Technology Earnings Outlook
Investing.com — Fewer positive earnings surprises are expected in the third quarter for technology stocks, according to analysts at Citi.
In a note to clients on late Thursday, the analysts stated that their model forecasts suggest a 5% decline in quarterly earnings beats for the tech sector compared to the previous three-month period. However, tech names are still projected to deliver the largest number of better-than-anticipated results compared to other sectors, Citi noted.
Positive Surprises in Q2
Citi’s research indicated that technology, along with healthcare, reported the highest percentage of positive surprises in the second quarter.
Market Valuation Concerns
Despite this, many global mega tech companies experienced a significant drop in market capitalization in July following the disclosure of their last quarterly earnings reports. Investors expressed concerns over elevated valuations and skepticism regarding the substantial investments in artificial intelligence leading to only modest gains.
Major players such as Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG) witnessed losses of around 6% in market cap by the end of July, settling at approximately $3.1 trillion and $2.1 trillion, respectively, according to Reuters, which cited LSEG data. Their market values remain near these levels.
Nvidia (NASDAQ:NVDA), an AI chip designer, also saw a decline of 5.2% in market valuation to $2.8 trillion, though it has since recovered to around $3.01 trillion.
Concentration of Positive Surprises
Citi noted that the third-quarter returns are expected to show positive surprises becoming “more concentrated” among larger cap stocks, although notable increases in beats have also been recorded for smaller cap stocks.
Earnings Growth Estimates
For earnings growth, consensus forecasts for Russell 1000 companies — the top 1000 groups by market cap in the US — predict a year-on-year increase of 5.2%. Without the so-called Magnificent 7 megacap firms, earnings are expected to grow by 2.6%.
(Reuters contributed reporting.)
Comments (0)