Will AI Boost Tech Profits This Week?

The first half of 2024 saw a rally, with a handful of US tech giants driving the Nasdaq (NQ) and the S&P 500 to record highs. This narrow market leadership has sparked concerns about the potential overvaluation of the tech sector. 

The Artificial Intelligence (AI) hype, while initially a catalyst, might be showing signs of cooling. This might be indicating a potential rotation from traders into sectors and small caps that might better benefit from an upcoming dovish monetary policy. 

Moreover, recent earnings disappointments from tech stalwarts like Tesla (TSLA) and Alphabet (GOOG) underscored the market's sensitivity to these megacap companies.  This week's tech earnings will be featuring other heavyweights like Microsoft (MSFT), AMD (AMD), Meta (META), Apple (AAPL), and Amazon (AMZN). 

Let's take a closer look at what traders should expect from these companies:

Can Microsoft Sustain Its AI-Fueled Growth?

Microsoft is set to release its financial results for fiscal Q4 on Tuesday, 30 July, after the market closes. Traders might be closely watching to see if the tech giant can continue its strong performance, mainly driven by its cloud computing business, Azure. 

Azure has been a critical growth driver for Microsoft in previous quarters, benefiting from increased demand for cloud services and the rise of artificial intelligence. 

Goldman Sachs (GS) predicts an increase in Microsoft's cloud revenue to $37.2 billion, surpassing the previous quarter ($35.1 billion) and the same period last year.

Can AMD's Data Center Division Shatter Records Once More? 

Chipmaker AMD will release its second-quarter earnings on Tuesday, 30 July, after the bell. 

Traders might be focusing on the company's data centre performance, which is expected to surpass the previous quarter's record of $2.3 billion (an 80% rise). Analysts predict revenue of $2.79 billion for this segment, fueled by the ongoing AI boom.

The hype around AI has fueled demand for high-performance chips, and AMD is a key player. According to Citigroup (C) analysts, while Nvidia (NVDA) and Broadcom (AVGO) have traditionally been trader favourites in the semiconductor sector, AMD's strong data centre results could shift market sentiment.

Will Meta's Investments in Artificial Intelligence Keep Rising?

​​Meta Platforms is set to report its second-quarter earnings on Wednesday, 31 July, after market closes. While the company delivered strong Q1 results, a cautious revenue outlook dampened trader enthusiasm and weighed on the stock price.

The social media giant has invested heavily in AI, particularly virtual and augmented reality, to drive future growth. Traders are likely keen to see the progress of these initiatives and how Meta plans to monetise them. 

Advertising revenue, which remains one of the company's primary income sources, grew significantly in Q1, jumping 27% to $35.64 billion. Meta's ability to leverage AI for targeted advertising and ad creation will be a key focus as the company navigates a challenging digital ad market.

Meta projected in its Q1 release that Q2 revenue would be between $36.5 billion and $39 billion, with a midpoint of $37.75 billion representing an 18% year-over-year increase.

Is Apple Still Losing Ground in China? 

Apple will report third-quarter earnings after the bell on Thursday, 1 August.

Despite beating analyst estimates last quarter, Apple saw an overall revenue dip of 4%, primarily driven by a 10% decline in iPhone sales. The company's performance in Greater China was particularly concerning, with a revenue drop of 8% to $16.37 billion, fueling concerns about potential market share erosion to domestic rivals like Huawei.

Beyond concerns over slowing Chinese sales, Apple could face additional challenges. The company's heavy reliance on consumer spending, a cyclical and competitive market, poses risks. Additionally, geopolitical tensions and supply chain vulnerabilities tied to manufacturers like Foxconn and TSMC (TSM) could impact operations.

Apple's progress in AI will also be a key focus. The tech giant is expected to report revenue of $84.39 billion and earnings per share (EPS) of $1.34.

Can Amazon's Advertising and AWS Still Drive Growth?

Amazon is set to release second-quarter results on Thursday, 1 August, after the bell. Analysts anticipate strong performance, with revenue projected to climb 11% and net profits to soar 65%. 

Amazon's advertising and cloud divisions are poised to drive growth. Building on solid performance in previous quarters, these segments are expected to be key contributors to the company's overall success.

AWS, in particular, has benefited from increased infrastructure modernisation and growing demand for AI capabilities within other companies. Last quarter, sales rose 17% year over year to $25 billion. (Source: Investopedia)

Conclusion

The tech industry is bracing for a pivotal week with potentially higher volatility as several industry giants prepare to publish their financial results. Following a period of market euphoria driven by AI optimism, recent earnings disappointments, especially from Tesla and Alphabet, have injected a dose of reality. 

Traders might scrutinise Microsoft, AMD, Meta, Apple, and Amazon's performance this week to gauge the tech sector's overall health and the sustainability of the AI-fueled rally.