The technology sector continued to face a topsy-turvy situation throughout the fourth quarter of 2022 owing to macroeconomic headwinds, including growing geo-political tensions, stubbornly high inflation and Federal Reserve’s aggressive stance on hiking the interest rate to curb inflation.

All these factors impacted consumer spending negatively as the fear of economic slowdown continued to rise among people.

Also, widespread supply-chain disruptions and labor market constraints might have remained a major overhang for technology stocks during the quarter to be reported.

Additionally, sluggishness in the semiconductor industry pushed several stocks into the negative territory. This is evident from the monthly data on global semiconductor sales from the Semiconductor Industry Association. For November 2022, the sales figure was $45.5 billion, down 9.2% and 2.9% on a yearly and monthly basis, respectively.

Moreover, the disappointing quarterly results posted by Micron reflect the downturn in the technology sector. Micron’s near-term prospect looks gloomy as weakening consumer spending is negatively impacting demand for memory chips used in personal computers and smartphones.

All the abovementioned factors have made the sector’s outlook for fourth-quarter 2022 gloomy.

Per the latest Earnings Trends report, fourth-quarter earnings and revenues of the technology sector are expected to decline 18.7% and 3% year over year, respectively.

Nevertheless, the sector has plenty of driving factors, which one cannot ignore.

The growing adoption of cloud-based services, increasing proliferation of AI, Machine Learning, IoT, quantum computing, blockchain, ADAS, autonomous vehicles and AR/VR devices, and the accelerated deployment of 5G are expected to have aided the performances of technology stocks this earnings season.

Further, the solid adoption of online payment services, wearables, voice assistants and smart home products might have been a tailwind.

Zeroing in on Winners

With the presence of several participants, finding the right technology stocks with the potential to beat on earnings can be a daunting task. Our proprietary methodology, however, makes this fairly simple.

Here, with the help of the Zacks proprietary methodology, we have narrowed down the list of choices by looking at stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP.  You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP is our proprietary methodology for determining stocks, which have the best chances to surprise with their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
 
Our research shows that for stocks with this combination of ingredients, the odds of a positive earnings surprise are as high as 70%.

Best Bets

Five technology stocks mentioned below have the right combination of elements to beat on earnings this reporting cycle:

Netherlands-based ASML Holding (ASML Quick QuoteASML - Free Report) has an Earnings ESP of +4.19% and currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company is scheduled to report fourth-quarter 2022 results on Jan 25. The Zacks Consensus Estimate for its earnings has moved up 3.6% to $4.62 per share over the past 30 days.

Seattle, WA-based Impinj (PI Quick QuotePI - Free Report) has an Earnings ESP of +9.09% and currently carries a Zacks Rank #2.

The company is scheduled to report fourth-quarter 2022 results on Feb 8. The Zacks Consensus Estimate for its earnings has moved up 11.4% to 39 cents per share over the past 30 days.

New York, NY-based MSCI (MSCI Quick QuoteMSCI - Free Report) has an Earnings ESP of +0.43% and currently carries a Zacks Rank #2.

The company is scheduled to report fourth-quarter 2022 results on Jan 31. The Zacks Consensus Estimate for its earnings has moved up 0.4% to $2.71 per share over the past 30 days.

San Francisco, CA-based Udemy (UDMY Quick QuoteUDMY - Free Report) has an Earnings ESP of +1.83% and currently carries a Zacks Rank #2.

The company is scheduled to report fourth-quarter 2022 results on Feb 14. The Zacks Consensus Estimate for its loss has narrowed down from 24 cents to 23 cents per share over the past 30 days.

Milford, MA-based Waters (WAT Quick QuoteWAT - Free Report) has an Earnings ESP of +0.62% and currently carries a Zacks Rank #3.

The company is scheduled to report fourth-quarter 2022 results on Feb 15. The Zacks Consensus Estimate for its earnings has moved up 0.3% to $3.74 per share over the past 30 days.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.