Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA), and the rest of their Big Tech cohorts are gearing up for what is expected to be one of the most eventful earnings seasons in some time. Generative AI will undoubtedly be a priority as the push to monetize the technology continues and investors look for any signs that those billions of dollars in investments are starting to pay off.
“We anticipate it will be around 8% growth as a sort of collective growth number for large-cap technology companies,” said Alex Smith, head of Canalys’ channel research department. “In terms of overall growth, Nvidia is going to far outperform the rest of the market.”
But generative AI is not the only thing that worries investors. Apple’s earnings should be choppy after the company’s rocky start to the year, with the iPhone maker facing everything from antitrust lawsuits to slowing sales in China, one of its most important markets.
Meanwhile, Meta (META) and Google parent company Alphabet (GOOG, GOOGL) will give Wall Street an idea of how the digital advertising market is performing. Both companies saw an increase in sales in the previous quarter, but Alphabet fell short of analyst expectations. The search giant will have to flip the script this quarter.
Buckle up because it’s going to be a wild few weeks.
Generative AI takes center stage again
The generative explosion of AI is still resonating on Wall Street as stocks of big companies like Nvidia and Microsoft continue to rise. But after a year of hype, companies will have to start showing that the enthusiasm is paying off.
“We can be absolutely certain that the first and most important thing investors will pay attention to are companies that are AI-washing.” [saying something uses AI even if it doesn’t] and convert them into meaningful contributions to the bottom line,” Daniel Newman, CEO of technology research and advisory firm The Futurum Group, told Yahoo Finance.
Nvidia shares are up about 75% so far this year and 225% over the past 12 months, as hyperscalers like Google, Microsoft, Amazon and Meta get as many AI chips as possible from the company. That has skyrocketed Nvidia’s revenue. In the fourth quarter, Nvidia reported revenue of $22.1 billion, up from $6.1 billion a year earlier.
But the company will begin to surpass its explosive growth numbers this year, which could dampen investor enthusiasm even as it continues to outperform.
“There have been these massive explosions, but as soon as you start to get past that first year of massive explosions, the growth numbers will be more average,” said TECHnalysis Research President Bob O’Donnell.
That doesn’t mean Nvidia is going to give up its market leadership anytime soon. It’s still miles ahead of rivals AMD and Intel in terms of market share, and it just unveiled its Blackwell architecture during its GTC developer conference in March, which should put it even further ahead.
“They still have a dominant lead and share, and their influence is enormous, and they’re not slowing down, which is to their credit,” O’Donnell said. “But the law of large numbers starts to take effect at a certain point.”
Then there are hyperscalers like Microsoft, Amazon (AMZN), and Google. While they’ve been riding the AI bandwagon, many of their generative AI software offerings are still in the works, meaning it’s a little early to get a full read on overall acceptance among enterprise and consumer customers. Still, Wall Street is likely to look for at least some revenue growth from companies’ AI investments.
“How much is AI driving? [Microsoft’s] Azure? To what extent is AI driving Google Cloud’s growth? How much does it continue to help AWS, which has somewhat seen its numbers decline?” Newman said.
In its latest quarter, Microsoft announced that AI services contributed 6 percentage points of growth to its Azure revenue, up from 3 percentage points in the previous quarter. And you can bet analysts will be looking to see if the company can maintain that kind of growth in the current quarter.
Amazon also pointed to AI as a growth catalyst during its latest earnings call, saying revenue was “accelerating rapidly” as customers showed interest in the technology. It will be interesting to see if the company provides more context on that acceleration in its next earnings call.
Google, like Microsoft, is also likely to face questions about sales of its AI-enhanced productivity suite and how customers are responding. The company, which will host its I/O developers conference in May, has also faced controversy over its AI implementation, retiring its Gemini AI generator after it generated historically inaccurate images.
apple on deck
Apple’s earnings will also be a hot topic, but don’t expect the company to reveal anything about its future generative AI plans.
“Apple needs to reveal something, but the company has never been in a rush to appease industry investors,” said Patrick Moorhead, CEO of Moor Insights & Strategy. “I think they’re going to wait until WWDC in a couple of months to bring that out.”
Outside of AI, investors are eagerly awaiting Apple’s iPhone revenue numbers and comments on its lawsuits. On Monday, market intelligence firm IDC reported that global iPhone shipments fell nearly 10% in the current quarter. That could have a significant impact on Apple’s overall revenue.
Sales in China are also a problem for the company. Apple reported that revenue in its third-largest market fell 13% in the previous quarter. That, coupled with falling iPhone shipments, could mean trouble for the company’s profits.
However, despite those headwinds, there could be a bright spot. According to BofA Global Research’s Wamsi Mohan, Apple should post double-digit growth in its Services segment, which could help boost overall sales.
The company’s upcoming earnings will also give investors their first look at Vision Pro sales, which should offer some insight into early consumer and business interest in AR/VR headsets.
Digital advertising sales increase
Meta and Google will also be on hand to show if they can maintain momentum in the digital advertising market. In the previous quarter, Meta’s ad sales were up 24%, while Google’s ad sales, including YouTube ads, were up 11%.
Amazon, which has built its own impressive advertising business, could also see continued growth in advertising sales. In the previous quarter, the company reported advertising revenue of $14.7 billion, a 27% year-over-year increase. Another performance like that could provide a nice boost to the company’s results.
Analysts will also be watching to see if AI is affecting advertising sales.
“In theory, targeting should be better using AI even with cookie deprecation, but we haven’t seen it yet,” Moorhead said. “To me, the evidence I would have to look at is a higher cost per click or a better CPM.”
We’ll find out all that and more when Big Tech earnings begin next week. Get prepared.
Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.
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