Apple, Amazon Results Are Crucial for Nasdaq 100’s Next Leg

(Bloomberg) -- Earnings from Apple Inc. and Amazon.com Inc. will be critical to give direction to the Nasdaq 100 after a volatile period marked by some of the benchmark’s worst — and best — days this year.

The pair are the last megacaps to release results until Nvidia Corp. at the end of August, and will set the tone for tech investors for the coming month. The reports, due after the close, will be scrutinized for how artificial intelligence is driving growth for Amazon’s cloud-computing unit and how the new technology is expected to boost demand for the next iPhone. They’ll also give investors some insight into the health of consumer spending.

Apple is under pressure to give more information about expected demand for its next iPhone models, which will include AI. The shares have rallied more than 10% since the firm unveiled long-awaited new AI features in June, and more than 25% since last quarter’s estimate-beating results, even after the recent rotation out of the tech sector. Amazon shares are up about 20% this year.

Amazon and Apple shares each slipped more than 2% in mid-day trading Thursday.

After those runups, “it feels like the energy could be much more to the downside if people want to continue to rebalance their portfolios and take profits,” said Brian Mulberry, client portfolio manager at Zacks Investment Management. Any signs of weakness, especially in forecasts from the two companies, could be punished by investors, he said.

Still, some analysts think that what Apple says about future iPhone sales and AI will be more important than this quarter’s numbers.

“We expect iPhone commentary to be the key catalyst this quarter with bullish statements about iPhone 16 expectations and continued stability in China likely to drive shares higher,” wrote Evercore ISI analysts led by Amit Daryanani. New AI features, plus the “sizable portion” of iPhone users due for an upgrade, should spark a demand cycle from the December quarter through 2025, they added.

Read: Apple’s AI iPhone Turns Skeptics Into Bulls and Raises Stakes

Analysts expect Apple to report revenue of $84.5 billion in the quarter, up around 3% from the same time last year and returning to growth after a slip in the previous quarter.

AI will also be front and center for Amazon. It’s the last of the hyperscalers to release results and follows Microsoft Corp. reporting slower growth in its Azure unit. The Amazon Web Services cloud business is expected to generate sales of nearly $26 billion in the quarter, growing more than 17% year-over-year. Amazon’s overall second-quarter revenue is expected to increase 11% to $148.8 billion.

“Given GenAI tailwinds, we believe AWS revenue growth likely accelerated in 2Q,” Citi analysts led by Ronald Josey wrote in a note. They also expect a beat for operating income given improved efficiencies in retail and continued strong advertising demand.

Amazon’s results will also be an indicator on the strength of US consumer spending.

“We’ve heard a lot of mixed reports this earnings season about how the consumer is doing. And let’s face it, there is a fair amount of discretion in the purchases that flow into Amazon’s core retail business,” said Matt Stucky, chief equity portfolio manager at Northwestern Mutual Wealth Management. McDonald’s Corp. this week reported its first sales drop in four years as diners cut back, while Starbucks Corp. same-store sales also fell.

Retail margin expansion has been a key driver of Amazon’s profitability and shares in the last year and a half, Stucky added. “That’s just as big if not bigger driver for Amazon’s ongoing profitability than what AI’s doing in the AWS space,” he said.

Operating margin for the North America segment is expected to come in at around 5.8% in the second quarter — up significantly from last year — and continue to expand through the rest of the year. That excludes AWS, which has much higher operating margins.

Truist analyst Youssef Squali also pointed to Amazon’s retail strength, along with AWS, as a key focus in the report.

“Amid a weakening consumer, Amazon continues to gain share of global e-commerce and improve its value proposition to both merchants and consumers,” Squali wrote in note, reiterating his buy rating. “We see multiple growth vectors powering Amazon’s growth which keeps the stock compelling.”

And any change in tone on capital returns — as we highlighted last week — could also keep shares going. With a cash hoard that’s expected to top $100 billion this year, conditions have never been more favorable for the firm to join megacap peers in returning cash.

Tech Chart of the Day

Nvidia Corp.’s wild ride this week is headed for the record books. The world’s third-most-valuable company added a record $329 billion in value on Wednesday — obliterating the single-day record that it has repeatedly set in the past few months. The gains came a day after a 7% rout and as peer Advanced Micro Devices Inc. gave an upbeat revenue forecast.