For Immediate Release
Chicago, IL – October 30, 2023 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Amazon AMZN, Microsoft MSFT, Alphabet GOOGL, Apple AAPL and Nvidia NVDA.
Q3 Earnings: Tech Sector in Focus
A big contributing factor to the market’s loss of momentum over the last three months is rising interest rates and the ‘higher-for-longer’ view of Fed policy. The interest rate issue is an even more significant headwind for Tech stocks, given their perceived ‘long duration’ status.
You can see this in the chart below, which shows the three-month performance of the S&P 500 index and the Zacks Tech sector. The chart also shows the performance of Amazon, Microsoft and Alphabet over the same period.
As you can see here, the Zacks Tech sector (blue line at the bottom; down – 11.5%) has lagged the broader market (red line, second from the bottom, down -9.7%), with Microsoft (green line, down -2.7%), Amazon (orange line, down -3.9%) and Alphabet (purple line, down -8.7%) doing better.
The relative outperformance of Microsoft and Amazon is a reflection of these mega-cap companies’ earnings power that was reconfirmed in their quarterly results. Alphabet’s results were no less impressive, but the market is putting a premium on momentum in cloud and AI. Alphabet appears to be fumbling a bit on that front.
The ‘Big 7 Tech Players’ group is on track to achieve +49% earnings growth in 2023 Q3 on +12.2% higher revenues.
Strong Q3 results from these mega-cap Tech players, of which only Apple and Nvidia have yet to report results at this stage, are a big reason why the aggregate Q3 earnings growth rate for the S&P 500 index has turned positive in recent days.
Q3 earnings for the S&P 500 index on a blended basis, meaning combining the actual earnings that have come out with estimates for the still-to-come companies, is now expected to increase +1.2% from the same period last year, with equal growth (+1.2%) expected in revenues. If we exclude the contribution from these ‘Big 7 Tech Players’, Q3 earnings for the remainder of the index would be down -5.7% from the same period last year.
As we all know by now, the group’s phenomenal boost in 2021 partly reflected pulled forward demand from future periods that was in the process of getting adjusted last year and this year. As you can see above, the expectation is for the group to resume ‘regular/normal’ growth next year, but a lot of that is contingent on how the macroeconomic picture unfolds.
Beyond these mega-cap players, total Q3 earnings for the Technology sector as a whole are expected to be up +18.6% from the same period last year on +4% higher revenues.
As was the case with the ‘Big 7 Tech Players,’ the overall Tech sector has been dealing with the pulled forward revenues and earnings during Covid over the last many quarters. In fact, earnings growth for the Zacks Tech sector turned positive only in the preceding quarter (2023 Q2) after remaining in negative territory during the four quarters prior to that.
This big-picture view of the ‘Big 7 players’ and the sector as a whole shows that the worst of the growth challenge is shifting into the rearview mirror.
The Q3 Earnings Season Scorecard
Including all the earnings reports through Friday, October 27th, we now have Q3 results from 246 S&P 500 members, or 49.2% of the index’s total membership. Total Q3 earnings for these companies are up +6% from the same period last year on +2.1% higher revenues, with 79.3% beating EPS estimates and 64.2% beating revenue estimates.
We have another super busy reporting docket this week with more than 1100 companies reporting Q3 results, including 159 S&P 500 members. In addition to the aforementioned Apple, which reports after the market’s close on Thursday.
Companies are comfortably beating consensus EPS estimates but coming up a bit short on the revenue beats percentages. This becomes clearer when we look at the ‘blended’ beats percentage for Q3, which shows the proportion of these 246 index members that have beaten both EPS and revenue estimates.
The Earnings Big Picture
Looking at 2023 Q3 as a whole, the expectation currently is of S&P 500 earnings growing by +1.2% from the same period last year on +1.2% higher revenues. This would follow the -7.1% decline on +1.1% higher revenues in 2023 Q2. Please note that earnings growth has turned positive for the first time after staying in negative territory for three back-to-back quarters.
The earnings growth picture for the quarter improves further on an ex-Energy basis (+6.6% vs. +1.2%).
Look at current expectations for next year and the year after to understand the disconnect between the reality of current bottom-up aggregate earnings estimates and the seemingly never-ending worries about an impending economic downturn. That said, most economic analysts have been steadily lowering their recessionary odds in recent months.
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>>The Earnings Picture Continues to Improve
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