Technology stocks fired a warning shot on Friday ahead of earnings

Equities 5 minutes to read
Peter Garnry

Chief Investment Strategist

Key points

  • US tech and communication sectors faced declines, while financials and utilities rose, signalling a shift towards value stocks over momentum stocks.

  • NVIDIA's stock plummeted 10% despite strong AI chip demand, influenced by concerns over increased competition and overvaluation risks.

  • Key earnings to watch this week include Tesla, Meta, Caterpillar, Microsoft, and Alphabet with market focus on revenue growth, cost-cutting measures, and performance metrics, impacting market sentiment.

 

Massive signal in technology stocks on Friday

The US session on Friday was brutal with information technology and communication services sectors down 3.1% and 2% respectively while financials and utilities were up 1.4% and 1.5% respectively. It was a classic move of risk-on in value stocks and risk-off in momentum stocks which is typically a sign of a potential bigger rotation beginning. We came into Q2 being negative tactically on the technology and real estate sectors which have so far proven to be correct as these two sectors are the two worst performing sectors this quarter. We also highlighted energy and financials as two sectors with a positive outlook. The energy is the only sector that is up this quarter.

Nvidia was the biggest drag on the S&P 500 Index negatively impacting the index four times more than the second worst contributor Meta. Nvidia shares were down exactly 10% taking the stock down to levels seen in late February. What made the move even more interesting was the fact that TSMC, the biggest chip manufacturer in the world, announced on Thursday a pretty optimistic outlook for AI chips expecting 50% annualised growth over the next five years.

Demand for AI chips remains strong and the outlook for Nvidia looks good, but equities are about changing expectations. As we have recently told clients Tesla plunge from its late 2021 high of more than 65% reflect forces that were not adequately priced in the valuation. The market back then priced Tesla for 25-30% global market share domination including sustaining higher operating margin than the industry. Two years later competition is eroding Tesla’s profit margin and demand has hit an air pocket.

A similar situation could happen to Nvidia. That in two years from now revenue and profits have doubled but the share price is down. The three biggest risks for Nvidia are increased competition, which we know is coming from many different directions, supply chain disruptions around Taiwan, and electricity production that cannot keep up with AI datacentre demand.
Nvidia share price | Source: Saxo

Must watch earnings this week: Tesla, Meta, Caterpillar, Microsoft, and Google

This week, the Q1 earnings season kicks into gear with the main question being whether earnings releases can break the negative sentiment in equities this month. The five most important earnings this week in terms of their expected market impact are listed below including the key things investors will focus on.

  1. Tesla (Tuesday, aft-mkt): Analysts expect first revenue decline since the pandemic and a significant EBITDA decline of 10% as multiple price cuts are eroding profitability. Tesla is losing its technology stamp in the equity market and Elon Musk will potentially hype the upcoming Robotaxi event on 8 August, but the move is risky as Musk has multiple times not delivered on key delivery targets. The higher for longer bond yields due to inflation are also not helping on either demand or input costs. Tesla recently laid off 10% of its global workforce.

  2. Meta (Wednesday, aft-mkt): Analysts expect another blowout quarter delivering 26% YoY revenue growth and 70% YoY growth in EBITDA as cost cutting and booming online ad market are expanding profit margins. Generative AI has improved ad targeting on its network, but the losses piling up in its Reality Labs segment may be the sour grape in Q1 as it could weigh down on free cash flow.

  3. Caterpillar (Thursday, 12:30 CET): Analysts expect -2.7% YoY revenue growth and -15% YoY growth in EBITDA as the global construction industry is facing mixed demand signals. Strong infrastructure spending and an elevated backlog are positives going into the Q1 earnings release while the more cyclical parts of the business related to mining and China are still weak. Energy and transportation might be a bright spot.

  4. Microsoft (Thursday, aft-mkt): Analysts expect 15% YoY revenue growth and 21% YoY growth in EBITDA as strong AI demand is fuelling its cloud business due to strong demand for Azure workloads. The adoption rate of its hyped Copilot feature in Office could be a must watch metric for investors.

  5. Alphabet (Thursday, aft-mkt): Analysts expect revenue growth of 14% YoY trailing Meta and 45% YoY growth in EBITDA driven by strong pricing in global online ad markets. Google’s cloud business should also be a key driver of Q1 results as we expect to see strong demand for generative AI workloads. YouTube performance has in previous quarters been another bright spot for investors and will likely attract attention again in Q1.

The list below highlights are the major earnings releases this week:

  • Monday: China Mobile, Verizon Communications, SAP

  • Tuesday: PepsiCo, Danaher, Visa, Tesla, Texas Instruments, Novartis, General Electric, Phillip Morris, Deutsche Boerse

  • Wednesday: Meta, IBM, ServiceNow, Thermo Fisher Scientific, DSV, Kone, Orange, Eni

  • Thursday: Kweichow Moutai, Airbus, AstraZeneca, Caterpillar, Union Pacific, Microsoft, Alphabet, T-Mobile, Intel, Merck & Co, Comcast, Neste, Sanofi, BNP Paribas, Dassault Systemes, STMicroelectronics, BASF, Deutsche Bank, Keyence

  • Friday: Chevron, Exxon Mobil, AbbVie, TotalEnergies

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.