Technology stock results have been a mixed bag so far this earnings season. Weakness in the semiconductor space, Apple’s earnings and revenue decline due to weak iPhone sales and flat PC market sales have played spoilsport.
However, these were somewhat negated by solid revenue growth in Microsoft and Amazon’s cloud computing divisions. Also, robust performance by social-media companies like Facebook, Twitter and Snap was noteworthy.
Semiconductor Weakness Hurts Results
Per data from the World Semiconductor Trade Statistics (WSTS) organization, semiconductor sales declined 13% year over year and 15.5% sequentially.
Sales declined across all regional markets. Notably, United States is the largest semiconductor manufacturing country, while China is one of the biggest markets for semiconductors.
The decline can be attributed to negative tariff impact due to the ongoing U.S.-China trade tussle. China’s slowing economy is another botheration. Moreover, lower RAM and NAND sales due to sluggish demand from smartphone OEMs and data center markets hurt results.
Intel had a lackluster quarter due to weakness in data center, where it lost market share to AMD. The company also provided disappointing guidance due to persistent weakness in data center and weak gross margin (from continued softness in NAND pricing and the 10nm ramp).
Moreover, GPU sales remained weak as evident from AMD’s quarterly results. NVIDIA’s soon-to-be-reported quarterly results are also expected to be hurt by tepid GPU demand.
Microsoft, Amazon Dominate IaaS Space
Quarterly results from Microsoft and Amazon reflected strong demand for IaaS-related cloud computing services.
While Microsoft Azure revenues soared 75% year over year at constant currency, Amazon’s cloud arm Amazon Web Services (AWS) revenues grew 42%.
Notably, Amazon continues to maintain lead in the cloud computing market trailed by Microsoft Azure, which has been gaining market traction for some time now.
Further, cloud computing strength supported by growing adoption of AI, ML and IoT are driving IT spending. Gartner projects IT spending rise of 3.2% to $3.76 trillion in 2019 on solid growth in enterprise software spending. This also bodes well for technology stocks.
SaaS companies register strong top-line growth on a higher percentage of recurring revenues. The emergence of hybrid cloud platform is also a major growth driver.
Wearables, Speakers, Video Streaming: Major Drivers
Strong demand for wearables, as evident from solid sales of Apple Watch and upbeat performance by Fitbit and Garmin, is a key catalyst. Notably, Fitbit sold 2.9 million devices, up 36% year over year, in first-quarter 2019. Garmin’s Fitness segment sales increased 8.6% year over year, driven by strength in wearables.
Additionally, the emergence of virtual assistants with AI techniques continues to fuel demand for smart speakers like Amazon Echo and Google Home. Rapidly growing demand for non-volatile memory and sensors needed for connected and smart home devices is fueling growth for tech companies.
Furthermore, increasing video streaming has been driving user engagement, which is in turn, attracting advertising dollars. Facebook’s latest quarterly revenues benefited from this trend. 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.
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 daunting. Our proprietary methodology, however, makes it fairly simple.
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:
Melville, NY-based Verint Systems (VRNT - Free Report) is set to report first-quarter fiscal 2020 results on May 29. The company has an Earnings ESP of +2.94% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Verint beat the Zacks Consensus Estimate in the last four quarters, the positive average earnings surprise being 13.3%. The Zacks Consensus Estimate for earnings has remained steady at 61 cents over the past 30 days.
Mountain View, CA-based Intuit (INTU - Free Report) has a Zacks Rank #2 and an Earnings ESP of +0.59%. The company surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the positive average earnings surprise being 55.6%.
Intuit is scheduled to report third-quarter fiscal 2019 results on May 23. The consensus mark for earnings has declined by a penny to $5.41 over the past 30 days.
Beijing, China-based Momo (MOMO - Free Report) has a Zacks Rank #2 and an Earnings ESP of +1.21%.
The company surpassed the Zacks Consensus Estimate in two of the trailing four quarters, the positive average earnings surprise being 10.5%. The consensus mark for earnings has increased by a penny to 55 cents over the past 30 days.
Momo is scheduled to report first-quarter 2019 results on May 28.
Round Rock, TX-based Dell Technologies (DELL - Free Report) has a Zacks Rank #3 and an Earnings ESP of +13.42%.
Dell is set to report first-quarter fiscal 2020 results on May 30. The consensus estimate for earnings has declined 2.5% to $1.16 over the past month.
Redwood City, CA-based Box (BOX - Free Report) has a Zacks Rank #3 and an Earnings ESP of +3.85%. The company beat the Zacks Consensus Estimate in the trailing four quarters, the positive average earnings surprise being 60.9%.
Box is set to report first-quarter fiscal 2020 results on Jun 3. The consensus estimate for loss has remained unchanged at 5 cents over the past 30 days.
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