Microsoft is expected to deliver revenue growth of 9%, which would mark the third consecutive quarter of rising revenue growth in a sign that the US software industry is holding up well. Microsoft’s EBITDA is expected to be $28.1bn vs $25bn a year ago. Key focus points for investors are the approved acquisition of Activision Blizzard catapulting Microsoft into a giant in gaming and uptake of its Copilot offering which is expected to be the first real test of a large-scale commercial generative AI application.
Alphabet is expected to report gross profit of $36.2bn down from $37.9bn a year ago as the online advertising is still experiencing a hangover from the boom period during the pandemic when large amount of advertising dollars were moved to online. Key focus points are any news on Google’s generative AI offering, cloud computing growth and lastly YouTube revenue and subscription growth compared to Netflix.
This week’s most important earnings are listed below. Besides Microsoft and Alphabet earnings tonight, we will also closely be watching earnings releases from Meta tomorrow and Amazon on Thursday as these two US technology companies will have a large impact on equity sentiment. Friday’s earnings releases from Exxon Mobil and Chevron are also going to be interesting given the mega acquisition both oil majors have recently done.
- Tuesday: Texas Instruments, Danaher, Verizon Communications, Microsoft, Alphabet, Visa, Coca-Cola, Novartis, General Electric
- Wednesday: Meta Platforms, IBM, Thermo Fisher Scientific, T-Mobile
- Thursday: TotalEnergies, Linde, UPS, Amazon, Intel, Mastercard, Merck & Co, Comcast, Honeywell, Bristol-Myers Squibb
- Friday: Exxon Mobil, Chevron, AbbVie, Sanofi
US earnings season is on average showing good signs
The US earnings season is in full swing with 18% of S&P 500 companies having already reported with 45% of those companies having positively surprised on revenue and 25% having disappointed against estimates on revenue. The revenue growth is currently 5.5% from the companies that have reported which is a significant increase from the 0.95% increase in Q2, but it is our expectation that the realized revenue growth in Q3 will come down closer to the Q2 level as more companies report earnings. The revenue growth rate is 4.7% if we exclude the financial sector which is right now experiencing higher revenue growth due to higher interest rates. The revenue growth surprise against estimates is currently 0.8%. The biggest revenue surprise has come from Freeport-McMoRan that reported last week revenue 6.4% above estimates. More interestingly the copper miner reiterated what everyone can see, that copper prices are still too low to justifying making new investments, which is a sign that copper prices will likely rise over time as electric vehicles adoption accelerates.
The highest revenue growth rates have come from sectors such as consumer discretionary, consumer staples, health care, and financials in line with the strong and robust figures we are getting on retail sales. On the negative side, sectors such as energy, materials, and information technology have so far reported overall negative revenue growth with materials being the worst driven by large declines from Nucor (-16%), Steel Dynamics (-19%), and Packaging Corp of America (-9%) as packaging prices are still declining as inflation is still suppressing volume growth in the economy. US steel prices are down 15% from a year ago.
One of the biggest disappointments in the US earnings season have so far been Tesla which missed on revenue and has seen its quarterly revenue stagnating for three consecutive quarters as the EV-maker has lowered its prices multiple times to offset the negative impact on demand from rising interest rates. Tesla’s CEO Elon Musk sounded the most downbeat in many years on the outlook for Tesla and EV-maker is facing increased competition, EU probe into its Chinese manufacturing (exported into the EU), and labour union pressures in Germany.