US Tech Stocks Focused More on Second Half Earnings Than Q2 Results

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] Although U.S. tech stocks posted solid earnings in the second quarter of this year, stock prices have been lackluster. This is because the market is paying more attention to second-half earnings rather than Q2 results.

According to Shinhan Investment Corp. on the 7th, the U.S. Q2 earnings season is concluding with five consecutive quarters of earnings surprises. The combined net profit of the S&P 500 exceeds market expectations by 16.1%, and the earnings surprise ratio (the percentage of companies surpassing consensus EPS) reaches 87%.

Despite record-breaking earnings, the stock price reaction has been muted. Companies with EPS exceeding market expectations saw their stock prices fall by 0.7% around earnings announcements, while those missing expectations dropped by 1.3%. Researcher Cho Jongmin of Shinhan Investment analyzed, "Concerns that growth rates will slow after peaking in Q2, combined with the burden from accumulated gains, seem to have weighed on the market."

Leading U.S. tech companies (IT sector + e-commerce, interactive media, entertainment industries) are not immune to this situation. Combined sales and net profits of tech companies exceeded consensus by 4.1% and 20.6%, respectively, with an earnings surprise ratio approaching 92%. Despite these impeccable results, the average stock price of companies reporting strong earnings fell by 2.0%. Researcher Cho explained, "Interactive media and IT hardware showed large earnings surprises, while semiconductors, communication equipment, and electronic equipment & components posted surprises below the overall market. However, the market reacted positively to the results of semiconductors, communication equipment, and electronic equipment & components, whereas the stock prices of interactive media and IT hardware underperformed." Amazon, which lowered its guidance, saw its stock price plunge. Cho added, "It appears that the market's focus is more on earnings after Q3 than on the current results."

While optimism toward tech stocks is expected to continue, attention to sectoral differentiation is necessary. Researcher Cho stated, "Although tech stocks are not free from concerns about slowing corporate profit growth, the medium- to long-term optimism regarding earnings improvement should be maintained. Corporate investment and private consumption are expected to continue an upward trend in the second half. Tech stocks are at the center of this economic cycle recovery, which is positive for sales."

As Q2 tech stock profit margins approach historic levels, concerns exist about whether high profit margins can be sustained. However, visible sales improvements, platform effects, low interest rates, limited employment growth, and the possibility that supply chain disruptions have peaked are expected to constrain cost burdens, allowing tech stocks to maintain high profit margins in the second half.

The growth advantage of tech stocks is expected to continue. Researcher Cho said, "Despite stock price weakness around earnings announcements, the overall second-half earnings outlook (consensus) for the tech sector is being revised upward. Many companies are expressing confidence in their second-half earnings, so rather than being caught up in market concerns about a peak out, attention should be paid to the sustainability of structural growth."

However, there are expected to be temperature differences across sectors. Estimates for semiconductors, IT hardware, and interactive media are being revised upward, while those for e-commerce and entertainment are being revised downward. Researcher Cho said, "There are clear differences in the outlook for the second half across sectors. It is time to carefully examine the realities and illusions of Q2 earnings by sector."

This content was produced with the assistance of AI translation services.