Earnings this week will be dominated by Big Tech. What analysts expect

Published Tue, Apr 23 20249:43 AM EDT

Big technology earnings this week could offer a much-needed catalyst for a market under pressure. For the better part of the year, technology stocks have propelled the stock market higher as investors ramped up bets on the growth prospects of artificial intelligence. The expectation that the Federal Reserve would soon begin cutting rates also boosted sentiment as the year began, but recent evidence of sticky inflation has sidelined these hopes and soured the market's outlook. Last week, the S & P 500 and Nasdaq Composite notched their longest daily losing streaks since October 2022, with the broad index posting its worst week since March 2022. Big Tech's performance this week could set the tone for the rest of earnings season and revive the market momentum. Investors will be searching for signs that artificial intelligence can continue boosting the bottom line — and that the giants can continue outperforming. Tesla Tesla launches the reporting period for the "Magnificent Seven" stocks, with results due out after the bell Tuesday. The electric vehicle giant's encountered several speed bumps since the start of the year as it grapples with rising competition in China and stalling demand, which has forced it to slash prices and lay off staff . Shares have tanked 43%, with some on Wall Street saying the downside is far from over. The average price target implies shares could rise 33%, according to FactSet. Last quarter, Tesla fell short of expectations and CEO Elon Musk warned of an "uncertain" macroeconomic backdrop . Investors will keep an eye on the top-and-bottom line numbers, but commentary about its strategy and the demand situation may play a more pivotal role in the post-print stock moves, said Bank of America analyst John Murphy. TSLA 1Y mountain Shares performance over the last year "We retain some level of skepticism on Tesla's growth prospects, but also see opportunities as the company will unveil future growth drivers (Robotaxi and Model 2) in the coming months, which alone may be enough to support the stock," he wrote, retaining his neutral rating. Last week , Barclays slashed its price target to $180 from $225 a share, saying that the pressure is on Musk to right the ship as the investment case for the company faces "significant uncertainty." Longtime Deutsche Bank Tesla bull Emmanuel Rosner also downgraded the stock to hold from a buy rating as Tesla looks poised to pivot from building its low-cost entry vehicle to focusing on self-driving technology. "The delay of Model 2 efforts creates the risk of no new vehicle in Tesla's consumer lineup for the foreseeable future, which would put continued downward pressure on its volume and pricing for many more years, requiring downward earnings estimate revisions for 2026+," he said. Meta Platforms Meta Platforms ' results are due out after the bell Wednesday. The social media giant is coming off its heavily praised "Year of Efficiency" and recently launched its AI chatbot known as Llama 3 . The stock has rallied 36 % in 2024. More detail on its AI progress, and how the company plans to apply these tools to better its ad strategy and engagement, will consume investor attention this quarter. Wall Street will also monitor its Reels product and new ad features for WhatsApp and Click-to-Messenger. META YTD mountain Shares this year "We continue to be encouraged by META's ability to sustain double-digit rev growth, given the combination of higher engagement from AI investments, and increasing advertiser ROI & efficiency," said Jefferies analyst Brent Thill. Wall Street broadly expects Meta to top expectations, but analysts such as Bernstein analyst Mark Shmulik have raised concerns over the company's upcoming growth given the "high bar" it must clear and some potential volatility surrounding China's advertising buying. "META remains well-owned, but there is growing caution into earnings on almost-certain growth deceleration beyond 1Q due to tough comps & perception of lack of new drivers vs. 23," wrote JPMorgan analyst Doug Anmuth. Alphabet Alphabet struggled to start the year as it dealt with some AI setbacks, including issues with its image generator that led the company to pull the tool from the market . Shares of the advertising behemoth recouped some losses, logging a 12 % gain year to date, but its AI prospects will remain a key focal point this earnings season. Many analysts expect the search giant to surpass expectations and show topline growth in the first quarter, with Bank of America analyst Justin Post believing Street estimates anticipate "too much deceleration." Search revenue will also be a key metric watched by investors, and robust results could provide a lift to souring AI sentiment, he added. Goldman Sachs analyst Eric Sheridan said industry trends suggest there has been strong search revenue and a recovery in YouTube revenue this year. Updates on the company's AI vision and new initiatives will also be critical for investors, especially in the wake of its recent missteps , analysts say. "We would stay long GOOGL into 2H as we see it grind higher on improving momentum in the core ad business and as visibility improves into the eventual ('25?) AI tailwind," said Jefferies' Thill. But Alphabet sits in tough waters, and any miss could "sound AI alarm bells" according to Bernstein's Shmulik. Microsoft Stalwart software giant Microsoft has seen its shares rise nearly 7% this year as it claims its position as a top-tier AI player. Heading into its quarterly report on Thursday, analysts have turned more bullish, with Wells Fargo's Michael Turrin hiking his price target to $480 from $460 in an April note and calling Microsoft the "best way to play AI." The adjustment suggests 20 % upside from Monday's close. Piper Sandler's Brent Bracelin said in an April note that strong Microsoft results could boost the firm's bullish stance on the "AI Superstar," which it says is in the "nascent stages of capitalizing on a first mover advantage." Goldman Sachs analyst Kash Rangan noted that Microsoft sits in a "unique position to scale Gen-AI revenue without structural changes to its profitability profile." "While Microsoft has called out a material sequential increase in CapEx to meet demand, we believe this cycle is pacing more efficiently than prior cycles" and could drive share gains, he added. Wall Street also is keeping close watch on Azure growth, which Bracelin forecasts could hit 30% on a year-over-year basis in 2023. Deutsche Bank's Brad Zelnick summed it up: "Beyond NVIDIA, it seems clear in our work that Microsoft has established itself as an early leader capturing incremental GenAI investment due to its relationship with OpenAI, some keen foresight and a rapid pace of innovation being pushed by CEO Satya Nadella."