Can Tesla and Alphabet Shine Amid Global Headwinds?

As the tech season kicks off, two of the Mag 7 stocks find themselves under intense scrutiny, as concerns surrounding tariffs and global economic growth have cast a shadow.

Tesla and the Tariff Vulnerability

The pioneering electric vehicle manufacturer is poised to release its earnings report after the market close on Tuesday. Investors are seeking signs of optimism following a "disastrous" first-quarter deliveries report, which revealed a 13% year-over-year decline in deliveries and production, coming in near the lower end of analyst estimates. The company faced planned partial production shutdowns for factory retooling during the period. However, concerns persist about potential brand damage stemming from CEO Elon Musk's activities outside the company, exacerbated by boycotts in the US and reports of declining registrations in Europe and China.

The consensus among analysts is that Tesla will report EPS of $0.42 per share, an 8% decrease from the previous year, with sales projected to decline by 1% to $21.2 billion. Analysts have been revising their expectations downward over the past month, reflecting a 36% share price drop in the first quarter, one of the worst performances in the market.

Tesla's challenges have been compounded by reports that tariffs could impact the supply of critical components for the Cybertruck. Recent news suggests a three-month delay in the production of the more affordable Model Y. It is unclear what the company could announce to reassure investors. However, earlier in the month, a rumour emerged that Musk would step back from his role in DOGE, which was followed by a 5% gain in the share price.

Google Cruising in the Clouds

Alphabet, the parent company of the world's most popular search engine, Google, will release its earnings report after the market close on Thursday. Analysts are generally optimistic about the company's ability to weather the current conditions, as it is unlikely to be directly affected by tariffs. However, its heavy reliance on advertising revenue could be hit if the economy experiences a downturn. A recent note from Piper Sandler warned that global ad spending this year could be reduced by 18%, with discount e-commerce sites like Temu and Shein, which have been hit by the Trump Administration's removal of the de minimis exception on low-value imports, being substantial ad spenders.

Alphabet's second-most valuable business, cloud computing, could be affected by tariffs due to the company's significant expenditure on imported infrastructure for its data centres. The company has announced plans to invest $75 billion in expanding its AI infrastructure this year. Investors will closely monitor any changes in the company's spending guidance for the year.

The consensus among analysts is that Alphabet's earnings are expected to rise to $2.03 per share, up from $1.89 per share a year ago, with revenue increasing by 10.8% to $89.2 billion.

Potential H&S at Risk of Breakdown

The recent break below the $147 support has opened the door for further declines towards the $100 level, with an intermediate level at $120. However, if the support holds firm, the shoulder of a potential head and shoulders pattern could emerge, paving the way for a possible rally towards $190 if $170 gives way.

Source: SpreadEx / Alphabet

Key Takeaways

Tesla and Alphabet face challenges posed by tariffs and global uncertainties, with their earnings reports closely scrutinised for insights into profitability and growth. On the one hand, Tesla grapples with production issues and potential brand damage. On the other hand, Alphabet's diversified business model may provide a buffer against economic headwinds.