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Trillion-Dollar Tech Earnings on Deck: Here's What to Expect

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After adjusting for inflation, four U.S. tech companies have been valued at $1 trillion or more this year. At the end of Friday’s trading session, Microsoft Corporation (MSFT - Free Report) was the most valuable U.S. company at $1.33 trillion, followed by Apple Inc. (AAPL - Free Report) at $1.24 trillion and Amazon.com Inc (AMZN - Free Report) at $1.2 trillion. 
 
Google-parent Alphabet Inc (GOOGL - Free Report) was valued above $1 trillion at the beginning of this year, but has now fallen to below $900 billion owing to concerns about its ad-supported business. Nonetheless, the tech giants are scheduled to report their first-quarter earnings this week, and market pundits are keeping an eye on how their businesses have weathered the devastating impact of the coronavirus.
 
No doubt, that manufacturers of computers, smartphones, smart watches, laptops, PCs, smart speakers and various other tech-related components and services were highly impacted in the first quarter due to the closure of factories in China in the wake of the outbreak. This is more concerning as China exports nearly 50% of the world’s technologies, and hence the global tech sector will face massive supply disruptions because of the pandemic and its impact on production in China. Thus, for the tech sector as a whole, first-quarter earnings are projected to decline 0.7% despite 4.6% revenue growth from the year-earlier levels (read more: Previewing Tech Sector Earnings). 
 
Coming to Alphabet, which will be kicking off the big tech earnings on Apr 28, has the biggest share (30%) in the $110-billion online advertising market. Its income from the segment has most likely suffered in the first quarter as Alphabet had banned advertisements related to sensitive issues like the pandemic.
 
Meanwhile, Alphabet’s strengthening cloud unit has been aiding substantial revenue growth. The segment is gaining the most as widespread lockdowns in the wake of the virus outbreak has increased the number of people working or learning from home. And with majority of people now working or learning remotely, most of the companies need to move a bulk portion of their workloads to the cloud. Nevertheless, the search giant’s earnings are expected to drop 9.6% despite 12.2% higher revenues from the same period a year ago. 
 
By the way, Microsoft’s focus on cloud might have saved it from a coronavirus crash in the quarter ending March 2020. The company had transitioned its software offerings to cloud subscription offerings, and like Alphabet’s cloud unit its Azure cloud-computing business will make the most of the coronavirus-led shutdown measures. But the company’s productivity and business process segment might have been hurt in the third-quarter fiscal 2020 earnings by Microsoft Teams, a platform that provides workplace chat, which has been pretty much out of use since the coronavirus outbreak has shut down offices around the globe..
 
Having said that, Microsoft is the only one of the 30 Dow components that saw its shares gain in the first three months of the year when the coronavirus outbreak bulldozed the stock market. 
 
Microsoft’s earnings and revenues for the quarter ending March 2020 are expected to increase 9.9% and 10.7% from the year-ago period. Microsoft is slated report to report results on Apr 29, after market close.
 
iPhone maker Apple is scheduled to report second-quarter fiscal 2020 earnings on Apr 30, after market close. The pandemic forced Apple to shut down its own as well as partners’ stores, which has certainly impacted revenues. Apple’s supply also got disrupted by slower-than-expected return to work in China after an extended New Year holiday aimed at curtailing the spread of the deadly virus. What’s more, the virus spread in the United States toward the end of March, which has most likely hurt sales. Apple’s earnings are expected to show a 20.4% decline on 7.9% lower revenues from the year-earlier period.
 
Coming to e-commerce giant Amazon, there is no doubt that it is making the most of consumers’ shift to online shopping due to the pandemic. With many stores closed across the United States and Americans not willing to venture out, Amazon’s sales have skyrocketed.
 
The current work-from-home scenario has increased the need for cloud storage, something that bodes well for Amazon Web Services. Stay-at-home orders also bolstered its streaming business, with Amazon Prime Video ranked only second to Netflix in terms of popularity among Americans based on streaming from Mar 16 to Apr 5, per Reelgood, a film and TV streaming search engine service. 
 
But let’s admit that performance during the coronavirus-marred quarter won’t be as encouraging as other quarters. Hence, Amazon’s earnings are expected to drop 11.7% from the year-earlier period. But revenues are anticipated to improve 23%. Amazon will be reporting first-quarter 2020 results on Apr 30, after market close.
 
Alphabet, Microsoft, Apple and Amazon currently have a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 
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