At a time when the US stock “Seven Sisters” is being sold off, Wall Street is preparing for next week's wave of earnings reports from tech giants.

The “Seven Sisters” — Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla — are expected to see profits soar 38% in the first quarter, according to data from a media think tank. If these seven companies are excluded, the profits of the remaining companies in the S&P 500 index are expected to fall by 3.9%.

Quincy Krosby, chief global strategist at LPL Financial, said:

Investors are looking forward not only to strong results, but also to strong guidance. Any disappointing performance by the tech giants that published financial reports could plunge this week's oversold market deeper into the oversold region.

Overwhelmed by expectations that the Federal Reserve will delay interest rate cuts, the total market value of the “Seven Sisters” evaporated to 950 billion US dollars this week, setting a record high. Nvidia's market capitalization loss was the most severe. This week, it evaporated 300 billion US dollars in total, surpassing AMD's market value. The “Seven Sisters” stock price plummeted across the board. Tesla's stock price dropped the most, plummeting more than 14% this week.

The always optimistic Wedbush analyst Dan Ives said that his “extensive field research” gave him great confidence that AI “has begun to enter the next stage of growth,” that is, moving from semiconductors to software.

Ives believes that the quarterly report “will be a major catalyst for technology stocks” and may push US technology stocks up 15% by the end of 2024. He said that AI-related spending will account for less than 1% of the IT budget in 2023 and will rise to 8% to 10% by 2024.

Technology stock earnings report had a bad start

The financial reports of tech giants for the first quarter will still revolve around AI. However, prior to that, Asmack, TSMC, and ultra-microcomputers had already sent unfavorable signals.

Dutch lithography giant Asmack's revenue and profit both declined in the first quarter, while lowering its revenue forecast for the second quarter. Financial reports showed that the total value of new orders in the first quarter fell far short of expectations, with a sharp drop of 61% over the previous quarter.

TSMC, the world's largest chip manufacturer, reported mixed results for the first quarter. Benefiting from strong AI demand, TSMC's net profit in the first quarter increased for the first time in a year, but lowered the growth forecast for the global wafer processing industry.

“Ten times a year” ultra-microcomputer said in a brief press release on Friday that it will announce the results for the third fiscal quarter on April 30. However, the company broke the previous practice of providing initial results, which raised concerns among investors and frantically reduced their holdings of the stock. US stocks closed on Friday, and ultra-microcomputers plummeted 23%, hitting a new low of more than two months.

Next week, these four tech stocks are worth watching

Tesla will announce its financial results for the first quarter of 2024 ending March 31 next Tuesday, kicking off the earnings season for tech giants.

Barclays analyst Dan Levy predicts that Tesla will have its first negative free cash flow since the first quarter of 2020, and gross margin after deducting regulatory credit may fall to 14.6%, down 2.6 percentage points from the previous month — which means Tesla's automobile profitability will return to the level soon after the 2017 Model 3 was launched.

In terms of delivery, Levy predicts Tesla's delivery volume will remain flat in 2024, mainly considering that Tesla is still facing an inventory backlog: there were about 100,000 unsold cars at the beginning of the year, and the inventory increased by 45,000 to 50,000 units in the first quarter.

Meta Platforms will announce its financial results for the new quarter in the early hours of Thursday morning.

Benefiting from AI's more accurate advertising, Meta's stock price has risen nearly 40% this year. Dan Niles, founder of Niles Investment Management, believes that Meta's valuation is still not very high. The future price-earnings ratio will be more than 20 times, and revenue growth will be in the middle of 10%.

Meanwhile, Meta is still benefiting from the 2023 “Year of Efficiency” program, which prompted it to lay off more than 20% of its workforce, but AI engineers with seven-digit annual salaries and increased spending on AI hardware will reduce profit margins.

Niles believes that if Zuckerberg wants to push up Meta's share price again, he can shut down the Reality Labs metaverse division, which loses more than 10 billion dollars a year.

The usage of the AI Copilot software will be the biggest highlight of Microsoft's quarterly report. The software charges $30 per user per month. Analysts believe Microsoft may not provide too many details, but the tone is expected to be very optimistic.

Another highlight is the Azure cloud business. The analysis predicts that its revenue will grow by 28%, the same as in the fourth quarter of last year.

Microsoft will release its earnings report in the early hours of Friday morning. Morgan Stanley believes AI could help double Microsoft's profit per share by fiscal year 2029.

Currently, the hardest thing to determine is Google's parent company Alphabet, whose stock price has increased by a total of 12% this year. Google will also release earnings on Friday.

Some people are worried about whether Google's web searches will be impacted by chatbots, including our own Gemini. Currently, Gemini does not have ads embedded. But like Meta, Google should have strong ad demand this year as the Olympics and elections approach.

Additionally, Amazon is expected to release its first quarter earnings report at the end of April, and Apple and Nvidia will release earnings in early and mid-May, respectively.

In the future, AI's focus will shift from “shovel sellers” to “gold diggers”

If you count OpenAI's launch of ChatGPT in November 2022 as the starting point, the generative AI transformation has continued for nearly 17 months.

The biggest beneficiaries so far have been companies known as “shovels sellers,” such as chip companies such as Nvidia, AMD, and Micron.

However, in the long run, if AI is to transition from the “money burning” stage to the “value creation” stage, software companies are essential. As “gold diggers” in the AI revolution process, software companies will largely determine the success or failure of AI commercialization.

Ives said that his “extensive field research” gave him great confidence that AI “has begun to enter the next stage of growth,” that is, moving from semiconductors to software.