The article also discusses the companies' AI initiatives and cloud spend, which are expected to be major themes in the earnings reports. Microsoft is devoting 13% of its Capex to AI, while Alphabet's Search and Cloud performance are driving revenue growth expectations higher. Meta is seeing strong advertiser demand, with almost all of its advertisers using at least one of its AI-driven products. Amazon's AWS, which contributes nearly 70% of Amazon's operating income, is expected to inflect back to growth. The article concludes by stating that the companies' earnings reports will be closely watched due to the significant influence these companies have over the indexes.
Key takeaways:
- Earnings season has officially begun with Big Tech companies such as Microsoft, Google, Meta, and Amazon set to report next week. These companies have seen their dominance over the broader indexes increase this year, with their combined weighting in the Nasdaq 100 reaching 44.8%.
- Microsoft is expected to see a noticeable acceleration in revenue growth this year, with Azure and AI being key areas to watch. Alphabet is also expected to see revenue growth due to resilient Search growth, strong Cloud performance, and the integration of AI into its services.
- Meta's Q3 EPS estimate surged during the quarter, with revenues expected to rise by more than 20%. Amazon is expected to see a slight acceleration in revenue growth through the end of the year, with AWS being a major focus of the upcoming report.
- The major theme heading into Big Tech’s earnings week is heightened expectations stemming from surging AI interest and cloud spend stabilizing. Microsoft’s AI initiatives are expected to drive revenue acceleration over the next four quarters as the company devotes more than 13% of its Capex to AI.