With Microsoft, Alphabet, Amazon and Meta Platforms all slated to report earnings this coming week, investors are turning their attention away from bank earnings to Big Tech.
That's because just a handful of large-cap tech stocks powered the S&P 500's gains during the first quarter despite banking turmoil, uncertainty about the Federal Reserve's plan to stabilize prices and recession fears.
Companies including Facebook-parent Meta Platforms, Nvidia, Microsoft and Google-parent Alphabet surged at the beginning of this year, with that trend accelerating last month when large-cap tech names became havens for investors. The tech-heavy Nasdaq Composite is up over 15% this year.
But if they report disappointing results, warn of headwinds or give investors any other reason to sell, those stocks could start trending down — and so could the broader equity market.
The S&P 500's rally has already started to peter out somewhat. The benchmark index closed 0.1% lower last week, after investors waded through mixed earnings reports and economic data that revealed a complicated picture of the economy's health.
So, what will investors be on the lookout for?
Guidance will be of utmost importance for traders watching for signs that the economy could be headed for a recession, and which companies will be able to weather it. That's been a key theme since the beginning of earnings season, as continued uncertainty about inflation, the Federal Reserve's plans to tame it and the possibility of recession loom over Wall Street.
Another major theme for tech earnings is the race toward artificial intelligence.
The pressure on tech companies to develop their AI units has grown rapidly since ChatGPT entered the market in November. Since then, Meta, Alphabet and Microsoft have expressed their intent to strengthen their presence in the AI space. So have other tech firms like IBM, Amazon, Baidu and Tencent.
While some tech leaders, including Elon Musk, have warned of possible repercussions from AI, investments — including from the Tesla chief executive himself — have abounded.
Investors will also be looking for signs that cost-cutting measures, including mass layoffs, have helped pad the company's bottom lines.
Tech companies began sizing down their workforces last year in an effort to save costs after over-expanding during the Covid pandemic to keep up with stratospheric growth, driven by low interest rates and consumer trends that shifted as Americans stayed home.
Wall Street last year began favoring companies that prioritized returning cash to shareholders rather than spending it, after the Fed's ramp-up of interest rates. That preference is unlikely to change this year, especially as the economy is expected to weaken.
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