Apple and Amazon: Racing Towards Earnings
Apple and Amazon.com, revered members of the Magnificent 7, are gearing up to unveil their quarterly performances on August 1. Investors’ curiosity is piqued, eagerly awaiting insights into the evolving landscape of Artificial Intelligence (AI) and its profound impact on their financial trajectory.
Among the elite “magnificent seven,” Apple has been striving to catch up in the AI realm compared to peers such as Alphabet, Microsoft, and Amazon. This exclusive group, which also includes Tesla, Meta Platforms, and NVIDIA, is currently capitalizing on the burgeoning AI landscape, fueling a demand surge for data centers due to the remarkable advent of Generative AI (GenAI).
AI’s Expanding Horizons
Gartner’s forecast paints a rosy picture, anticipating a stellar Compound Annual Growth Rate (CAGR) of 19.1% for AI software spending between 2022 and 2027, projecting a staggering $297 billion in 2027. The pivotal rise of GenAI software is equally noteworthy, expected to leap from 8% in 2023 to an impressive 35% by 2027. Moreover, IDC foresees a robust CAGR of 40.6% in revenues for AI platforms software from 2023 to 2028. These forecasts underscore a promising landscape for the Magnificent 7.
Apple and Amazon: A History of Earnings Triumph
AAPL exhibited consistency by surpassing Zacks Consensus Estimates in all four preceding quarters with an average earnings beat of 4.14%. In parallel, Amazon outshone expectations in every quarter, boasting an average surprise of 48.17%.
Foretelling Earnings
Apple is eyeing modest year-over-year revenue growth for the third quarter of fiscal 2024, with expectations pinned at $84.02 billion. Anticipated third-quarter earnings stand at $1.34 per share, reflecting a 6.35% surge from the previous year.
Conversely, Amazon’s net sales for the second quarter of 2024 are estimated to range between $144 billion and $149 billion, indicating a robust 7-11% upsurge compared to the previous year. Projections suggest second-quarter earnings at $1.03 per share, reflecting an impressive 63.49% leap from the year-earlier quarter.
Market Performance
Apple’s shares have demonstrated a 15.4% uptick this year, surpassing only Microsoft and Tesla. Meanwhile, Amazon has surged by 21.7% during the same period, outperforming AAPL but trailing behind NVDA, Meta, and GOOGL.
Valuation Insights and Market Positioning
Apple’s Value Style Score of D hints at a stretched valuation presently, contrasting Amazon’s undervaluation with a Value Style Score of B. Apple’s forward 12-month Price/Sales ratio at 8.14X exceeds its sector median and Amazon’s metrics.
The China Conundrum and Service Growth
Apple’s fortunes heavily rely on the iPhone, accounting for a significant portion of its revenues. However, market challenges in China continue, exacerbated by fierce competition from domestic rivals. Conversely, Apple is witnessing promising growth in its services segment, buoyed by a rich content portfolio contributing to subscriber expansion.
Amazon’s Prime Chronicles and Cloud Ascendancy
Amazon’s strategic stronghold in the Prime ecosystem, featuring rapid delivery services and compelling content, remains a catalyst. The noteworthy adoption of Amazon Web Services (AWS), coupled with advancements in Alexa skills and smart home offerings, contributes to its cloud dominance. A thriving advertising arm, global presence, and robust momentum among small businesses bolster Amazon’s robust standing in the market.
Wrapping Up: The Road Ahead
As Apple and Amazon gear up for their earnings releases, both companies stand to gain from the AI upsurge in the foreseeable future. Despite the growth prospects on the horizon, market sentiment leans favorably towards Amazon’s stock due to its current undervaluation, presenting a strategic opportunity for investors eyeing long-term growth prospects in the tech sector.