wants to boost Meta's stock price further, he can shut down the Reality Labs metaverse division, which has been losing over $10 billion annually.
The usage of the AI Copilot software will be the highlight of Microsoft's first quarter report, with a monthly fee of $30 per user. Analysts believe that Microsoft may not provide too many details, but the tone is expected to be optimistic.
Another highlight is the Azure cloud business, with analysts expecting its revenue to grow by 28%, remaining flat from the fourth quarter of last year Microsoft will announce its financial report early Friday morning. Morgan Stanley believes that by the 2029 fiscal year, AI may help Microsoft double its earnings per share.
Currently, the most difficult to judge is Google's parent company Alphabet, whose stock price has risen by 12% this year. Google will also announce its financial report on Friday.
Some are concerned about whether Google's web search will be impacted by chatbots, including its own Gemini, which currently does not have embedded advertisements. However, like Meta, with the Olympics and elections approaching, Google's advertising demand should be strong this year.
In addition, Amazon is expected to announce its first-quarter financial report at the end of April, while Apple and Nvidia will announce their financial reports in early and mid-May respectively.
In the future, the focus of AI shifts from "shovel sellers" to "gold diggers"
If we consider OpenAI's launch of ChatGPT in November 2022 as the starting point, the transformation of generative AI has been ongoing for nearly 17 months.
So far, the biggest beneficiaries are companies known as "shovel sellers," such as chip companies like Nvidia, AMD, and Micron.
However, in the long run, AI needs to transition from the "burning money" stage to the "creating value" stage, where software companies are essential. As the "gold diggers" in the AI revolution, software companies will largely determine the success of AI commercialization.
Ives said that his "extensive on-the-ground research" has given him great confidence that AI "has begun to enter the next growth stage," transitioning from semiconductors to software