‘Big Tech’ Earnings Review: ETFs in Focus
Since late July, five major tech companies from the United States released their earnings reports. Among them, Amazon AMZN, Facebook-parent Meta META and Google-parent Alphabet GOOGL delivered impressive results, garnering positive reactions from investors, while Apple AAPL and Microsoft MSFT disappointed investors. Let’s delve a little deeper.
Inside Big Tech Earnings & Guidance
On Aug 3, Amazon crushed both lines expectations and issued upbeat guidance. Shares surged 8.4% after hours. Amazon’s quarterly earnings of $0.63 per share beat the Zacks Consensus Estimate of $0.34 per share. Amazon posted revenues of $134.38 billion, which topped the Zacks Consensus Estimate by 2.16%. For the third quarter, Amazon expects sales of between $138 billion and $143 billion. Analysts were expecting revenue of $138.25 billion, according to Refinitiv, as quoted on CNBC. The guidance reflects the strength of Amazon’s 48-hour Prime Day discount event, held in July.
On Aug 3,Apple reported fiscal third-quarter results that beat Wall Street soft expectations for both earnings and sales, thanks to stronger services sales that grew 8% year over year. Overall sales still dipped 1% year over year. Apple’s earnings of $1.26 per share beat the Zacks Consensus Estimate of $1.19 per share while Apple’s revenues of $81.8 billion surpassed the Zacks Consensus Estimate by 0.54%. Revenues in the company’s iPhone, Mac, and iPad lines were all down from a year earlier. Apple shares dropped about 1.8% after hours on Aug 3.
After the closing bell on Jul 26, Facebook’s parent company Meta reported solid second-quarter 2023 results, wherein it outpaced revenue and earnings estimates. Adjusted earnings per share came in at $2.98 (up 16% year over year), topping the Zacks Consensus Estimate of $2.87. Revenues came above the estimated $30.9 billion. The company posted its first double-digit revenue growth since 2021, boosted by the artificial intelligence (AI) craze. Further, Meta Platforms issued upbeat revenue guidance for the current quarter. Shares surged post earnings.
On July 25, Alphabet’s second-quarter 2023 earnings of $1.44 per share beat the Zacks Consensus Estimate by 9.1%. The figure grew by 19% year over year. Net revenues, excluding total traffic acquisition costs or TAC, was $62.07 billion, which surpassed the consensus mark of $60.24 billion. The figure rose 8% from the year-ago quarter’s level. Shares surged about 6% post releasing earnings.
In late July, Microsoft, however, depressed investors this season despite beating estimates on both lines. The company provided a downbeat revenue outlook for the current quarter. No wonder, shares slumped just after reporting earnings. Earnings per share came in at $2.69, outpacing the Zacks Consensus Estimate of $2.54. Revenues grew 8.4% year over year to $56.2 billion, edging past the consensus estimate of $55.4 billion.
ETFs in Focus
These big tech stocks have heavy exposure to technology, communications, and consumer ETFs.Apple and Microsoft – both laggards – are exposed to pure tech stocks, while the other three fall in other categories. No wonder, Microsoft and Apple-heavy ETFs underperformed other concerned funds since late July.
Apple & Microsoft-Heavy Technology ETFs
Technology Select Sector SPDR Fund XLK — Down 2.8% Since Jul 25
Vanguard Information Technology ETF VGT — Down 2.7%
Meta & Alphabet Heavy Communication ETFs
Communication Services Select Sector SPDR Fund XLC — Up 2%
Fidelity MSCI Communication Services Index ETF FCOM — Up 2%
Amazon-Heavy Consumer ETFs
ProShares Online Retail ETF ONLN — Up 2.5%
Vanguard Consumer Discretionary ETF VCR — Down 0.9%
Is the ETF Approach Better to Bet on Big Tech Stocks?
Meta, Microsoft, Amazon, and Alphabet are all about AI. Hence, it would be great to bet on all these big tech stocks at one go through the basket approach. But then, the full AI story will take time to come into fruition. Hence, the basket approach appears to be safer as the mode minimizes stock-specific risks. Apart from the AI growth prospects, the financial strength of the group is also robust.
In the event of Fitch Ratings’ recent credit downgrade of the United States from AAA to AA+, discussions about companies’ and countries’ creditworthiness have been triggered. In this context, the Big Tech group emerges as a winner, with Microsoft holding a perfect AAA credit rating, while Alphabet and Apple hold ratings of AA+. Amazon, however, has a rating of AA. These stocks fall into the category of the highest-rated S&P 500 companies.
Amazon.com, Inc. (AMZN): Free Stock Analysis Report
Apple Inc. (AAPL): Free Stock Analysis Report
Microsoft Corporation (MSFT): Free Stock Analysis Report
Technology Select Sector SPDR ETF (XLK): ETF Research Reports
Alphabet Inc. (GOOGL): Free Stock Analysis Report
Vanguard Consumer Discretionary ETF (VCR): ETF Research Reports
Fidelity MSCI Communication Services Index ETF (FCOM): ETF Research Reports
Vanguard Information Technology ETF (VGT): ETF Research Reports
Communication Services Select Sector SPDR ETF (XLC): ETF Research Reports
ProShares Online Retail ETF (ONLN): ETF Research Reports
Meta Platforms, Inc. (META): Free Stock Analysis Report
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Zacks Investment Research
This article originally appeared on Zacks
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