The technology sector had a strong second-quarter 2023, driven by an improving global macro-economic environment and a less-hawkish stance from the U.S. Federal Reserve, as well as strong adoption of Artificial Intelligence (AI) and machine learning.
The lifting of COVID-related restrictions in China in early April and the easing of supply chain issues provided momentum to the tech stocks. Fed’s decision to pause interest rate hike in June after ten straight increases also offered relief to the global economy.
Apart from these, the technology sector benefited from the advent of generative AI. ChatGPT’s success has created massive interest in developing large language models (like GPT4, on which ChatGPT is built). Advancements in natural language processing models, which help computers understand how we write and speak, are playing a huge role in the rise of generative AI.
Microsoft’s partnership with ChatGPT developer OpenAI provided a boost, as it is using ChatGPT to improve Bing’s search abilities to challenge Alphabet GOOGL division Google’s search dominance. Moreover, Generative AI requires vast knowledge to create content and it needs huge computational power, which is driving demand for NVIDIA GPUs.
However, PC and Smartphone segments remained under the weather in the to-be-reported quarter.
Per Gartner’s latest report, 59.7 million PCs were shipped in the second quarter (ended in June) of 2023, down 16.6% from the year-ago period. Lenovo, HP and Dell Technologies witnessed 20.8%, 0.9% and 21.8% declines, respectively. Apple witnessed a 0.3% decline, much better than HP and Dell.
According to Counterpoint’s latest update, global smartphone sales declined 8% year over year and 5% sequentially in the second quarter of 2023. Samsung remained the leader in market share followed by Apple.
Upcoming Earnings to Watch
A chunk of technology companies are set to report their earnings results over the next couple of weeks. We believe that several are well-poised to beat earnings estimates due to a strong product portfolio powered by AI.
Hence, finding technology stocks with the potential to beat earnings estimates can be daunting. Our proprietary methodology, however, makes it fairly simple.
You could narrow down the list of choices by looking at stocks that have the combination of a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP is our proprietary methodology for determining stocks, which have the best chances to surprise with their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination, the odds of an earnings surprise are as high as 70%.
Top Bets
Five technology stocks mentioned below have the right combination of elements to beat on earnings this reporting cycle:
San Francisco-based Airbnb ABNB has an Earnings ESP of +1.70% and currently flaunts a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company is scheduled to report its second-quarter 2023 results on Aug 3. The Zacks Consensus Estimate for earnings has moved down by a penny to 77 cents per share over the past 30 days.
Kirkland, WA-based Monolithic Power MPWR is scheduled to report its second-quarter 2023 results on Jul 31.
The company has an Earnings ESP of +0.31% and a Zacks Rank #1.
The Zacks Consensus Estimate for earnings has been unchanged at $2.81 per share over the past month.
Plano, TX-based Tyler Technologies TYL has an Earnings ESP of +0.54% and sports a Zacks Rank of 1. The company is scheduled to report its second-quarter 2023 results on Jul 27.
The Zacks Consensus Estimate for earnings have been steady at $1.86 per share over the past 30 days.
Mountain View, CA-based Alphabet currently has an Earnings ESP of +2.49% and a Zacks Rank #2.
The company is set to report second-quarter 2023 results on Jul 25. The consensus mark for earnings has declined by a penny to $1.32 per share over the past 30 days.
Menlo Parl, CA-based Meta Platforms META is set to report second-quarter 2023 results on Jul 26. The company has an Earnings ESP of +5.83% and a Zacks Rank of 2.
The consensus estimate for its earnings has moved up by 1.1% to $2.87 per share over the past 30 days.
Monolithic Power Systems, Inc. (MPWR): Free Stock Analysis Report
Alphabet Inc. (GOOGL): Free Stock Analysis Report
Tyler Technologies, Inc. (TYL): Free Stock Analysis Report
Airbnb, Inc. (ABNB): Free Stock Analysis Report
Meta Platforms, Inc. (META): Free Stock Analysis Report
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