Four U.S. tech companies, after adjusting for inflation, have been valued at $1 trillion or more this year. At the end of Monday’s trading session, Apple Inc. AAPL was the most valuable U.S. company at around $1.7 trillion, followed by Microsoft Corporation MSFT at $1.6 trillion, Amazon.com Inc AMZN at $1.595 trillion and Google-parent Alphabet Inc GOOGL at $1.067 trillion.
The tech behemoths are scheduled to report their June-quarter earnings this month, and market pundits are keeping an eye on how their businesses have weathered the overwhelming impact of the coronavirus pandemic.
No doubt, manufacturers of computers, smartphones, smart watches, laptops, PCs, smart speakers and various other tech-related components and services were highly impacted in the second quarter due to the closure of factories and outlets in the wake of the outbreak. But at the same time, stay-at-home orders to curb the spread of the virus have been a blessing in disguise for tech firms.
The tech sector has remained reasonably unscathed amid the current economic downturn owing the pandemic. This is primarily because investors saw that these companies have been gaining immensely from secular trends like cloud computing and robust telecommunications infrastructure — demand for which skyrocketed amid the health crisis.
Further, with majority of the population trapped at home with an Internet connection, trends including streaming media, video chats with friends and online connections with co-workers have picked up. These trends, in turn, have bolstered the requirement for newer technologies.
Thus, for the tech sector as a whole, second-quarter earnings are expected to be down 12.7% on 1% lower revenues. But that’s far better compared to the overall earnings picture. This is because total earnings for the S&P 500 companies are projected to decline 44.3% on 10.3% lower revenues (read more: Previewing the Tech Sector’s First Full Coronavirus Earnings Season).
Microsoft, which will be kicking off the big tech earnings on Jul 22, has seen its shares climb in the June-quarter, as businesses needed more cloud-based software.
Microsoft’s public cloud service Azure and cloud-based applications like Office 365 and Teams most likely did well in the said quarter. After all, as majority of people worked from home, most companies had to move a bulk portion of their workloads to the cloud.
For the coming reporting quarter, Microsoft’s revenues are expected to come in at around $36.59 billion, suggesting an 8.5% rise from the year-ago levels. And majority of revenues are expected to come from existing Azure workload contracts. Analysts also expect the Zacks Rank #3 (Hold) company’s earnings per share to come in at $1.39, indicating a 1.5% rise year over year. You can see the complete list of today’s Zacks #1 Rank stocks here.
By the way, Amazon’s focus on cloud might have saved it from a coronavirus crash in the quarter ending June 2020. Amazon is certainly in the spotlight as it is currently one of the biggest players in the cloud infrastructure market. The Seattle-based company has a solid presence throughout the Internet via Amazon Web Services (“AWS”). And some of big names, including General Motors, Baidu, Spotify, McDonald’s, Twitter and Johnson & Johnson, use AWS.
Meanwhile, unemployment benefits and financial relief measures implemented by the Trump administration resulted in an increase in disposable income in the June quarter, which in all likelihood drove Amazon’s online sales. However, supply side disruptions as a result of the COVID-19 pandemic remain a concern. Nonetheless, the Zacks Rank #3 company currently has an Earnings ESP of +40.45%. Per our proven model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 increases the chances of an earnings beat. Amazon is slated to report results on Jul 23, after market close.
iPhone maker Apple is scheduled to report third-quarter fiscal 2020 earnings on Jul 30, after market close. Apple’s sales are expected at $51.13 billion compared with $53.81 billion a year ago. Earnings per share are also likely to come in at $1.99, suggesting an 8.7% decline year over year. But traditionally, Apple’s third-quarter fiscal results are always the weakest.
Nonetheless, Apple’s efforts to reopen closed stores must have had a positive impact on revenues. With more people working from home, there has been a rise in MacBook Pro sales, with indications that the company’s new iPhone SE sales have improved in the fiscal third quarter. And when it comes to the Apple Watch, CFO Luca Maestri said that “Apple Watch continues to expand its reach as over 75% of the customers purchasing Apple Watch around the world during the quarter were new to the product.” The Zacks Rank #3 company currently has an Earnings ESP of +4.41%.
Finally, Alphabet will be reporting June-quarter results on Jul 30, after market close. Alphabet’s strengthening cloud unit no doubt aided the company in the quarter to be reported. Moreover, expanding data centers have bolstered its presence in the cloud space. Further, major updates in its search segment that enhanced the search results are a positive.
Meanwhile, YouTube’s subscription revenues are likely to have risen in the said quarter. Needless to say, trends like streaming media picked up in the June quarter as majority of people remained at home. The Zacks Rank #3 company has an Earnings ESP of +1.31%.
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