Chief Investment Strategist
Summary: The performance of the US technology sector will be closely watched this week as the largest companies in the S&P 500 report their earnings. Investors will be looking for signs that the sector is still strong, despite the recent economic downturn. Companies like Microsoft, Alphabet, Amazon, Apple, and Meta are expected to report strong earnings growth, but the focus will be on their outlook for the future. In addition to the US tech giants, there are also some important earnings releases from European companies this week. Investors will be watching Novo Nordisk and ING Groep closely as they are expected to report strong earnings growth as well, but they are also facing some headwinds. The overall market sentiment will hinge on whether the companies report strong earnings and positive outlooks.
The Q4 earnings season is well under way with 25% of the companies in the S&P 500 Index having reporting earnings. The preliminary conclusion so far is that companies are delivering earnings growth high enough to satisfy market expectations. S&P 500 earnings growth is so far 8.2% y/y against arguably a weak comparable as Q4 2022 became a kitchen-sink quarter with excessive cost-cutting charges and weak banking. Nasdaq 100 companies have done even better with earnings growth currently estimated at 31.7% y/y in Q4, but with the largest US technology earnings on tap this week that earnings growth could change dramatically. In other words, when this week is over we have a much better understanding of the underlying growth and more importantly the outlook for these technology companies.
Given the S&P 500 Index is back to all-time highs expectations have also risen and as such this earnings season and especially this week is important for sustaining the current momentum. Overall, we remain positive on earnings growth and that the probability is low for the global economy slipping into a recession, and our view is that the Q4 earnings season will support this view.
The list below shows the top 30 market cap companies reporting earnings this week and thus are the most important earnings releases in terms of how they can impact sentiment in the broader equity indices.
Microsoft is the stock with the highest index weight in S&P 500 and thus the most important earnings release to watch this week. Analysts expect revenue of $61.1bn up 16% y/y and EBITDA of $30.7bn up from $25.9bn a year ago. Microsoft is riding the investment boom in technology, something we wrote in our equity note Investment boom in technology and earnings review last week. Key things to watch in Microsoft’s result is Azure revenue growth (consensus is 27% in constant currency), outlook and comments on AI-workloads growth, and more colour on the closed Activision Blizzard acquisition that closed on 13 October.
Alphabet (Google) has increased net revenue growth for three straight quarters hitting revenue growth of 11% y/y in Q3. We expect Alphabet to maintain momentum and a broader market perspective their outlook on the global advertising market is a key information for investors as online advertising a pro-cyclical forward looking indicator on the economy as it says a lot about companies’ forecasts for future demand. Cost reductions and higher net revenue growth are expected to boost EBITDA to $33.8bn up from $23.4bn a year ago translating into 44.4% growth. Alphabet is likely going to see positive dynamics around its YouTube business and investors will anxiously await the cloud and AI figures as the sense is that Google is losing a bit of momentum to Microsoft.
Apple is expected to report revenue growth of 1% y/y and EBITDA of $42.3bn up from $38.9bn as the Services segment will bolster the business amid persisting headwinds in its hardware business (mostly iPhones) with Chinese figures likely to be weak. While the Services segment has been the bright spot for Apple for many years the recent changes due to EU regulation could create headwinds going forward. Investors will also carefully scrutinize any mentioning of the outlook for the Vision Pro AR/VR headset.
Amazon seems to have found its steady growth rate in the post pandemic period at around 11% which is also the expected revenue growth rate by analysts with EBITDA expected to hit $29.1bn up from $17.8bn a year ago helped by cost-cutting and a demand boom for its AWS computing power due to generative AI. Its advertising business is also expected to grow around 20%.
Meta has like Alphabet seen its revenue growth rate improving for three straight quarters although estimates indicate revenue growth could slow a bit in Q4 to 21.5% y/y. EBITDA is expected at $22.4bn up from $16.7bn as layoffs and the rebound in global advertising markets are paying off. However, everything is not bright skies for Meta with potentially advertising headwinds brewing in 2024 from Chinese based Shein and Temu as tensions continue between the US and China. Declining engagement on Meta’s Facebook platform might also begin painting a negative narrative.
Saxo has many clients in key markets such as Denmark and the Netherlands. The list below shows the key earnings to watch in those two markets.
Novo Nordisk is expected to Q4 revenue of DKK 63.2bn up 31% y/y and EBITDA of DKK 28.3bn up from DKK 19.2bn driven by the boom in its obesity care segment. As the chart below shows, the obesity drugs are seeing an insatiable demand boom with Q3 2023 segment revenue hitting DKK 12.3bn up from DKK 2.4bn in Q3 2021. Investors will focus on Novo Nordisk’s ability to ramp up production of GLP-1s, but also indications of future demand of obesity drugs given its positive impact on co-morbidities (heart disease). In the medium-term the market for obesity drugs is expanding so fast that obesity drugs from Eli Lilly are not seen as a headwind for growth at Novo Nordisk. Expectations are high and with the recent positive sentiment in ASML shares, Novo Nordisk is close to lose its position as the most valuable company in Europe, so the Q4 result on Wednesday is important for Novo Nordisk shares.
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