What Wall Street is looking for in mega-cap companies

  • Wall Street is gearing up for the peak of earnings season this week.
  • Megacap names that make up the Magnificent Seven will start reporting, starting with Tesla.
  • Investors are looking to Elon Musk to ease fears after a rough patch, while AI more broadly will be at the forefront.

Investors are gearing up for what has become the biggest event of earnings season in recent quarters, turning their attention to mega-cap companies unveiling their first-quarter results.

Despite the recent dips, investors are hoping that big tech giants can keep up the momentum, with artificial intelligence taking center stage as the technology continues to captivate Wall Street.

“I think this is a ‘coming out’ moment for tech in the coming weeks,” Dan Ives, senior equity analyst at Wedbush Securities, told Bloomberg TV last Thursday, adding that this earnings period will be a “flex the muscles “. moment” for tech companies and a “golden buying moment” for investors.

Excitement is high as investors look for the next catalyst that could fuel new gains for stocks amid a downturn and a sell-off fueled by still-hot inflation and geopolitical turmoil in the Middle East.

This is what Wall Street is focusing on as the first class of mega-cap titans prepare to report.

Tesla – April 23

Elon Musk’s car company is causing investors a lot of stress when it comes to profits, with a litany of woes on the radar, including a plunge in car sales in the first quarter, controversy over Musk’s $56 billion pay package, and recent layoffs that have left the company is cutting more than 10% of its staff.

The stock is down 40% this year, and a slew of banks have downgraded their outlook for the stock as it shifts from a more affordable vehicle model to initiatives like robotaxis and full self-driving technology.

However, Wedbush’s Dan Ives said he still remains optimistic but emphasized that Musk must address key issues on next week’s earnings call to prevent investors from fleeing the stock.

That includes explaining the decline in growth in China, providing clear guidance on growth, margins and cash flow, confirming the development status of Model 2 and detailed plans for AI.

Alphabet — April 23

Bank of America is bullish on the Google parent company’s stock price, saying in a note Thursday that limited vacancies indicate cost control, but analysts foresee 13% upside potential above Wall Street growth estimates of 11%, thanks to robust performance from YouTube.

Additionally, the bank highly values ​​Google’s robust search performance and sees it as the second catalyst for a recovery in AI sentiment from the March lows, especially with the Google I/O developer event still on the horizon.

“AI use poses long-term competitive risks for Google, but by 2024 Google (and its peers) will likely see improvements in AI monetization,” the note said.

Meta – April 24

Meta recently released its latest AI chatbot, Llama 3, flexing its muscles with performance against industry benchmarks with improved reasoning skills.

JPMorgan analysts led by Doug Anmuth warned that Mark Zuckerberg’s business could be headed for a slowdown after the first quarter, driven by harsh comparisons and a perceived lack of new catalysts compared to 2023.

“We believe slower growth is well anticipated and likely factored into META’s undemanding multiple,” Anmuth wrote.

Even though generative AI still dominates investor talk, the buzz is shifting to recognizing early wins in coding efficiency and cost savings rather than new revenue streams and product upgrades, the analysts said.

META is an exception, where the implementation of AI in the ad stack is seen as a key contributor to growth,” the note said.

Microsoft – April 25

Microsoft is seen by Wall Street as a big AI player set to make profits, as the company prepares to triple its GPU count by 2024, aiming to deploy 1.8 million AI units by the end of the year chips.

Bank of America is optimistic about the tech giant’s April 25 earnings results, raising its earnings forecast by 1%, fueled by strong performance in the Azure and Microsoft 365 segments.

Meanwhile, the bank kept its price target unchanged at $480, indicating a potential upside of 20% from the share price late Friday.

Despite a hefty expected free cash flow ratio of 37x by 2025, the bank believes Microsoft’s value will remain stable thanks to the rapid growth of the AI ​​sector, which is expected to reach $944 billion by 2027.

Amazon – April 30

“Amazon is our best idea, even though it has the most ownership in our reporting,” JPMorgan analysts wrote in the note.

The bank expects Amazon Web Services to be a bright spot for the first quarter.

“Relaxation of optimizations, new workload deployment, favorable comps and very early GenAI monetization should support the AWS acceleration through 2024,” Anmuth said.