Tech Stocks Fuel Market Surge as Tech Giants Smash Earnings Expectations: Insights From Latest Earnings Reports of Meta, Amazon and Apple

For the fourth quarter, Meta reported adjusted earnings per share (EPS) of $5.33 on revenue of $40.11 billion, surpassing analysts' projections of $4.94 adjusted EPS on $39.01 billion revenue. This is a significant increase from the $32.2 billion revenue reported in the same quarter of the previous year.

Additionally, Meta announced a $50 billion increase to its stock buyback program and initiated a quarterly dividend of $0.50 per share. For the current quarter, the company expects revenue between $34.6 billion and $37 billion, which is above the anticipated $33.6 billion forecasted by analysts.

Meta's advertising revenue for the fourth quarter was $38.7 billion, exceeding the expected $37.8 billion. Additionally, the company reported having 2.11 billion daily active users on Facebook, surpassing Wall Street's estimate of 2.07 billion. The company also noted that ad impressions increased by 21% compared to last year, although the average price per ad decreased by 2%.

Meta has declared its intention to issue a quarterly dividend for the first time, with a payout of 50 cents per share scheduled for March 26. This decision follows a significant increase in the company's cash and equivalents, which grew to $65.4 billion at the end of 2023 from $40.7 billion the previous year. Additionally, Meta announced a $50 billion share buyback program. Investors have welcomed the dividend announcement, interpreting it as an indication of the company's maturation.

Some investors have questioned the company's hefty investments in the metaverse, which is costing the company billions of dollars a quarter. Tasked with transforming Zuckerberg's metaverse vision into tangible outcomes, the unit reported a loss of $4.65 billion, an increase from the $4.3 billion loss recorded in the same timeframe the previous year. Despite this, Reality Labs exceeded revenue forecasts, generating $1.07 billion against the projected $812 million.

But Meta's Reality Labs efforts have taken a backseat in the minds of investors amid increased investments in generative AI. In January, Zuckerberg announced in an Instagram Reels post that the company's long-term strategy was to develop general artificial intelligence and make it open source. In 2024, Meta expects its expenses to total $94 billion-$99 billion, with the company noting, among other things, that payroll costs will rise this year as it adds more staff in higher-cost, technical roles amid its push into AI features.

However, demand in China was weaker than expected, and Apple suggested to analysts that their iPhone sales forecasts for the current quarter might be too high.

Apple's sales in China fell by 13% to $20.8 billion in the fiscal first quarter ending December 30, significantly below the $23.5 billion that analysts had anticipated. This represents Apple's weakest December quarter in China since the beginning of 2020. Apple's CFO, Luca Maestri, expressed dissatisfaction with the sales decline during an interview with Bloomberg Television, acknowledging China's competitive market.

The company is facing challenges such as reduced consumer spending in China, increased competition, and expanding restrictions on foreign technology by the Chinese government. Huawei Technologies Co. has made a comeback with a new smartphone lineup featuring China-made chips, following a U.S. blacklisting that had previously impacted its market presence. This resurgence led to a 36% increase in Huawei's shipments in the fourth quarter, spurred by a surge of nationalistic support from Chinese consumers, as reported by IDC.

KeyBanc analyst Brandon Nispel believes that Apple's stock may be "range-bound" and perform similarly to the Nasdaq index at best, due to strong competition in China from companies like Huawei and Xiaomi, a premium valuation, and limited growth prospects. Nispel maintains a Sector Weight rating on Apple. Given the weaker-than-expected guidance, Nispel suggests that earnings and sales forecasts for Apple may need to be revised downward.

Apple's first-quarter results were boosted by iPhone sales, which reached $69.7 billion, surpassing estimates. However, the company may not see the same level of benefit in the upcoming quarter, leading to Wall Street's concerns. Apple's CFO, Luca Maestri, explained that the previous March quarter benefited from replenishing channel inventory and satisfying pent-up demand, which added about $5 billion to the revenue. Without this one-time boost, Apple anticipates its total revenue and iPhone revenue for the current March quarter to be similar to the previous year.

Amazon's cloud division, Amazon Web Services (AWS), reported a 13% increase in revenue year over year for the fourth quarter, matching analysts' expectations. The company attributes this growth to an increased adoption of cloud services for artificial intelligence. Following the release of OpenAI's ChatGPT chatbot, many tech companies, including AWS, have been quick to develop and update products to leverage the interest in generative AI. AWS launched a chatbot named Q for developers and non-technical users and introduced the Trainium2 chip designed for training AI models in the fourth quarter. AWS's revenue for the quarter was $24.20 billion, aligning with forecasts and showing an acceleration from the 12% growth observed in the previous quarter. AWS now represents 14% of Amazon's overall revenue.

In Q4 2023, Amazon reported a 27% increase in advertising sales, reaching $14.6 billion. The second season of "Thursday Night Football" on Prime Video saw a 24% rise in viewership year-over-year, with a notable 14% growth among the 18-to-34-year-old audience. Additionally, Amazon launched Rufus, a generative AI-powered conversational shopping tool, with the expectation that generative AI will contribute to generating "tens of billions of dollars" in revenue in the coming years.

Amazon is bullish on its growing generative AI ambitions, which has applications across e-commerce, advertising, AWS and beyond.