Stakes are high as US tech giants report

Coca-Cola Co (NYSE:KO) has added some fizz to a largely lacklustre US earnings season as attention turns to tonight’s results by two of Wall Street’s Magnificent Seven.

The US drinks giant forecast underlying revenues growth between 10% and 11% in 2023, up from previous guidance of between 8% and 9%. The earnings per share range is now 13-14% at a constant currency level, rather than 9%-11% seen previously.

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Shares have fallen sharply in recent weeks amid the deteriorating US outlook but rallied to their highest level since early October after today’s better-than-expected update.

About 40% of the S&P 500 index by market value is reporting this week, with Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) in the spotlight after tonight’s closing bell. They will be followed by Facebook owner Meta Platforms (NASDAQ:META) and Amazon (NASDAQ:AMZN) on Wednesday and Thursday night respectively.

The stakes are high as the US technology sector has seen 12-month forward earnings expectations rise significantly more than the S&P 500 index so far this year.

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Tonight’s updates will be the first from the AI space as investors look for guidance on how technology companies outside of NVIDIA Corp (NASDAQ:NVDA) are monetising these favourable trends. When Microsoft last updated investors, it said that “AI sales” would be gradual rather than explosive. 

Peter Garnry, Saxo Bank’s head of equity strategy, expects Microsoft to post a third consecutive quarter of rising revenue growth in a sign that the US software industry is holding up well. 

For Google owner Alphabet, he expects a decline in gross profit as the online advertising market continues to experience a hangover from the boom period in the pandemic. Key areas of focus include Google’s generative AI offering, cloud computing growth and YouTube revenue and subscription growth compared to Netflix.

One of the biggest disappointments of the results season so far has been Tesla Inc (NASDAQ:TSLA), with shares down 16% in their worst weekly performance since last December after the electric car maker missed revenue and earnings expectations. 

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Overall, UBS expects the so-called Magnificent Seven of leading Wall Street companies to announce earnings per share growth in the region of 30%.

Around a fifth of the S&P 500 by market cap had reported up until last night, with just below 70% ahead of expectations. That’s slightly weaker than the historical average since 2015. 

Guidance from companies on their profit outlook for the final quarter of the year is also down nearly 2%, weaker than prior quarters.

Overall, the Swiss bank expects earnings growth for the S&P 500 to be flat this year, followed by a rise of 9% next year. 

It added today: “While we are neutral on equities overall, and we are least preferred on the US market, we do see upside over the medium term.” UBS’s June 2024 and December 2024 targets remain 4,500 and 4,700, respectively, up from 4,224 at the end of last week.