Blogs -Big Tech Stocks: Q3 Earnings Preview

Big Tech Stocks: Q3 Earnings Preview


October 22, 2023

author

Beth Kindig

Lead Tech Analyst

This article was originally published on Forbes on Oct 19, 2023,10:47pm EDT

Earnings season has officially kicked off, with Big Tech headlining a busy week next week: Microsoft and Google report on Tuesday, followed by Meta on Wednesday, and Amazon on Thursday. Big Tech stocks have seen their dominance over the broader indexes soar this year, with the Magnificent 7 reaching nearly 30% of the S&P 500’s weighting, higher now than at its peak in 2022 and up from 20.0% at the beginning of this year.

In the Nasdaq 100, the combined weighting of Big Tech stocks is even higher, at 44.8%. The Nasdaq 100’s rebalance earlier this year in July dropped the overall weighting of the group from 55% to ~38%, but already, we’ve seen a 6 percentage point increase in just over one quarter.

This outsized influence that the Magnificent 7 has over the indexes is just one of the many reasons that Big Tech earnings reports next week will be some of the most closely watched this season. EPS estimates for the group will be in focus – estimates have all pushed higher during Q3, with Amazon, Meta, and Nvidia seeing some of the largest increases, and investors will likely be assessing how the group stacks up against heightened expectations.

Beth Kindig Big Tech Earnings Twitter Post

View Post: Click Here

Sign up for I/O Fund's free newsletter with gains of up to 221% - Click here

Microsoft: AI to Help Drive A ‘Noticeable Acceleration’ This Year

For Microsoft, a noticeable acceleration is expected this year, with revenue growth accelerating back to the low-double digits through FY25. For the quarter, revenue growth is estimated to be about +8.8% YoY to $54.5 billion, with EPS forecast to grow +12.6% to $2.65. Revenue growth is currently forecast to return to +10% to +12% growth over the next three quarters through calendar Q2 2024.

Microsoft Quarterly Revenue

Source: SEEKING ALPHA

Azure and AI will be two of the key areas to watch, given the overlap between the two. Microsoft is devoting 13% of Capex to AI in 2023, the most among the top cloud service providers.

Azure’s growth in the prior quarter was 27% in constant currency, including about 1% from AI services, a decline from 31% two quarters ago. Excluding currency impacts, growth slowed to 26% from 27%, hinting at a possible inflection point back to higher growth.

Azure's Quarterly Revenue Growth, YoY

Source: MICROSOFT

Microsoft also stands to benefit from its consumption pricing model for OpenAI’s APIs, given that the APIs are all new workloads for Azure this year. Microsoft said last quarter that it had “great momentum across Azure OpenAI Service” with around 100 customers added each day, bringing total customers to more than 11,000.

In addition, commercial subscriptions for Office 365’s Copilot AI assistant are expected to start on November 1, at a $30 per month per user price point, opening up a potential multibillion-dollar revenue opportunity over the next few years, with the first insights likely to come next quarter.

Every Thursday at 4:30 pm Eastern, the I/O Fund team holds a webinar for premium members to discuss how to navigate the broad market, as well as various stock entries and exits. We offer trade alerts plus an automated hedging signal. The I/O Fund team is one of the only audited portfolios available to individual investors. Learn more here.

Alphabet: Search & Cloud Momentum to Continue

Like Microsoft, Alphabet is expected to see revenues reaccelerate to the low double-digits through Q2 2024, a marked acceleration from forecasts at the beginning of the year. Revenue for Q3 is forecast to rise +9.6% YoY to $75.7 billion, with EPS growing +36.0% YoY to $1.44.

Alphabet Quarterly Revenue/EPS Growth, YoY

Source: SEEKING ALPHA

The combination of resilient Search growth, strong Cloud performance, and the integration of AI into Alphabet’s services is driving revenue growth expectations higher. Forward revenue growth rates for the next two quarters have risen upwards of 2 percentage points since the beginning of the year.

Alphabet Revenue Growth Forecast Change, Q1 to Q3

Source: SEEKING ALPHA

Search and Other advertising growth is picking up, rising 5.4% QoQ to $42.6 billion, as Google begins “building the next major evolution in Search” with AI integrations driving a higher ROI. As the I/O Fund highlighted previously, Alphabet’s Search “has proven resilient because it provides advertisers an attractive ROI on their ad spend. Looking ahead, Search Generative Experience, [Google’s generative AI-powered search tool], will improve advertisers’ ROI and will likely provide Alphabet additional pricing power. This will also improve their retail vertical” – a trend already surfacing, with Q2’s Search growth driven by retail alongside SGE’s launch.

Google Cloud will also be under the microscope, after posting two consecutive quarters of operating profitability, with operating margin reaching almost 5% last quarter. Revenue for Cloud stabilized at 28% growth YoY in both Q1 and Q2, as the platform remains a leading choice for training generative AI models. As enterprises start to think more deeply about AI and integrating AI across their organizations, Google Cloud stands to benefit in multiple ways – via its large language models such as Bard, its generative AI offerings including the recently launched Duet AI, offering AI model training with multiple AI supercomputers, and by “expanding our total addressable market and winning new customers,” according to CEO Sundar Pichai.

However, Google is in the midst of its antitrust trial, with regulators concerned that Google has been keeping an illegal monopoly on search. Google is reportedly paying Apple nearly $20 billion per year to remain the default search engine on Apple’s devices, are at the forefront of the case.

For a deeper dive into Alphabet and how the Search giant is entering its Year of Execution, read more here.

Meta: Ad Impressions to Drive Revenue Growth

Meta’s Q3 EPS estimate surged during the quarter, rising $0.60 from an estimate of $2.98 on June 30 to $3.58 by September 30. Meta returned to positive growth in Q1 this year, with revenues up +2.6%, and has since seen revenue growth accelerate – Q3 and Q4 are both expected to see YoY revenue growth up more than +20%.

Meta also has seen improvements in operating efficiency this year. Operating margin has expanded 9 percentage points in just two quarters, from 20% in Q4 to 29% in Q2. Revenue growth reaccelerating to more than +20% through the end of the year is set to drive EPS growth in the triple-digits as operating margin expands further.

Meta Quarterly Revenue/EPS Growth, YoY

Source: SEEKING ALPHA

Q3 is expected to be a banner quarter setting Meta up for a strong end-of-year finish: Meta is estimated to post 119% EPS growth to $3.58, with revenues expected to rise 20.6% to $33.4 billion. As an advertising-driven company, with more than 98% of revenues coming from ads, the mix of ad impressions and ad pricing will determine growth. So far this year, ad impressions have served as the primary driver, rising 26% YoY in Q1 and 34% YoY in Q2, offsetting weak pricing, which declined 17% YoY in Q1 and 16% YoY in Q2.

Meta Ad Impression and Ad Pricing Growth, YoY

Source: I/O FUND

Over the past four quarters, advertising spend looks to have bottomed out, recovering from Q4’s (-22%) decline, while ad impressions continue to accelerate past 30%. Impression growth has been driven by APAC and Rest of World, which, as lower monetizing regions, have contributed to that decline in pricing. AI is only just beginning to scratch the surface in optimizing ads and increasing ROI for advertisers, and Meta is seeing “strong advertiser demand,” with almost all of its advertisers “using at least one of [its] AI driven products.” Meta is continuing to release new AI advertising products, such as Meta Lattice for predicting ad performance and AI Sandbox for generative AI-powered ad generation.

Amazon: AWS Growth in Focus

Amazon is expected to see a slight acceleration in revenue growth through the end of the year, with Q3 and Q4 forecast to see revenues increase 11.4% and 11.7% respectively, following Q2’s 10.9% growth. EPS estimates for Q3 point to +114% growth to $0.60, as operating margins for North America are expected to continue a 5-quarter streak of improvement.

Amazon Quarterly Revenue Growth, YoY

Source: SEEKING ALPHA

AWS will also be a major focus of the upcoming report, as its revenue growth rate has declined for 7 straight quarters, from 40% growth in Q4 2021 to just12% growth in Q22023. Operating income has declined for three consecutive quarters but is on the verge of inflecting back to growth.

AWS Revenue/Operating Income Growth, YoY

Source: AMAZON

While AWS generates just ~17% of Amazon’s total sales, its influence down the line is increasingly large. In Q2, AWS contributed nearly 70% of Amazon’s $7.7 billion of operating income; on a TTM basis, AWS generated $21.1 billion in operating income, or 119% of Amazon’s total $17.7 billion, weighed down by losses on the e-commerce side.

Given that outsized impact on Amazon’s bottom line, an inflection in both AWS’ revenue growth and a pivot back to growth in operating income will help drive more confidence in Amazon’s high EPS growth rates over the next couple years – earnings are forecast to grow 43% and 41% in FY24 and FY25, respectively. However, should AWS fail to show that inflection in revenue growth and post a fourth consecutive quarter of declining operating income, higher EPS estimates over the next three to four quarters could come under pressure.

Beth Kindig Twitter Post

Watch the Video: Click Here

Conclusion:

Heightened expectations stemming in part from surging AI interest and cloud spend stabilizing are the major theme heading into Big Tech’s earnings week next week. Meta and Google are forecast to see the strongest revenue accelerations over the next two to three quarters, while Amazon is expected to see a small bump up with AWS’ growth a prime factor. Microsoft’s AI initiatives are expected to drive revenue acceleration over the next four quarters as the company devotes more than 13% of its Capex to AI.

We have buy levels we are targeting for Big Tech, which we share with our premium research members each week as the stocks progress. We believe our target buy levels will set us up for gains in FAANG stocks when the next bull cycle begins. We provide in-depth macro and individual stock analysis so that readers can better understand why we buy/sell. In this market, we frequently take gains. You can learn more here including information on our weekly webinar series, where we review our positions live and discuss some of the top stocks of the week.

Every Thursday at 4:30 pm Eastern, the I/O Fund team holds a webinar for premium members to discuss how to navigate the broad market, as well as various stock entries and exits. We offer trade alerts plus an automated hedging signal. The I/O Fund team is one of the only audited portfolios available to individual investors. Learn more here.

I/O Fund Equity Analyst Damien Robbins contributed to this report.

Recommended Reading:

Gains of up to 2,160% from our Free Newsletter.


Here are sample stock gains from the I/O Fund’s newsletter --- produced weekly and all for free!

2,160% on Nvidia

675% on Bitcoin

*as of Mar 27, 2025

Our newsletter provides an edge in the world’s most valuable industry – technology. Due to the enormous gains from this particular industry, we think it’s essential that every stock investor have a credible source who specializes in tech. Subscribe for Free Weekly Analysis on the Best Tech Stocks.

If you are a more serious investor, we have a premium service that offers lower entries and real-time trade alerts. Sample returns on the premium site include 3,430% on Nvidia, 915% on Chainlink, and 1,020% on Bitcoin. The I/O Fund is audited annually to prove it’s one of the best-performing Funds on the market, with returns that beat Wall Street funds.

beth
head bg

Get a bonus for subscription!

Subscribe to our free weekly stock
analysis and receive the "AI Stock: 5
Things Nobody is Telling you" brochure
for free.

More To Explore

Newsletter

Chart showing retail investor losses compared to institutional investors, highlighting market volatility and the impact of high-frequency trading.

The Harsh Truth: Retail Investors Take the Brunt of Market Losses

Retail investors face significant disadvantages in the stock market, often underperforming institutional investors by a wide margin. Studies show that high-frequency trading firms dominate market acti

March 28, 2025
Futuristic AI data center featuring NVIDIA’s GB200 Superchip, designed for AI superclusters, high-performance computing, and generative AI training with up to 27 trillion parameters.

NVIDIA’s GB200s for up to 27 Trillion Parameter Models: Scaling Next-Gen AI Superclusters

Supercomputers and advanced AI data centers are driving the AI revolution, enabling breakthroughs in deep learning and large-scale model training. As AI workloads become increasingly complex, next-gen

March 21, 2025
NVIDIA Blackwell Ultra GPU unveiled at GTC 2025, revolutionizing AI and HPC with unprecedented efficiency and power.

NVIDIA Blackwell Ultra Fuels AI & HPC Innovation, Efficiency and Capability  

NVIDIA’s latest Blackwell Ultra GPU, unveiled at NVIDIA GTC 2025, is transforming AI acceleration and high-performance computing (HPC). Designed for the “Age of Reasoning,” these cutting-edge GPUs del

March 21, 2025
Nvidia CEO Jensen Huang discusses AI market dominance at GTC 2025, addressing demand concerns and future growth projections.

Nvidia CEO Predicts AI Spending Will Increase 300%+ in 3 Years

Nvidia has traversed choppy waters so far in 2025 as concerns have mounted about how the company plans to sustain its historic levels of demand. At GTC, Huang threw cold water on many of the Street’s

March 20, 2025
AI data centers are driving the AI revolution, but their soaring energy demands pose sustainability challenges. With power consumption projected to rise 160% by 2030, data centers are integrating brown, clean, and renewable energy sources. Goldman Sachs predicts 40% of new capacity will come from renewables, but can solar, wind, and nuclear sustain AI’s 24/7 operations? Explore how hyperscalers are evolving their energy strategies to meet growing AI demands.

AI Data Center Power Wars: Brown vs. Clean vs. Renewable Energy Sources

AI data centers are at the heart of the AI revolution, but their massive energy demands raise critical questions. With power consumption expected to grow 160% by 2030, data centers are turning to a mi

March 19, 2025
Natural gas pipelines supporting AI data centers as energy demand surges, with Texas and Louisiana emerging as key hubs for AI infrastructure growth.

Why Gas Pipelines Are the Unsung Heroes of AI Data Center Expansion

Natural gas is emerging as the backbone of AI data center expansion, with demand expected to reach up to 6 billion cubic feet per day by 2030. As AI-driven infrastructure surges, data centers are turn

March 19, 2025
Alibaba’s AI revenue growth accelerates, but remains significantly lower than U.S. tech leaders like Microsoft, highlighting China’s competitive AI landscape.

Alibaba Stock: China Has Low AI Revenue Compared to United States

Alibaba’s AI-driven cloud revenue is surging with six consecutive quarters of triple-digit growth. However, its AI earnings remain a fraction of what U.S. tech giants report, with Microsoft leading at

March 14, 2025
By 2030, AI data centers may consume 9% of U.S. electricity as GPU power usage surges, with Nvidia’s GB200 reaching 2,700W. To ensure sustainability, data centers are adopting long-term PPAs and exploring high-efficiency energy sources like nuclear and SOFCs.

Unlocking the Future of AI Data Centers: Which Fuel Source Reigns Supreme in Efficiency?

AI data centers are projected to consume 9% of U.S. electricity by 2030, driven by soaring GPU power demands, with Nvidia’s GB200 reaching 2,700W—a 300% increase over previous generations. As AI racks

March 13, 2025
Tesla faces declining deliveries in 2024 and mounting challenges in 2025, with sharp sales drops in China and Europe, margin pressures, and shifting growth targets.

Tesla Has a Demand Problem; The Stock is Dropping 

Tesla’s growth faces major hurdles in 2025 after its first annual decline in deliveries. Sales are plunging in key markets like China and Europe, while margins remain under pressure. Optimism around r

March 07, 2025
Stock market data with AI and crypto trends highlighted. I/O Fund provides institutional-grade stock analysis, offering insights on AI, semiconductors, and Bitcoin. Stay ahead with expert research and real-time trade transparency.

I/O Fund’s Top 10 of 2024

The digital world is overloaded with noise—millions of posts, comments, and messages flood the internet every minute. For investors, this creates a challenge: filtering out distractions to focus on hi

March 06, 2025
newsletter

Sign up for Analysis on
the Best Tech Stocks

https://bethtechnology.cdn.prismic.io/bethtechnology/e0a8f1ff-95b9-432c-a819-369b491ce051_Logo_Final_Transparent_IOFUND.svg
The I/O Fund specializes in tech growth stocks and offers in-depth research for Premium Members. Investors get access to a transparent portfolio, a forum, webinars, and real-time trade notifications. Sign up for Premium.

We are on social networks


Copyright © 2010 - 2025