Analysts eye bumper profits for Meta and Amazon

Meta Platforms and Amazon will follow the stellar results of US tech giants Microsoft and Alphabet, with combined sales of up to $177 billion.

Facebook owner Meta is set to report its third-quarter earnings later on Wednesday, with Mark Zuckerberg’s company steering revenue from $32 billion to $34.5 billion and investors keeping a close eye on the group’s spending amid a expensive search for artificial intelligence and virtual reality.

On Thursday, Amazon is expected to continue its recovery from last year’s losses, with revenue between $138 billion and $143 billion and investors hoping for growth in its online stores and Amazon Web Services’ cloud businesses.

The pair will be the latest to report in a busy week for tech investors, after Microsoft posted a 27 percent rise in profits to £18.3 billion on revenues of £46.5 billion.

Google parent company Alphabet, meanwhile, reported 40 percent profit growth to £16.1 billion on sales of £62 billion.

But Alphabet fell 9 percent to a three-month low on Wednesday as its cloud business posted the slowest growth in almost a year.

Microsoft, on the other hand, rose 2.6 percent to a three-month high after beating expectations across the company, including its cloud division.

US tech giants took a hit last year as rising rates suppressed investor appetite, but confidence that the rate hike cycle is reaching its peak is generating new interest in the shares.

This year has also seen huge spending on AI across the industry, suggesting the technology will be the key driver of returns in the coming years. Investors, meanwhile, are keen to see companies keep rising costs under control.

Head of investments at Interactive Investor, which is this week waiving £3.99 per transaction fee on US shares for UK investors, Victoria Scholar said: ‘The US is home to many tech giants and has proven to be a major source of growth for investors . .

‘The heavy weighting towards technology stocks in the Nasdaq 100 and the S&P 500 means that the many earnings data are likely to have a significant impact on the US markets more broadly.

“Typically, earnings season brings a period of volatility for markets with much higher than normal gains and losses as traders and investors digest these quarterly scorecards.

‘After the ‘tech wreck’ of 2022, when shares in the sector were severely punished by rising interest rates and high inflation, the tech giants have recovered impressively in 2023, although profits have started to decline since the summer, raising fears that the rally may run out of steam.

“This earnings season will provide key insights into whether tech stocks have more room to run.”

Meta saw second-quarter revenue rise 11 percent to nearly $32 billion, thanks to strong advertising revenue and a growing active user base, but was forced to raise full-year spending expectations to $88 billion to $91 billion.

Its Reality Labs unit, which produces hardware and software for virtual reality and augmented reality, is expected to see an increase in operating losses in the coming year, after losing $7.7 billion in the first six months of 2023.

Sophie Lund-Yates, chief equity analyst at Hargreaves Lansdown, said: ‘Full-year expenditure is forecast to be higher than planned, including restructuring costs.

Looking beyond 2023, Meta expects costs to rise as it looks to invest in growth areas including AI and the metaverse. What is needed is certainty that the budgets do not seem too bizarre or provide too little direction – things that have seriously frightened the market in the past.’

After losing more than 70 percent in a disastrous 2022, Meta shares have rebounded strongly.

Meta rose over 250 percent from a low of $88 in October last year and is currently trading at $312.55.

Lund-Yates added: ‘Meta’s valuation has been on a largely uninterrupted upward trajectory over the past twelve months. Much of the continued momentum comes from hopes that the US rate hike cycle is coming to an end, clearing the way for growth stocks to enter a more favorable arena.

‘At the same time, Meta’s recent results positively surprised the market, allowing the market to breathe a sigh of relief after a challenging period.

“The biggest catalyst for market movement will come from whether or not this goes through.”

Amazon shares, on the other hand, have had a “disappointing quarter”, says Michael Hewson, chief market analyst at CMC Markets UK, despite hitting a one-year high in September.

The group’s 11 percent revenue growth to $134.4 billion in the previous quarter was driven by the strength of its online stores and AWS.

Hewson said: ‘Over the past 12 months, Amazon has reduced its workforce after over-hiring during the coronavirus crisis, saying it cut 5,000 jobs in the second quarter.

“Investors will be looking for sales growth in both online stores and AWS, where sales are expected to rise to $23.2 billion.

‘Recent figures appear to indicate that Amazon has managed to bounce back from a disappointing 2022, when it reported significant losses, leading to significant cost cuts and a workforce reduction.

“Looking ahead to the fourth quarter, Amazon is likely to face challenges due to a consumer slowdown, while the company also looks to the future, having invested up to $4 billion in AI startup Anthropic.”

Amazon shares have risen almost 50 percent since the start of 2023 to $128.56, but are up only 6 percent in 12 months after taking a big hit from disappointing results this time last year. They remain well below their 2021 peak of $183.83.