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In this week’s Q1 tech earnings reports, investors look for signs of staying power amid a recession-threatened economy.
Tech earnings will make up a significant portion of corporate Q1 earnings this week, in the second week of quarterly reports. Investors will be paying close attention to Amazon (NASDAQ: AMZN), Microsoft (NASDAQ: MSFT), and Alphabet (NASDAQ: GOOGL) in a packed week. Investors may also take cues from these corporate reports to determine the fiscal landscape as the Fed battles inflation.
Big tech Q1 earnings this week will also draw attention away from the banking sector, which has dominated earnings reports in the past week. The mainstream financial industry is at its lowest point since the 2008 meltdown, following collapses including Silicon Valley Bank (SVB).
Projected Tech Q1 Performances Suggest Pared Down Earnings in Light of Bright Start to Year
Tech stocks surged at the beginning of the year and maxed out last month after becoming a safe haven for investors fleeing the banking crisis. This ascent is also evident in the tech-heavy Nasdaq Composite, which is up by more than 15% this year. However, investors remain restrained in their expectations and believe an underwhelming performance could impact the broader equity market.
Recent FactSet data showed quarterly S&P 500 earnings are expected to decline 6.2% through April 21st. This decline is more apparent when combining already reported results with analysts’ expectations. A 6.2% quarterly decline would be the most significant earnings drop since 2020’s Q2 31.6% setback.
Results from Amazon, Microsoft, Alphabet, and Meta Platforms (NASDAQ: META) could shape investor guidance going forward. Furthermore, most investors will look out for signs that these tech companies can thrive in an economy headed toward a recession. These signs include updates on artificial intelligence (AI) efforts and ongoing cost cuts. Generally tech earnings for Q1 are important as Q2 begins.
AI Developments & Downsizing Post-Covid
Tech players have been under increasing pressure to develop their AI units since ChatGPT entered the market last November. The OpenAI chatbot has exploded in popularity, demonstrating its applicability in everyday use cases. However, although tech giants like Microsoft, Meta, Amazon, and Chinese mainstay Tencent look to strengthen their AI visibility, Tesla (NASDAQ: TSLA) harbors some reservations. The electric vehicle manufacturer warns of the ‘intrusive’ and ‘destructive’ repercussions of sentient AI technology on humankind. Instead, Tesla’s CEO Elon Musk seeks to create an AI tech called TruthGPT that offsets those threats. Musk described the initiative as a “maximum truth-seeking” initiative, saying TruthGPT would right the wrongs of the “politically correct” ChatGPT. In his assessment of the type of AI technology presently making inroads into numerous sectors and industries, the Tesla boss said:
“AI is more dangerous than, say, mismanaged aircraft design or production maintenance or bad car production in the sense that it has the potential – however small one may regard that probability, but it is not trivial – it has the potential of civilizational destruction.”
Tech companies have also resorted to downsizing for better earnings. Several of these companies over-expanded during the lockdown to better contain the exponential growth experienced from consumer trends.