As the earnings calendar for tech stocks kicks into high gear in coming days, Wedbush analyst Dan Ives has an ominous warning for industry investors.
Ives titled a recent note to clients, "A Big Tech Earnings Season Ahead; Stocks Baking In Major Bad News for Q3."
"We compare investor negative sentiment on tech today to what we have seen only two other times in our decades of covering tech stocks: 2008 and 2001," Ives wrote. He referred to two brutal years in the stock market, with 2001 marking the dot-com bubble burst and 2008 coming in as the worst financial crisis since the Great Depression.
The reason: Investors are on pins and needles after a difficult second quarter and are fretting about the economy.
In this environment, Ives said, "Any positive news is negative news." He means that investors are so anxious, they might wonder if estimates are too high. Conversely, bad news might be exaggerated as "Armageddon" and thus take down tech stocks in a heartbeat.
"We are entering a crucial Q3 earnings season over the next few weeks that could expose negative underlying fundamentals across the tech space and cause massive earnings cuts into 2023," he said. But it might instead "prove that the bearishness and the demise of growth tech was premature."
Earnings Calendar: Who Reports This Week?
John Butters, senior earnings analyst at FactSet, said analysts and companies have lowered earnings expectations for the tech sector heading into the third quarter by about 9% from the last quarter.
Downward revisions to earnings estimates for Intel, Nvidia, Microsoft, Micron Technology and Apple were substantial contributors to the decrease.
For all the tech companies in the S&P 500, revenue is expected to climb 4.9% from the year-ago period. That's down from estimated revenue growth of 5.2% last month and 9.5% in June. Butters expects tech earnings to decline 4.6% in the third quarter.
Several large technology companies are on the earnings calendar this week. They include Microsoft and Google parent Alphabet on Tuesday and Facebook parent Meta Platforms on Wednesday. Apple, Amazon and Intel report on Thursday.
Headwinds include higher interest rates, a strong dollar, and slower economic growth. Also working against the sector are inflation and fears of an impending recession.
Earnings Calendar: Tech Stocks Lick Their Wounds
In the second quarter, Meta reported its first-ever quarterly revenue decline. Part of it was due to changes from Apple that made it harder for social media companies to track the activity of iPhone users, and thus tailor ads to them.
Forthcoming reports from Amazon and Apple should give investors a look at the health of consumer spending. Amazon, meanwhile, may provide fresh guidance on the all-important holiday sales season.
Intel, Nvidia and Advanced Micro Devices already warn that demand for major end markets such as personal computers and smartphones has fallen.
Baird analyst Colin Sebastian in a note to clients said he expects investors to focus primarily on fourth-quarter outlooks in examining the earnings calendar, along with implications for growth and margins in 2023.
"We believe e-commerce and digital media spending trends in Q3 were mixed to stable," he said. "That's seemingly consistent with already muted investor expectations."
Sebastian added that on a global scale, "We believe that inflation in the U.K. and broader Europe poses further risk to estimates for companies within our coverages."
Warning From Micron, But Cybersecurity Solid
Micron's fiscal fourth-quarter results on Sept. 29 came with a warning.
"Our fiscal Q4 financial results were impacted by rapidly weakening consumer demand," Micron said. "As a result, significant customer inventory had adjustments across all end markets."
A recent report from GlobalData said, "Warnings from Intel and Nvidia are clear. Semiconductor demand is losing momentum."
But it's not gloom and doom across the board on the earnings calendar. Ives expects cybersecurity companies to hold up despite the darker macroeconomic trends.
"The backdrop is bullish for the cybersecurity sector," he wrote.
Overall quarter-end checks on the earnings calendar "were particularly solid for the likes of Tenable, Fortinet, CyberArk, Palo Alto Networks and Zscaler," Ives said.
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
