Big Tech Q2 Earnings Season... Growth Rate Slowdown Expected

Starting with Tesla, Alphabet, and MS on the 23rd
Apple, Amazon, Meta, and Nvidia earnings announcements

[Image source=AP Yonhap News]

The earnings reports for Q2 from big tech companies, which have led the rally in the U.S. stock market, will begin in earnest from the end of this month. Some voices express concerns about an unexpected 'earnings shock' as their growth slows down.

Starting on the 23rd (local time) with Tesla, Alphabet, and Microsoft (MS), Apple (24th), Amazon (25th), Meta Platforms (31st), and Nvidia (August 15th) will sequentially announce their Q2 earnings.

Investors seem to be paying close attention to whether the earnings of these companies, which have driven the Nasdaq and S&P 500 indices to record highs fueled by the AI boom, can once again push the stock market higher. The year-to-date gains for the Nasdaq and S&P 500 indices are 24.29% and 17.38%, respectively, both reaching record highs on the same day, August 5th.

The Wall Street Journal (WSJ) analyzed that amid the significant rise in U.S. large-cap indices driven by optimism about AI, the earnings reports from big tech over the coming weeks will be a crucial gauge for the market's direction, as they need to provide earnings and guidance that justify their high valuations. This is because a small number of tech companies have led this year's rally in the U.S. stock market, and their future earnings are already largely priced into their stock prices.

Meanwhile, warnings have emerged on Wall Street that big tech growth may have slowed. German-based Deutsche Bank expects the average Q2 earnings growth rate for big tech to slow to 30% year-over-year, down from 38% in Q1. Binky Chada, Deutsche Bank's U.S. equity and global strategist, said, “Given how much big tech has lifted the market so far, the potential for a summer rally is limited due to the slowdown in growth stock earnings.”

If big tech reports an 'earnings shock,' the market impact is expected to be significant. According to Goldman Sachs, growth stocks with high valuations that miss market expectations have underperformed the market by 32 percentage points. This is twice the underperformance compared to companies with lower multiples than growth stocks. Jim Smigiel, Chief Investment Officer at SEI Investments, explained, “The bar is set too high for innovative industries and companies in the current market environment.”

Notably, an unusual downgrade of Nvidia's investment rating from buy to neutral has drawn attention on Wall Street. Nvidia's stock price rose 240% last year and 161% so far this year. In a report on the 5th, New Street analyst Pierre Ferragu stated, “Further gains will be realized only under an optimistic scenario where conditions materially improve after 2025,” adding that “there is not yet confidence in this scenario,” explaining the reason for the downgrade.

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