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While the big tech companies, for the most part, don’t report until the 3rd or 4th week in July, looking over prior quarters' EPS and revenue growth rates for tech, here’s what the progression looked like in terms of where the quarter started, and how the actual growth rates compared to what was expected:
Q1 ’24: Tech sector EPS was expected to grow +20.9% at the start of the Q1 ’24 reporting season, while tech revenue was expected to grow +7.1%. Actual tech sector EPS growth was +27% for a 610 bp upside EPS surprise, while tech sector revenue actually grew +8.5% for a 140 bp upside surprise.
Q2 ’24: Tech sector EPS was expected to grow +16.9% at the start of the quarter, but actual growth was +21.5% for a 440 bp upside surprise. Revenue growth for tech was expected to grow +6.7% in Q2 ’24, but actually grew +11% for a 430 bp upside surprise.
Q3 ’24: In q3 ’24 tech sector EPS generated another 440 bp upside surprise (15.1% estimated vs 19.5% actual EPS growth) while tech revenue expectations started out high at +12%, thereby limiting the upside surprise to 110 bp’s or 13.1%.
Q4 ’24: Tech sector EPS expected at +15.% growth, actual was 19.8% for a 450 bp upside surprise. Tech revenue was expected at 11.1%, actual was 12.1%, for a 100 bp upside surprise.
Q1 ’25: Tech sector EPS growth expected at +16.1%, while actual was +18.1% for an upside surprise of 200 bp’s, while tech revenue was initially expected at +11.3%, actual was +13.3% also for a 200 bp upside surprise.
Q2 ’25: EPS growth of +17.7% and revenue growth of +12.6% expected for Q2 ’25.
Here’s what we know upside surprise progression in tech sector EPS growth:
- Q1 ’24: +610 bp’s
- Q2 ’24: +440 bp’s
- Q3 ’24: +440 bp’s
- Q4 ’24: +450 bp’s
- Q1 ’25: +200 bp’s
The upside progression in tech sector revenue growth:
- Q1 ’24: +140bp’s
- Q2 ’24: +430 bp’s
- Q3 ’24: +110 bp’s
- Q4 ’24: +100 bp’s
- Q1 ’25: +200 bp’s
Summary: The expected EPS growth for the tech sector for Q2 ’24 looks like it’s in line with the previous 5 quarters in terms of being in the “high teens”. However, the “upside surprise” factor seems to be diminishing a little bit the last 5 quarters.
Maybe a little more revealing is that tech’s EPS upside surprise each quarter was below the S&P 500 EPS upside surprise each quarter, sometimes by 50% or more, although tech’s overall growth rates are much higher than the other 10 sectors of the S&P 500, with the exceptions of the communications services sector and the consumer discretionary sector.
Tech sector revenue growth was 7% – 8% in Q1 ’24, but that has increased to mid-to-high teens for the last 3 quarters.
It’s been the usual 5 – 6 years so far this decade, given Covid for two years and then the interest rate hikes of 2022, and now late ’24 and ’25 are dealing with the new world of tariffs.
The breakout in the Nasdaq Composite and the Nasdaq 100 is definitely a positive, along with the S&P 500. Technically, you have to think the breakouts are a continued positive for the overall market.
Let’s watch tech upside surprises as the Q2 ’25 earnings releases unfold.
Disclaimer: None of this is advice or a recommendation but only an opinion. Past performance is no guarantee of future results. None of this information may be updated, and if updated, may not be done so in a timely fashion.