Analysts eye bumper profits for Meta and Amazon

Meta Platforms and Amazon are set to follow-up bumper results from US tech giant peers Microsoft and Alphabet, with combined sales of up to $177billion.

Facebook owner Meta will report its third-quarter earnings later on Wednesday, with Mark Zuckerberg’s firm guiding sales of $32billion to $34.5billion, and investors keeping a keen eye on the group’s expenses amid an expensive foray into artificial intelligence and virtual reality.

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

The pair will be the latest to report in a busy week for tech investors after Microsoft posted profit growth of 27 per cent to £18.3billion on revenues of £46.5billion. 

Google parent company Alphabet, meanwhile, reported earnings growth of 40 per cent to £16.1billion on sales of £62billion.

But Alphabet slid 9 per cent to a three-month low at the open on Wednesday, as its cloud business recorded its slowest growth in almost a year.

Microsoft, by contrast, jumped 2.6 per cent to a three-month high after topping expectations across the business, including its cloud unit.

US tech giants took a hit last year as rising interest rates bludgeoned investor appetite, but confidence that the hiking cycle is reaching its peak is breathing fresh interest in the stocks.

This year has also seen huge expenditure on AI across the sector, which is betting the technology will be the major driver of returns in the years ahead. Investors, meanwhile, are keen to see businesses keeping a lid on rising costs.

Head of investment at Interactive Investor, which this week is waiving its £3.99 per trade fees on US stocks for UK investors, Victoria Scholar said: ‘The US is home to many tech behemoths and has proven to be an important source of growth for investors.

‘The heavy weighting towards tech stocks in the Nasdaq 100 and the S&P 500 means that the slew of earnings is likely to have a significant impact on US markets more broadly.

‘Typically, earnings season provides a bout of volatility for markets with much higher-than-normal gains and losses as traders and investors digest these quarterly scorecards.

‘After the 2022 “tech wreck” when stocks in the sector were heavily punished by rising interest rates and elevated inflation, the tech giants have been rebounding impressively in 2023, although gains have started to taper off since the summer raising concerns that the rally is running out of steam.

‘This earnings season will provide important insights into whether tech stocks have more room to run.’

Having lost more than 70 per cent over a disastrous 2022, Meta shares have bounced back strongly.

Meta saw sales rise 11 per cent to almost $32billion in the second quarter, thanks to strong ad revenues and a growing active user base, but was forced to hike expenditure expectations for the full year to $88billion to $91billion.

Its Reality Labs unit, which produces virtual reality and augmented reality hardware and software, is expected to see an increase in operating losses over the next year, having lost $7.7billion in the first-six months of 2023.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: ‘Full year expenses are predicted to come in higher than planned, including restructuring costs.

‘Looking beyond 2023, Meta expects expenses to grow as it looks to invest in growth areas including AI and the metaverse. Reassurance is needed that budgets don’t appear too outlandish or lacking in direction – things that have badly spooked the market in the past.’

Having lost more than 70 per cent over a disastrous 2022, Meta shares have bounced back strongly.

Soaring more than 250 per cent from lows of $88 in October last year, Meta is currently trading at $312.55.

Lund-Yates added: ‘Meta’s valuation has been on a largely unbroken upwards march over the last twelve months. A lot of the continued momentum stems from hopes that the US interest rate hiking cycle’s coming to an end, paving the way for growth stocks to enter into a more favourable arena.

‘At the same time, Meta has surprised to the upside in recent results, which has helped the market breathe a sigh of relief after a challenging period.

‘The biggest catalyst for market moves will come from whether or not that will continue.’

Amazon shares by contrast have had an ‘underwhelming quarter’ and remain short of their 2021 peak

Amazon shares by contrast have had an ‘underwhelming quarter’, chief market analyst at CMC Markets UK Michael Hewson said, despite hitting a one-year high in September.

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

Hewson said: ‘Over the past 12 months Amazon has been cutting headcount after over hiring during covid and said that 5,000 jobs had been cut during Q2.

‘Investors will be looking for revenue growth in both online stores as well as AWS which is expected to see revenues increase to $23.2billion.

‘Recent numbers would appear to suggest that Amazon has managed to bounce back from a disappointing 2022 when it reported significant losses, prompting significant cost cutting measures as well as headcount reduction.

‘Looking ahead to Q4, Amazon is likely to face challenges from a consumer slowdown, while the business is also looking to the future having invested up to $4billion in AI startup Anthropic.’

Amazon shares are up nearly 50 per cent since the start of 2023 to $128.56 but have added just 6 per cent over 12 months, having taken a hefty knock from disappointing results this time last year. They remain well short of their 2021 peak of $183.83.