This is a crucial week for Wall Street.
Four of the five largest companies in the world, in terms of market value, publish their results for the third quarter.
Apple (AAPL), Microsoft (MSFT), Amazon (AMZN) and Alphabet (GOOGL) together represent $6.71 trillion in market value. They are joined by a company with one of the most recognizable names in the world: Facebook, now known as Meta Platforms (META).
Microsoft and Alphabet will kick off on Oct. 25, followed by Meta on Oct. 26. Amazon and Apple will close this high-stakes tech week on October 27.
It has been a long time since earnings from big tech have been awaited with such anticipation. These results fall amidst uncertainties about the health of the U.S. and the global economies.
The five giants, which are present on all continents, will allow investors to get a clear idea of the extent of the current economic slowdown.
Bad Surprises?
The forecasts they provide will give investors more insight.
The economy faces several threats. There is the Russia-Ukraine war, which is contributing to rising commodity prices, causing an energy crisis in Europe and driving up oil prices.
The war has also contributed to putting new pressure on supply chains, already disrupted by the covid-19 pandemic.
Inflation is the other headache. Prices of goods and services are at their highest in 40 years in many Western countries, forcing central banks to raise interest rates, which makes access to credit expensive.
In the United States, many economists believe that the aggressive rise in interest rates will cause the economy's so-called hard landing, aka a recession.
Finally, there is the strong dollar, which will undoubtedly impact the revenues generated on international markets by American companies, when they convert them from their local currencies.
Expectations are very low. The tech sector tends to perform well when the economy is healthy and confidence is high. Consumers tend to spend on tech products and services when things are going well. But as soon as the economic situation deteriorates, they begin to be cautious, favoring necessary purchases, often to the detriment of tech.
To avoid bad and unpleasant surprises for investors, the executives of tech companies have sent several warnings during the past quarter.
Warnings
"I had hoped the economy would have more clearly stabilized by now," Meta's CEO Mark Zuckerberg told employees last month. "But from what we're seeing, it doesn't yet seem like it has, so we want to plan somewhat conservatively."
The boss added that Meta will be "somewhat smaller" by the end of 2023.
"For the first 18 years of the company, we basically grew quickly basically every year, and then more recently our revenue has been flat to slightly down for the first time," Zuckerberg added.
Warnings and alarms were also given by Jeff Bezos, the founder of Amazon, currently executive chairman of the e-commerce giant.
"Yep, the probabilities in this economy tell you to batten down the hatches," Bezos posted on Twitter on Oct. 18.
The tech firms have already launched austerity cures, marked by job cuts and hiring freezes. They have also cut travel budgets, marketing budgets and employee perks. There are those who have also cancelled certain projects.
"We are being a bit more responsible through one of the toughest macroeconomic conditions underway in the past decade,” Alphabet CEO Sundar Pichai warned last month.
Caution v. Ambition
The question is: How bad is the situation?
Some investors find themselves hoping for a mild recession.
What will Apple say about demand for the iPhone? How is the advertising market doing as companies drastically cut costs to prepare for the challenges ahead? Alphabet and Meta will provide answers to this question.
Does the consumer continue to spend? Amazon should answer this.
Is this the time for ambitious projects, like the metaverse, Meta Platforms' next big thing which continues to lose money?
This week investors will find out if Big Tech, which has been one of the great beneficiaries of the pandemic, manages to adapt to the new economic environment.
