All eyes will be on some of the largest global tech companies, each scheduled to report earnings this coming week. These reports may make or break the market which is struggling to find a direction amid fears of accelerating inflation and an intensifying US-China trade war.
This nervousness comes from the fact that equities have had their three worst sessions since April in the space of just eight days.
This third-quarter earnings season has so far sent mixed signals. Evidence is mounting that inflationary pressures have started to hit the bottom lines of some industrial giants. In this environment of uncertainty and fear, all investors want to see is that America's tech giants, companies have powered the bull-run over the past decade, are still on track to produce earnings growth.
In a week packed with earnings announcements, these three names are perhaps the most important for investor scrutiny.
1. Microsoft
We're expecting another blowout quarter from Microsoft (NASDAQ:MSFT) when it reports its fiscal year 2018, first-quarter earnings after the market closes on Wednesday October 24.
It’s difficult to put together a bearish call on Microsoft, no matter how hard its stock has been hammered during this correction. Shares closed at just under $109 on Friday, down from almost $116 earlier in October, off 6% in just a few weeks.
Nevertheless, the company is firing on all cylinders following the successful execution of its turnaround strategy which focused on cloud computing and solidified the tech giant’s legacy businesses. Microsoft remains the leader in the desktop and laptop operating system market, with a commanding 88% market share.
It's Office, which has been transformed into a subscription service for companies, continues to be a powerful driver of earnings. In the fourth quarter, revenue from cloud-computing platform Azure rose 89%, while sales of web-based Office 365 software to businesses climbed 38%.
For Q1, Microsoft is forecasting revenue of between $27.35-$28.05 billion, which would represent year-over-year growth of 12.9% at the midpoint of guidance. The company is anticipating cost of goods of about $9.6 billion and operating costs of $9.25 billion. As per analysts consensus estimate, Microsoft will post $0.96 per share profit on revenue of $27.9 billion.
2. Alphabet
Any further weakness displayed by Google's parent Alphabet (NASDAQ:GOOGL) during its third quarter earnings report on Thursday October 25 will provide a good buying opportunity if you're waiting on the sidelines.
After falling to $1105 as of Friday's close, more than 14% off its 52-week high of $1291, Alphabet shares have clearly been victimized by this volatile market. Indeed, it's become clear that investors are tarring some excellent companies with the same brush they're using for weaker peers. And Google certainly belongs in the former category.
We expect strong growth in the company’s ad revenues, powered by its leading digital properties. However, investors should keep an eye on the cost side of the business at a time when major tech companies are beefing up spending to meet tightening user privacy regulations.
For Q3 2018, the consensus analyst estimate for the company's revenue is $34.04 billion, a 23% jump year-over-year, on $10.45 earnings per share, up 9% from the same period a year ago.
3. Amazon
Amazon.com (NASDAQ:AMZN) is scheduled to report third-quarter 2018 earnings after the market close on Thursday, October 25. The consensus agrees that the world’s second most valuable company by market cap will again crush expectations based on its strong earnings momentum.
This sentiment is very much reflected in the company’s share price, which closed on Friday at $1764. Despite the stock's recent pullback, it's still up about 80% over the past 12 months, versus the S&P 500’s 7.48% gain during the same period.
In the second quarter, sales surged 39% year-over-year and earnings per share soared almost 12-fold, helped by its cloud computing, advertising and other businesses, each of which continues to bring in more and more sales.
The world’s largest e-commerce company is expecting third-quarter operating income to surge as much as $2.4 billion, while its sales will reach between $54-$57.5 billion. Wall Street analysts expect $3.11 earnings per share on sales of $57.1 billion.
Any weakness on a negative surprise will provide an ideal buying opportunity. Amazon continues to be an amazing business which is spending aggressively on new growth areas.