{"id":3147,"date":"2023-10-19T10:40:34","date_gmt":"2023-10-19T10:40:34","guid":{"rendered":"https:\/\/infundpros.com\/investment\/tech-earnings-kick-off-this-week-with-netflix-ai-is-now-a-risk\/"},"modified":"2023-10-19T10:40:35","modified_gmt":"2023-10-19T10:40:35","slug":"tech-earnings-kick-off-this-week-with-netflix-ai-is-now-a-risk","status":"publish","type":"post","link":"https:\/\/infundpros.com\/?p=3147","title":{"rendered":"Tech Earnings Kick Off This Week With Netflix. AI Is Now a Risk."},"content":{"rendered":"
\n
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<\/p>\n
<\/div>\n<\/figure><\/div>\n

Earnings season is coming, and it\u2019s going to be a tricky one.<\/p>\n

Tech stocks came out of the gate roaring in 2023, with the
\n Nasdaq Composite
\n rallying 32% over the year\u2019s first six months. But the group\u2019s momentum is gone, with the same index down 1% since June 30. <\/p>\n

\n

The issues start with the Federal Reserve, whose tightening cycle has extended beyond Wall Street\u2019s expectations. Meanwhile, the early mania over generative artificial intelligence has become more nuanced in the second half. Following the initial hype, there are concerns about the economics of AI, which involves non-trivial investment in pricey processors and other hardware, with an uncertain payoff. <\/p>\n

Those AI investments now threaten the \u201cyear of efficiency\u201d margin improvements that
\n Meta Platforms
\n (ticker: META) and other tech firms have been touting. It\u2019s all unfolding amid new worries about the near-term prospects for corporate IT spending. <\/p>\n

Here are the key issues to watch as tech earnings begin to roll in.<\/p>\n

Pressing Pause:<\/strong>
\n Netflix
\n (NFLX) kicks off the earnings parade Wednesday. Investors will again be focused on the progress of its password-sharing program, its still-nascent advertising-supported subscription tier, and the lingering effects of the labor actions in Hollywood, where actors remain on strike, even after a settlement by writers. This past week Morgan Stanley analyst Benjamin Swinburne trimmed his price target on the streaming pioneer to $430, from $450, writing that consensus estimates \u201creflect too much, too quickly from password sharing and advertising.\u201d<\/p>\n

Budget Crunch:<\/strong> There have been high hopes that IT budgets will loosen as 2024 gets under way. But Piper Sandler analyst James Fish says a recent survey of more than 30 tech resellers shows signs of trouble. <\/p>\n

\u201cAfter a few quarters of improvements, spending trends were weaker than previously seen and IT budgets have been further pressured. That likely sets up for relatively capped \u201924 spending,\u201d Fish writes in a research note. We\u2019ll get some IT spending clues when
\n IBM
\n (IBM) reports later this month.<\/p>\n

Rally Time? <\/strong>Wedbush analyst Dan Ives has been pounding the table on tech, forecasting a 12% to 15% end-of-year rally. His view is that September quarter earnings will be \u201can eye-opener,\u201d driven by a combination of AI growth and stabilizing IT spending. Well, maybe. There\u2019s no question that AI is affecting every company, and it will be an earnings contributor at some point. But the AI boom didn\u2019t move the revenue needle for most tech firms in the June quarter, and AI won\u2019t provide a material boost to the September quarter, either. Long-term investors won\u2019t care, but short-term disappointment seems likely. Investment in AI-related infrastructure will outweigh incremental revenue for now at companies like
\n Alphabet
\n (GOOGL) and Meta. <\/p>\n

Gone Fishing:<\/strong> If you want to bottom fish, consider
\n Amazon.com
\n (AMZN), which is off 9% over the last month. <\/p>\n

MoffettNathanson analyst Michael Morton says Wall Street\u2019s profit outlook is too bearish. He recently updated his 2024 forecast for pretax profit to $51 billion, from $45 billion, based on \u201cgrowing conviction\u201d about Amazon\u2019s progress on cost controls. He notes that CEO Andy Jassy has said a redesign of the company\u2019s distribution network cut delivery miles by 19%. <\/p>\n

Morton has a $189 target price on Amazon stock, implying a 45% return. \u201cThere\u2019s never an easy time to own Amazon shares,\u201d he writes.<\/p>\n

For now, Morton argues, investors should focus on the company\u2019s improving cost structure\u2014and growing margins.<\/p>\n

Write to <\/strong>Eric J. Savitz at eric.savitz@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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