Nasdaq Consolidates Ahead of Major Tech Earnings

Major tech firms will report after cost-cutting measures, focusing on revised guidance and whether ad spend and cloud revenue can improve this year.

Microsoft: The Future of AI

The focus will be on the Intelligent Cloud segment, which has become the company's largest and was expected to receive support from the recent investment in ChatGPT. Microsoft is forecasting $21.7-22.0B in sales from this segment. Cloud is expected to be the defining segment for this quarter for tech firms and could help Microsoft stand out from rivals. Global cloud services are expected to grow at 21% this year. Other focuses for Microsoft are guidance outlook, and how much of an impact cost-cutting has had on the bottom line and when the benefits can be seen. Earnings are expected to experience a slight decline to $2.24 on a reduced $51.1B in sales.

Google US Recession

The key question for investors in Google might not be AI anymore, but how much will a "mild" recession (in the word of the Fed) affect the company's ad revenue. Advertising still accounts for 78% of the company's revenue, albeit down from 81% in the prior year. Earnings will be impacted by up to $2.3B in severance costs, with investors keen on guidance for when the measures will have a positive effect. Earnings are expected to increase slightly to $1.08 on seasonally slower revenue of $68.09B.

Amazon's Cloud Problem

As the largest supplier of web hosting services, AWS will likely be the focus for Amazon's earnings this quarter. Slower economic growth was a challenge to the company's two biggest segments: Cloud and retail sales. The company has already been disappointed with weaker-than-expected guidance, with a focus on future outlook on sales. Earnings are expected to improve slightly to $0.21 on better sales of $124.6B.

Meta's AI Venture

Now that it appears Meta is finally putting the metaverse on the back burner, investors will be keen to see its plans for AI and how much that will cost. Focus on any guidance improvement from the recent cost-cutting measures. The company guided Q1 sales at $26.0-28.5B, and the consensus among analysts is $27.6B, with earnings expected to be $2.02, a slight improvement over the prior quarter.

Tech Index in Correction Phase 

Nasdaq has been correcting since the peak of 13225 on April 4, trading within a somewhat narrow zone. The sideways correction could be a triangle unless 12820 succumbed to potential pressure, and the index goes for either a flag towards 12500 or the 12k hurdle, or a full-blown reversal. A break above the local top will expose 13720 and the 14k threshold of course, with 13380 offering resistance in the interim.

Source: Spreadex / US TECH 100

KEY takeaways

Major tech firms, including Microsoft, Google, Amazon, and Meta, are reporting earnings after cost-cutting measures. Microsoft's focus will be on the Intelligent Cloud segment, which is expected to receive support from recent investments in AI, with the company forecasting $21.7-22.0B in sales. The key question for Google is how a mild recession will affect the company's advertising revenue, and Amazon is facing challenges in its cloud and retail sales segments. Investors will also be keen to see Meta's plans for AI and guidance improvement from recent cost-cutting measures. The Nasdaq is in the correction phase, trading within a narrow zone, and a break above the local top could expose 13720.