Financial Trading Blog
Tech Giants Report Earnings Amid AI Disruption
After Monday's decline in tech stocks, markets hope for positive results from tech giants to shore up prices.
Cloudy Horizons for AI
Microsoft's earnings were expected to focus on the Cloud, with its Azure unit showing strong growth due to the demand for companies to migrate data online and the surging need for storage and processing power to fuel AI. However, following the introduction of DeepSeek, which disrupted markets this week, investors are keen to hear from Microsoft's executives about their new Chinese rival and any potential financial implications for the company. Microsoft has invested billions in leading-edge technology and is renowned for its partnership with ChatGPT developer OpenAI. Its substantial capital inflow into tech has been contingent on growth expectations from AI.
Microsoft will report its fiscal Q2 earnings on Wednesday after the markets close, with analyst consensus at an EPS of $3.02 per share, up from the $2.93 per share reported in the prior year. Revenue is expected to have increased by almost 11% to reach $68.8 billion. Even before DeepSeek's arrival, investors were concerned about Microsoft's spending on AI (with around $80 billion planned for this year alone) and whether the company could recoup its investment. Ironically, this could shift focus to Azure, the company's main revenue growth driver, which has started to slow down over the last couple of quarters. The company is also expected to be impacted by a strong dollar. Convincing investors during the upcoming earnings and subsequent conference call might require an effort.
Tesla: Growing, Not Electrifying
The world's premier EV manufacturing company is unlikely to be much affected by the AI disruption, although Tesla does have some exposure. However, it could encounter challenges from a similar source. China, Tesla's second-largest market, faces an economic slowdown and trade tensions with the US could hinder its ability to meet its ambitious growth targets. Tesla already reported that its deliveries for the last quarter did not match its target, despite a new record. For the first time ever, it saw an annual decline in sales.
Tesla will also report earnings after the close on Wednesday, with a consensus for EPS to come in at $0.77 per share, a relatively modest increase from the $0.7 reported previously. Sales are expected to increase a similar 7.8% to $27.1 billion. Traders are likely to be interested in how the company plans to address upcoming challenges, such as the elimination of subsidies for EVs in the US. Analysts, however, seem optimistic about Elon Musk's relationship with Donald Trump in facilitating regulatory approval for future projects, which might enable the company to retain and improve on its 60% gain since the election.
Tesla Breakout Imminent?
Tesla has been trading in a tight range after correcting from its record peak of $490 per share, forming an ongoing or complete flag pattern. A bullish flag typically signals a continuation of the prevailing trend, which has been the case for Tesla. If the stock can advance past the local swing formed at $440, it could resume its upward trajectory towards records and beyond. However, if the price slides under $375, it could signal the continuation of the flag towards the lower boundary of the pattern near $300, with intermediate supports at $360 and $325.
Source: SpreadEx / Tesla
Key Takeaways
While Microsoft and Tesla face challenges from the AI disruption and macroeconomic factors, their upcoming earnings reports and guidance will be closely watched. Traders will look for insights into their strategies to steer headwinds stemming from China, amongst other challenges, and maintain growth momentum.
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