Tech Giants Brace for Trade War Impact

Major tech companies are preparing to report, with investors focusing on how they mitigate the impact of tariffs, which have led to rising costs and dampened consumer sentiment.

Projecting Confidence in the Middle of Uncertainty

Tech earnings are likely to be scrutinised not only for individual company performance but also for insights into how companies are adapting to the tariff situation and its effects on trade and consumer behaviour. Amazon, which has a broad consumer base and is heavily reliant on the Chinese supply chain for imports, will be scrutinised closely alongside Apple. Guidance from both companies will provide insights into how these two businesses are adapting to tariffs and whether consumers are absorbing the higher prices.

In terms of tech-specific issues, cloud and AI spending will once again be under the microscope, as these areas have been major drivers of stock market growth but have recently faltered. As the leading cloud computing provider, Amazon has benefitted from increased spending on AI infrastructure. Apple, on the other hand, has been utilising AI to boost sales of its handheld devices, and its earnings could indicate whether AI can drive revenue and sustain corporate AI spending levels. However, Bloomberg has called attention to potential over-optimism among analysts in their Q1 earnings projections, setting a relatively high bar for tech companies this earnings season.

What's in Store for Earnings

Both Apple and Amazon will report earnings after the market closes on Thursday. Amazon is expected to report a 40% increase in its EPS to $1.36 from $0.98, despite a slower 8.2% increase in sales to $155 billion. However, analysts warn that the company may be experiencing a short-term surge in buying as consumers try to get ahead of tariffs, which could be reflected in softer guidance. The cloud business is expected to be the star performer, growing at 17%, but recent reports suggest that the company will pause data centre expansion projects, which has raised concerns.

Apple is also expected to post an increase in its bottom line, albeit at a more modest rate, with EPS rising to $1.62 from $1.53 a year ago. Sales are also expected to have increased by 3.8% to $94.2 billion. The company is facing margin compression due to tariffs, but exceptions for electronics have provided some relief so far. Investors may discount prior performance (Q1 is typically weak for the company) and focus on management's plans to address tariffs, efforts to diversify production, and the associated costs. A guidance cut due to the trade wars is likely anticipated.

Amazon Potential Head-and-Shoulders

Amazon appears to have completed the neckline of a potential (sloppy) head-and-shoulders pattern, with the right shoulder expected to form near $230. In the short term, however, it still seems to be consolidating under $200 and above $160, with a higher break exposing the $200 and $207 levels and a lower break opening the door to $150 and even $120 if the descent continues.

Source: SpreadEx / Amazon

Key Takeaways

Apple and Amazon will report this week, although investors will also be interested in how effectively they are managing tariffs and the impact on operations and financial performance. Their ability to mitigate rising costs and keep consumer demand intact may be crucial factors in determining how their stocks perform going forward as trade tensions continue.