The Two Vital Earnings Investors Must Watch

Earnings are in full swing.

And there's plenty of mega-cap tech left on deck.

That means the new Macbook or pair of AirPods you bought on Amazon's (AMZN) Prime Day aren't the last time these two companies will be mentioned in the same breath...

Tomorrow after the closing bell, both Amazon and Apple (AAPL) will report second quarter earnings.

It's no secret that the gains we've seen in 2023 - particularly on the Nasdaq - have been driven by tech, namely artificial intelligence (AI).

While the public progress made by Amazon and Apple in AI may pale in comparison to Alphabet (GOOGL), Meta Platforms (META), and Microsoft (MSFT), there's still plenty behind the scenes unfolding to narrow that gap.

So, when these companies take center stage tomorrow, it'll be more than just their revenue and earnings per share (EPS) piquing the interest of investors. Undoubtedly the focus will shift to AI...

We can't underestimate the importance of these tech giants.

If Amazon and Apple report numbers similar to Meta and Alphabet, this summer's rally should continue without interruption.

That said, if the duo underwhelm, there's a chance the good times could come to a screeching halt. That's why we believe it's imperative we know what to expect.

Thankfully, these two have provided more than a few tea leaves of late to help us prepare for what's to come...

Apple of Our Eye

Apple is the eye of many investors.

Currently, analysts expect Apple to post EPS of $1.19 on sales of $81.7 billion. These are slight declines of 1% and 2%, respectively.

If the consensus holds, it'd mark the third consecutive quarter of declining revenue.

But the reason here is fairly straightforward: declining iPhone sales.

But that'll be short-lived. As every investor knows, September is the release of the new iPhone series. That means next month, the iPhone 15 will be made public.

And while we may hope that Apple surprises with its second-quarter results, it's clear earnings aren't really the only driver of share price.

After all, despite those declining revenue numbers, shares have gained in 17 of the past 22 weeks. And they're now up more than 50% for the year.

Helping provide lift is we've seen buzzy announcements surrounding Apple's foray into the virtual- and augmented-reality space with the Vision Pro. Or as the company calls it, the era of "spatial computing." Meanwhile, a recent Bloomberg piece detailed the company's behind-the-scenes development of its Ajax Generative AI tool - referred to by some as "Apple GPT."

But Apple and AI don't end there. In June, the company hosted its Worldwide Developer Conference (WWDC), where it unveiled plans to incorporate AI into its operating system to optimize autocorrect ... About duckingtime.

It also talked about future-generation AirPods using AI to automatically switch noise cancelation off when the user speaks.

But most interesting of all, and the tech to watch, is a patent filed in January 2023. It shows potential plans for the company to integrate electrodes on AirPods to enable the device to more or less communicate directly with the brain.

These illustrate merely a few examples of the AI applications for Apple's current product line. Though there are likely plenty more to come.

Given Apple leans on WWDC for product announcements, don't expect any formal word about these technologies on Thursday. But don't expect a snooze fest either... companies can't help themselves from dropping enticing nuggets during earnings calls to move markets.

Prime-d for Growth

On the other side of the earnings table from Apple, sits Amazon.

Analysts expect EPS of $0.34 on $131 billion in revenue. This would be a noteworthy bounce back from a year ago, when the ecommerce giant posted a loss of $0.20 per share with revenue of $121 billion.

We've seen firsthand via Meta and Alphabet that the digital ad market has rebounded from its shaky 2022. And current projections for Amazon see a similar boost to the company's bottom line.

With that in mind, the ecommerce behemoth sold 375 million items during this month's Prime Day. That's a 25% increase from a year ago. And that optimism will carry forward, as retail sales are expected to return to growth in the second half of the year as fears of a potential recession recede.

While Amazon's retail arm is clearly nothing to scoff at, the real money maker is Amazon Web Services (AWS).

There's an argument that Amazon's cloud revenue growth may bottom out in the second quarter. Though the reality is there's enough coming down the pike to expect more than a bounce back.

June marked the unveiling of two AI-driven cloud-computing tools to AWS. The first is Bedrock, geared toward generative chat and image AI. The second is CodeWhisperer, an AI-powered code generator meant to optimize software development.

Not only that, Amazon is now starting to harvest some of the fruits from prior investments in the semiconductor chip space. This includes, but is not limited to, its $350-million acquisition of custom cloud chip manufacturer, Annapurna Labs, in 2015.

Amazon CEO Andy Jassy told CNBC July 6 the company's chips - named Inferentia and Trainium - will produce "much better price performance than you'll find anywhere else."

The development of both AI software and hardware provides multiple avenues for this tech giant to extend its many tentacles into this rapidly growing field.

So, for us, these will surely be developments to watch.

At the end of the day, no matter what the state of the economy is, companies of the size and influence of Apple and Amazon will always make headlines... and move markets.

But let's not kid ourselves... This is a particularly vital juncture given the context of our current macro- and micro-economic landscape.

And while these mega-cap tech companies are always making moves to shore up their present-day bottom lines, they're also always working feverishly to secure the future as well.

So, we'll be sure to keep our eyes peeled and antennas up Thursday evening. And we'll relay everything you need to know need to prosper.

Until then,

Kyle Ottenheimer