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Apple and Amazon Earnings Preview: Challenging Earnings Figures to Halt US Tech Stock Rally?

Apple and Amazon Earnings Preview: Challenging Earnings Figures to Halt US Tech Stock Rally?

Zain Vawda, Analyst
  • Apple Consensus Estimates of $1.16 a share on sales of $82.8 billion, a year-over-year decline of 11% in earnings with sales up less than 2%.
  • Amazon Consensus Estimates revenue for the quarter of between $116 billion and $121 billion, up between 3% and 7%.
  • Heavy Weighting on US Indices Could Affect the Recent Tech Stock Rally.

Trading Earnings Season: 3 Steps for Using Earnings Reports

Both Apple (AAPL) and Amazon’s (AMZN) earnings reports are due for release after the US closing bell today, which will be the last set of earnings reporting from the mega-cap tech firms for the second quarter.Apple has posted the strongest performance among the US big tech companies, with a 17% drop year-to-date, while Amazon shed 32% during the same period.

Apple (AAPL) Showing Vulnerability

In reporting March quarter results, Apple CFO Luca Maestri told investors to expect a $4 billion to $8 billion drag on sales from supply constraints in the June quarter, but the current thinking on the Street is that the actual impact will be at or below the bottom end of that range. Analysts polled by FactSet expect the Cupertino, California-based company to earn $1.16 a share on sales of $82.8 billion in its fiscal third quarter. That would translate to a year-over-year decline of 11% in earnings with sales up less than 2%.Bank ofAmerica Securities analyst Wamsi Mohan predicts that Apple will beat analyst estimates modestly with its June-quarter report. However, its guidance for the September quarter likely will drive Wall Street forecasts lower, he said.Given the recent rally in shares, we would not be surprised to see a transitory pullback on a weaker guide.”

Apple also continues to see some kinks in its supply chain, which may limit the availability of some of its next-generation devices. This coupled with a slowdown in China makes the Q3 estimates of particular interest, as the economy is catching up with Apple Inc. for the first time in a while. It is also worth noting that the second quarter is usually the end of the cycle for the older generation of Apple products, hence, buyers tend to wait and withhold their purchases for new product releases due in the third quarter; an indication that the outlook for the second half of the year might be positive.Apple shares are trading at around $152, down around 17% from a 52-week high of $182.94.

Apple (AAPL) Daily Price Chart – July 28, 2022

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Amazon (AMZN) Cloud Business Slowdown to Affect Earnings

The share price of Amazon has been under downside pressure after Walmart slashed its profit guidance recently due to softened consumer demand, which may lead to a similar occurrence for the e-commerce giant’s online sales in the second quarter. Rising costs of labor and shipments are also concerns that may have a negative impact on its profit margin despite an increase in its services. Its rising growth segment, the AWS cloud business may also be negatively affected by the macroeconomic headwinds.

The company has projected revenue for the quarter of between $116 billion and $121 billion, up between 3% and 7%. Anywhere in that range would be the company’s slowest growth quarter in more than 20 years. Amazon is projecting operating income to range from a loss of $1 billion to a profit of $3 billion. Street consensus estimates call for $119.3 billion in revenue, $1.8 billion in operating income, and profits of 14 cents a share.

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BofA Global Research analyst Justin Post wrote in a note previewing the quarter on Tuesday that this week’s Walmart earnings pre-announcement suggests potential gross margin headwinds for Amazon. He thinks the company will show progress on supply-chain issues and work down excess logistics capacity, but he sees some pressure on margins from consumers trading down to less discretionary items and potentially some moves by the company to clear out some Amazon-branded goods.

Amazon (AMZN) Daily Price Chart – July 28, 2022

Potential Effects on US Indices

Both Apple and Amazon are among the 10 largest components of the S&P 500 and US Tech (Nasdaq 100). The 10 biggest stocks make up 29.5% of the S&P 500’s market value. Apple has an index weighting of around 7.1% while Amazon on the other hand accounts for 3.7%. The US Tech 100 (Nasdaq) is even more heavily weighted with Apple accounting for 12.8% and amazon 6.31%, nearly 20% of the overall index.Because it's weighted by market cap, the largest stocks have a big impact on both the long-term performance and daily movement of the index.This means that investors should familiarize themselves with these 10 giant components to understand what drives the broader market.

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Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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