As football continues through playoffs, leaving legacies on a knife’s edge, tech stock are entering a critical reporting period.
Earnings reports are coming hard and fast, and it is imperative that tech stocks capitalize on recent investor optimism. Despite uncertainties around the Fed and rates, an impending recession, and slower tech spending, stocks have bounced as inflation data shows declines.
Microsoft (MSFT) kicks off the big tech earnings reports Tuesday afternoon, while Tesla (TSLA), Intel (INTC), and IBM (IBM) follow up after close Wednesday.
While we are hoping for better-than-feared results, the real meat of the earnings reports and stock movements will come from forward-looking guidance and comments from management.
Microsoft
Microsoft’s earnings will be super interesting as it enters the report with a lot of news swirling around it in recent months, including; a stalled acquisition of Activision, ChatGPT plans and investments, as well as layoffs.
Investors have a low hurdle for Microsoft with earnings expected at $2.32 per share on $53.16 billion in revenue.
Guidance will be key here as customers have taken a “more measured approach” to technology spending, with companies less keen on adding new software to their day-to-day and individuals avoiding splurges on new technologies.
On the individual front, a report from Gartner showed worldwide PC demand plunged 28.5% in the fourth quarter of 2022 and 16.2% for the year.
With PC sales seeing a steepening decline in the fourth quarter, forward-looking statements pertaining to Azure seem more important as the narrative of decreased demand for cloud services and online ads pre-dates weaker consumer spending that had been resilient for much of 2022.
Microsoft cloud services are expected to slow to 16.9% growth from 26% a year ago. Any notes that suggest demand has bottomed out would be massive for Microsoft and fellow cloud providers.
Tesla
Serial over-promiser Tesla is due to report Wednesday in what will be the headline report that afternoon.
If Microsoft has narratives swirling around it, Tesla has sharks. Questions regarding the sanctity and health of demand for the flagship EVs and bird-related distractions plaguing its mercurial CEO have sent the stock price steadily lower.
Tesla is in murky waters without a clear-cut narrative capable of clearing things up. First and foremost, investors want to know how long these steep, new price cuts will be in effect.
The more temporary the cuts, the more worrying it will be for investors as that suggests they are in fact demand related. The price cuts won’t be reflected in this report, so Tesla will have the opportunity to clearly show that the new prices are here to stay via declining cost of goods sold and rising margins, as well as comments from Musk and other executives.
If Tesla can convince investors that the price cuts were made from a position of strength, as lowering prices in bad markets can be a flex, then there could be a lot of renewed optimism.
Meanwhile, investors need some resolution to the Twitter saga. Don’t expect the blue bird to be explicitly mentioned throughout the report, but do watch out for signals that Twitter is impacting the company.
One opinion Wall Street has long maintained on Elon Musk is that he is a much better engineer than businessman. And there's no arguing that.
But I will, lightly, bring up that Tom Zhu, who is credited for much of Tesla’s success in China, is directly overtaking some of Musk’s managerial roles as he is now in charge of pretty much everything except Giga Berlin. This move came early in the new year.
Thus, the devil’s advocate in me questions if Twitter is a distraction from Tesla, for Musk; or if it is something that - through a series of events - has led to a repositioning of the CEO back into roles where he is most effective (and happy). Many view Tom Zhu’s new responsibility as him being groomed for the CEO role.
Now, don’t go expecting a new CEO announcement during this specific report. But, do look out for signs that Musk is taking on less managerial responsibility as that could spell relief in a time of lower price targets, expectations, and confidence.
Lastly, updates on the CyberTruck, Semi, and long-awaited FSD Beta v11 are all cherries on top. None should individually sway the stock, but good or bad news could add some spice to that day's price swing.
Intel
The last deep dive we are going to take is a look at Intel. The chipmaker has been in a rough place as of late, but investors will be looking forward to this report as it follows some pretty aggressive developments.
The company launched its Raptor Lake processor in October and, according to Mercury Research, Intel has been regaining market share and is expected to “continue taking away desktop and notebook market share from AMD".
Besides this, Intel has been splashing the cash as it tries to restore dominance. The company is investing heavily in manufacturing to increase its fabrication operations. When it's all said and done, the company could invest as much as $100 billion. This is a big bet on the future that won’t rear its head until the end of the decade.
With that in mind, investors want to see strong guidance or forward-looking comments that suggest a well-placed and timed investment. Chipmakers have had a rough go, and alleviation of some pain is key.
Currently, the company has no cash profits as it is spending it all on new plants, thus drops in revenue could result in the company slowing construction with spending or borrowing to maintain pace. To avoid either, the company could have to cut or slash its dividend, which has long been a major reason to own Intel stock.
