Tech Giants Apple and Amazon Brace for Earnings

In an environment where investors are uncertain about the economic outlook, the results from the two largest tech and consumer companies will get renewed attention.

Amazon and Cloudy Weather

With cloud computing accounting for most of Amazon's profitability, AWS is likely to be the key focus for investors when the company reports after the close on Thursday. Cloud services have been facing hurdles recently, and the hope is that the demand for more capacity for AI might help reverse the situation. Unlike its rivals Alphabet and Microsoft, Amazon hasn't as aggressively entered the AI market. And those rivals saw mixed results in this sector, which could be a warning sign for Amazon. The earnings call could be an opportunity to woo investors by bringing up AI.

Amazon has a high bar to beat, as analysts expect a large earnings jump to $0.35 from the -$0.20 reported last year. This is despite a relatively small increase in Revenue to $131.5B. The company has been in a substantial cost-cutting push this year, cutting up to 27K jobs. On the plus side, this quarter included the Prime Day event, which saw the largest-ever single-day sales. The focus now turns to guidance for the third quarter.

Apple's Handhelds Could be Facing Headwinds

The smartphone market has seen falling demand, as recently illustrated by Qualcomm's earnings. In May, Foxconn, Apple's largest supplier, saw a dramatic drop in sales for iPhone components. While the tech space has benefited from AI, the cost of living crunch appears to be putting consumers off from replacing their phones, potentially dragging on Apple's premier product. On the other hand, there is one market where sales have not only been steady but have increased: China. The question for Apple investors is whether that demand can offset general weakness elsewhere.

When it reports earnings after the market close on Thursday, Apple is expected to see earnings drop to $1.19 and sales slow to $81.7B. That would be the third consecutive quarter of earnings decline. But investors might be more interested in the outlook, as the company has suspended formal guidance since the pandemic. The June quarter is typically the company's softest in terms of performance, with the third quarter picking up pace ahead of the holidays. The focus is likely on September and secondary on when the new products are launched.

Key Takeaways

The earnings reports from Apple and Amazon will receive heightened attention from investors. For Amazon, the focus is on its cloud computing arm, AWS, as cloud services have faced recent obstacles. The hope is that the demand for AI capabilities will help improve the situation. Meanwhile, Apple's earnings have been on a decline, particularly in the smartphone market, where falling demand and cost concerns are affecting sales. However, China has shown steady or increased demand for Apple products. Investors are eager to see the company's outlook, as formal guidance has been suspended since the pandemic. Overall, the focus is on future performance and the release of new products.