As the second-quarter earnings season approaches, key companies worldwide will provide insights into sector performance. Investors will be particularly focused on updates from some of the 'Magnificent Seven', which will reveal whether the artificial intelligence (AI) trend continues.
Will the upcoming earnings reports show strong performance or a lack of momentum? Here’s what to watch for:
Tesla shares have experienced a dramatic surge this month, with the company's stock price surging by 33%. This increase has propelled Tesla's market valuation by $209bn in the first eight trading days of the month alone, surpassing the combined market value of European automotive giants Mercedes-Benz, Volkswagen, and Stellantis, which stands at $198bn.
This surge cannot be attributed to Tesla’s first-quarter financial results, which revealed the lowest quarterly profits since Q2 2021, diminishing cash flow, and rising inventory levels. The second-quarter production and delivery figures, released earlier this month, indicated a 14% year-on-year decline in vehicle production and a 5% drop in unit sales, although this may have contributed to reducing some of the inventory backlog.
“Quite what inspired this romp is hard to divine, barring ongoing investor enthusiasm for companies that are perceived as AI (and autonomous driving) plays, Elon Musk’s courtroom victories at Tesla and X and ongoing hopes surrounding the Cybertruck, the supercharger network and the ride-hailing app,” Russ Mould, investment director, Danni Hewson, head of financial analysis, and Dan Coatsworth, investment analyst, all of AJ Bell, wrote.
For the third quarter, the current consensus is sales of $25.7bn and that would signify a return to growth in the top line of some 10% year-on-year.
Analysts and investors are also paying close attention to Tesla’s revenue composition. In the first quarter of 2024, energy storage, energy generation, and other business lines contributed 19% to total revenues, up from 10% in the same period in 2022.
Earnings per share (EPS) fell to $0.37 in Q1, but analysts expect a rebound to $0.62 in Q2, though this still marks a one-third decrease compared to the same period last year. The consensus EPS forecast for Q3 stands at $0.63.
AJ Bell also highlighted Tesla's strong financial position, with a net cash reserve of $21.5bn. Although a few quarters of weak cash flow are not overly concerning, shareholders will be looking for improvements in this area as an indicator of higher profitability and a more streamlined balance sheet through inventory reduction.
Microsoft Corp is set to report its fiscal fourth-quarter earnings on Tuesday, July 30, with analysts from Bank of America (BofA) forecasting potential revenue upside for the period.
Wall Street's consensus projects Microsoft to announce revenue of $64.2bn and earnings per share (EPS) of $2.90 for Q4. However, BofA analysts anticipate a 1% increase from their estimate of $64bn, indicating a 14% year-over-year growth, primarily driven by the robust performance of Azure, a premium mix in Office E3/E5, Copilot’s initial success, and a stabilising PC/Windows market.
Azure’s growth is expected to remain balanced across sustained AI and core workloads, translating into a projected growth rate of 31.5%, slightly above the base expectation of 30.5%. The early traction of Copilot is also anticipated to bolster Office growth, maintaining its current valuation multiple.
In the more personal computing (MPC) segment, analysts foresee a $50m increase over the $15.5bn estimate, attributed to stronger-than-expected PC shipments.
Looking ahead to fiscal 2025, BofA analysts predict continued double-digit revenue growth fuelled by ongoing strength in Azure and Office. However, they anticipate a 100 basis point decrease in margins due to increased capital expenditures driving higher cost of sales.
“In an upside scenario, we believe the Office business could achieve 20% growth by Q1 fiscal 2026,” the analysts noted.
BofA has reiterated its ‘buy’ rating for Microsoft and raised the price target to $510 from $480, citing the potential for higher Office growth in fiscal 2025. They acknowledge that the current share price reflects a considerable amount of near-term upside.
"Microsoft is set to deliver fourth quarter results at some point next week. Investors will be hoping to see another strong showing from the cloud business, Azure. Analysts are looking for top line growth of 19.5% from Azure, which looks very achievable. Back in April, management said cloud-AI demand was outstripping supply. Despite a mammoth effort to build out compute, that supply/demand imbalance is likely to help underpin Azure growth for some time yet," Matt Britzman, senior equity analyst at Hargreaves Lansdown, said.
*Date not confirmed
The parent company of Google (GOOGL), is set to announce its second-quarter earnings, with analysts predicting robust performance driven by its Android platform and continued momentum in its search and cloud businesses. The company's expanding generative AI capabilities are also anticipated to have significantly contributed to its positive results.
For Q2, the Zacks Consensus Estimate places Alphabet's revenues at $70.55bn, reflecting a 13.7% increase compared to the same quarter last year. The consensus estimate for earnings stands at $1.85 per share, marking a 28.5% rise from the previous year's reported figures. This estimate has seen a slight upward revision of 0.5% over the past week.
However, rising litigation issues and associated expenses remain areas of concern for the tech giant.
One key risk is the US Department of Justice's so-called adtech trial, in which the government charges that Google monopolises key digital advertising technologies, collectively referred to as the adtech stack. Website publishers depend on that stack to sell ads and advertisers rely on it to buy ads.
"As Alphabet’s second quarter earnings approach, the M&A rumour mill is swirling. If reports are true and Alphabet is in talks to buy cybersecurity firm Wizz for $23bn, it would mark a major move to beef up its security offering. Wizz has successfully taken on the likes of Microsoft and Palo Alto in the cyber space, taking market share over the past couple of years. Perhaps the biggest hurdle could be a regulator that’s been a blocker for many large-scale deals – though a new team in the White House later this year could help things in that regard," Britzman said.
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Bank of America Securities analyst Justin Post remains bullish on the integration of Google’s AI chatbot.
“We remain positive on growing Gemini integration across [the] Google ecosystem and think [the] broader rollout of AI overviews will likely help drive higher usage, while AI integration can increase monetisation across Google,” Post said. “Moreover, with a focus on expense management, we think year-over-year margin growth in 2024 will be a bright spot and potential EPS upside driver.”
Post affirmed a buy rating and $200 price target for Alphabet.
BMO Capital Markets raised its their price target from $215 to $222, driven by potential gains in YouTube revenue.
Amazon is in the spotlight with a "positive" near-term view, as Morgan Stanley anticipates the e-commerce giant to significantly outperform in its Q2 earnings and provide optimistic guidance for Q3.
Morgan Stanley analysts project that Amazon will exceed consensus estimates for earnings before interest and taxes (EBIT) by 17% for Q2 and 10% for Q3. This optimistic forecast is driven by enhanced profitability in North America tetail and accelerating growth in Amazon Web Services (AWS).
"North America retail profitability and the accelerating growth of AWS are key factors behind our projections," the analysts noted.
As Amazon continues to leverage its robust retail operations and expand its cloud computing dominance, investors are looking forward to a strong financial performance in the upcoming quarters.
It is also a top pick for JPMorgan analyst Doug Anmuth both in the near and long term.
He anticipates a near-term acceleration in AWS, forecasting a 20% growth in Q4 2024. This growth is expected to be driven by easing optimisations, new workload migrations, and the ramping up of GenAI monetisation.
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Anmuth also projects a 190 basis point expansion in Amazon's North America operating income (OI) margin in 2024, supported by enhancements in shipping and inventory placement, increased automation, and stronger advertising revenue. Amazon's free cash flow is expected to reach $66bn in 2024 and $86bn in 2025.
For Q2, investors are looking for net sales to fall between $148bn and $150bn, with operating income ranging from $14bn to $15bn or more.
"There was also a strong showing from both the e-commerce and advertising segments over the first quarter, something investors will be keen to see continue. But markets were a little unhappy with the second quarter profit guidance of $10-14bn, anything toward the top end of that range will likely be met with a positive reaction," Britzman said.
* Date not confirmed as the company might decide to announce results on 1 August.
Other companies reporting next week include:
MONY (MONY.L)
Ascential (ASCL.L)
SAP (SAP)
Ryanair (RYA.IR)
Verizon Communications (VZ)
NXP Semiconductor (NXPI)
SThree (STEM.L)
Compass (CPG.L)
Mitie (MTO.L)
SK Hynix (HY9H.MU)
LVMH (MC.PA)
ASM International (ASM.AS)
Thales (HO.PA)
Lindt (LISN.SW)
Alfa Laval (ALFA.L)
Logitech (LOGNE.SW)
Norsk Hydro (NHY.OL)
Akzo Nobel (AKZOY)
Randstad (RSH.DU)
Visa (V)
Coca-Cola (KO)
Spotify (SPOT)
Texas Instruments (TXN)
GE Aerospace (GE)
Danaher (DHR)
Comcast (CMCSA)
Lockheed Martin (LMT)
Mondelez (MDLZ)
3M (MMM)
General Motors (GM)
Mattel (MAT)
Reckitt Benckiser (RKT.L)
UNITE (UTG.L)
RHI Magnesita (RHIM.L)
Breedon (BREE.L)
Aston Martin Lagonda (AML.L)
Primary Health Properties (PHP.L)
Fresnillo (FRES.L)
EasyJet (EZJ.L)
Oxford Nanopore (ONT.L)
Iberdrola (IBE.MC)
BNP Paribas (BNP.PA)
Equinor (EQNR)
Banco Santander (BNC.L)
UniCredit (UCG.MI)
Kering (KER.PA)
Deutsche Boerse (DB1.DE)
Michelin (ML.PA)
Repsol (REP.MC)
Moncler (MOV.F)
Jerónimo Martins (JMT.LS)
Carrefour (CA.PA)
SSAB (SSAB-A.ST)
Kindred (UNBA.MU)
Qualcomm (QCOM)
IBM (IBM)
LAM Research (LRCX)
AT&T (T)
UPS (UPS)
KLA-Tencor (KLAC)
Ford (F)
Newmont (NEM)
United Rentals (URI)
International Paper (IP)
RELX (REL.L)
Lloyds (LLOY.L)
Anglo American (AAL.L)
Rentokil Initial (RTO.L)
Informa (INF.L)
Centrica (CNA.L)
Centamin (CEY.L)
Howden Joinery (HWDN.L)
Airtel Africa (AAF.L)
ITV (ITV.L)
Hammerson (HMSO.L)
Vodafone (VOD.L)
BT (BT-A.L)
Britvic (BVIC.L)
Workspace (WKP.L)
CVS Group (CVSG.L)
Nestlé (NESNE.SW)
Hermès (RMS.PA)
Roche (ROG.SW)
Christian Dior (CDI.PA)
Sanofi (SAN.PA)
EssilorLuxxotica (EL.PA)
Stellantis (STLA)
ENI (ENI.F)
St. Gobain (GOB.MU)
Renault (RNO.PA)
Mastercard (MA)
AbbVie (ABBV)
Linde (LIN)
Honeywell (HON)
Intel (INTC)
Starbucks (SBUX)
Northrop Grumman (NOC)
Keurig-Dr Pepper (KDP)
Baker Hughes (BKR)
Southwest Airlines (LUV)
Baxter (BAX)
Skyworks (SWKS)
Liberty Global (LBTYK)
Harley-Davidson (HOG)
SEGRO (SGRO.L)
IMI (IMI.L)
Rightmove (RMV.L)
Drax (DRX.L)
NEC (6701.T)
Komatsu (6301.T)
Air Liquide (AI.PA)
Mercedes Benz (MBG.HA)
Holcim (HOLN.SW)
BASF (BASA.BE)
CapGemini (CGM.HM)
Alstom (ALO.PA)
Vallourec (VK.PA)
Kone Cranes (KNCRY)
Exxon Mobil (XOM)
Bristol Meyers Squibb (BMY)
ConocoPhillips (COP)
AON (AON)
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