Technology stocks earnings are anticipated to grow moderately in the fourth quarter due to the negative impact of tariffs related to the U.S.-China trade war and concerns over China’s economic growth.
Apple (AAPL - Free Report) cited slowing China market as a key factor behind its decision to cut sales guidance for the first time in 15 years.
Additionally, semiconductors' top-line growth is estimated to moderate due to declining average selling prices (ASPs) along with tensions related to the U.S.-China trade war.
Moreover, regulations like EU’s General Data Protection Regulation (GDPR) are expected to hurt growth of social media companies.
Semiconductor Growth to Moderate
Semiconductors, which are the building blocks of most of the emerging technologies like Artificial Intelligence (AI) and Internet of Things (IoT), reported strong sales in October and November 2018. Although the growth rate is likely to moderate in the fourth quarter, semiconductor sales are anticipated to break previous records, driven by strong demand for DRAM in 2018.
However, DRAM’s ASP is expected to decline due to increased supply and excess inventories. DRAMeXchange estimates DRAM ASPs to drop roughly 8% sequentially in the fourth quarter. Moreover, PC DRAM, server DRAM and specialty DRAM ASPs are anticipated to fall almost 10%.
CPU Shortage Hurts PC Shipments in Q4
Per Gartner, PC shipments declined 4.3% year over year to 68.6 million units due to shortage of CPUs (central processing units). Moreover, sluggish consumer demand during the holiday season hurt sales.
According to IDC, fourth-quarter PC shipments declined 3.7% to 68.1 million due to the ongoing economic tensions between China and the United States along with “shortfall of Intel CPUs.”
Lenovo sold most PCs in the quarter, trailed by HP and Dell, according to both the market research firms.
Demand for AI Tools & Connected Devices to Aid Growth
Increasing video streaming has been driving user engagement that is, in turn, attracting advertising dollars. Notably, real-time analysis of user data supported by AI tools is helping advertisers target the right audience, which is boosting their return on investment (ROI).
Moreover, growing demand for smart speakers and connected devices, which are powered by AI, machine learning and deep learning, is a key catalyst. Further, strong demand for cloud computing is a major growth driver.
Additionally, strong demand for Augmented/Virtual reality (AR/VR) devices, autonomous vehicles, 5G related wireless equipment sales and IoT devices is a key catalyst.
How to Make the Right Pick?
With the existence of a number of industry players, finding the right technology stocks that have the potential to beat earnings can be a daunting task. Our proprietary methodology, however, makes it fairly simple for investors.
You could narrow 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 that have the best chance 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, the chance of a positive earnings surprise is as high as 70%.
Given below are five technology stocks that have the right combination of elements to post an earnings beat this quarter:
Windsor, CT-based SS&C Technologies Holdings (SSNC - Free Report) is expected to report fourth-quarter 2018 results on Feb 21, 2019. The company has an Earnings ESP of +2.76% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Milwaukee, WI-based Badger Meter (BMI - Free Report) has a Zacks Rank #2 and an Earnings ESP of +6.19%. Badger Meter is set to report fourth-quarter 2018 results on Feb 5.
Luxembourg-based Globant S.A. (GLOB - Free Report) has a Zacks Rank #2 and an Earnings ESP of +2.11%. The company is expected to report fourth-quarter 2018 results on Feb 21.
Chicago, IL-based Grubhub (GRUB - Free Report) has a Zacks Rank #2 and an Earnings ESP of +20.35%. The company is expected to report fourth-quarter 2018 results on Feb 14.
San Francisco, CA-based Yelp (YELP - Free Report) has a Zacks Rank #2 and an Earnings ESP of +30.89%. The company is likely to report fourth-quarter 2018 results on Feb 6.
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