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Wednesday, May 3, 2023
Apple could make or break Big Tech's earnings season
Big Tech has, so far, managed to beat Wall Street’s expectations this earnings season. Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG, GOOGL), and Meta (META) have largely outperformed analysts’ estimates despite pull backs in consumer and corporate spending.
But the industry’s biggest test comes after the bell Thursday when Apple (AAPL) reports its fiscal second quarter earnings results. That’s because the iPhone maker not only serves as a bellwether for the tech sector as a whole, but also on consumer spending.
“None of what's already been reported matters come Thursday night,” explained Deepwater Asset Management Managing Partner Gene Munster.
“And the reason is ... because [of] the size of Apple, and also it's been relatively stable too. It's done a better job of enduring this versus other tech, so if there is a problem, you can throw out all the good news from Microsoft and Google and Meta,” Munster added.
In turn, a solid result from Apple could help buoy the industry and drive up shares of other Big Tech names. But a miss could mean increased pressure on rival tech stocks, just as the sector looks to finally move past its COVID-induced hangover.
Apple could swing its rivals
Analysts expect Apple to report revenue of $92.6 billion for the second quarter, a 4.8% decline from the $97.3 billion Apple brought in during the same quarter last year. That's about in line with the 5% decline Apple posted in Q1.
“We believe the broader tech industry is all on pins and needles waiting for Apple's results as many of the tech haters continue to yell fire in a crowded theater around softening demand, with Apple the best barometer globally of this metric,” Wedbush Managing Director Dan Ives told Yahoo Finance via email.
Apple, along with rival Microsoft, has a massive influence on the S&P 500 (^GSPC). Together they make up roughly 13% of the index’s market value. Apple, however, outweighs even Microsoft, thanks to its higher market cap of $2.67 trillion. Microsoft’s market cap sits at $2.27 trillion.
For investors tracking the S&P 500, a miss by Apple could have an outsized impact on their portfolios.
A key to consumer spending
While Apple’s enormous size and weight relative to market competitors gives its results added importance, the company’s performance is also a key indicator for consumer spending.
“Most, if not all, iPhones are purchased for consumers. Macs, for the most part, are purchased for consumers and/or small, medium businesses,” explained UBS Managing Director David Vogt. “So it's really more of a bellwether or a barometer regarding high end consumer spending.”
A miss on Apple’s revenue, especially for its iPhone business, would mean consumers are spending less and holding back on making large purchases. Worse still would be any signal that revenue will come in weaker than anticipated in Q3. That would signal that Apple anticipates customers will continue to hold back on spending their cash.
It all comes down to Thursday night. Buckle up.