The upcoming earnings reports from Apple (AAPL, Financial) and Amazon (AMZN) are crucial in shaping investor sentiment towards technology stocks. Their results follow a series of mixed outcomes from other tech giants, such as Microsoft (MSFT), Meta (META), Alphabet (GOOGL), and Tesla (TSLA). While Alphabet and Tesla posted better-than-expected earnings, Microsoft and Meta faced investor disappointment, causing their stock prices to dip.
Strong performances by Apple and Amazon could reinforce the idea that large tech companies remain reliable investments on Wall Street. However, disappointing earnings, given their significant index weights and high valuations, might dampen hopes for the market's return to record levels.
Investors are eager for Apple to provide insights into demand for its AI-enabled iPhones, a key factor to potentially drive the company beyond its current low-growth phase. Simultaneously, Amazon's report will offer a perspective on consumer behavior in its e-commerce segment and the impact of AI on its cloud computing business.
This year, shares of Apple and Amazon have risen in line with the Nasdaq 100 index, each climbing over 19%. Despite better-than-expected revenue forecasts from Microsoft and Meta, their stocks suffered as investors reacted negatively to increased spending on AI and future technologies.
Apple faces particular scrutiny, with expected revenue growth of under 2% for its 2024 fiscal year. This is well below the double-digit growth seen in other major stocks, and its price-to-earnings ratio stands significantly above its 10-year average. Wall Street's caution is growing, especially amid signs of limited consumer interest in the latest iPhone models. Analyst downgrades from KeyBanc and Jefferies reflect concerns over excessive optimism.
Amazon also experienced a rare downgrade this month, as Wells Fargo Securities voiced concerns about its cloud business's ability to offset profit margin worries. Despite some recovery post-earnings in August, Amazon's stock remains shy of its July highs. Investors are optimistic about Amazon Web Services (AWS) given Alphabet's positive cloud results, hoping substantial AI investments will yield returns.
Analysts project AWS revenue to reach approximately $27.5 billion this quarter, marking over 19% growth. A failure to meet expectations could spark concerns about AWS losing ground in the cloud infrastructure space. Amazon's investors will also closely watch for profit margin improvements in its cloud and retail operations, which are critical for growth, according to industry analysts.
