Will the Disney-DirecTV Deal Drive New Growth?

The Walt Disney Company (DIS) and DirecTV recently reached a deal that restores college football and other programming to the satellite TV providers over 11 million subscribers. The agreement offers enhanced choice, value, and flexibility to their mutual customers.

Consequently, Disney’s complete linear suite of networks has been restored for DIRECTV, DIRECTV STREAM, and U-verse subscribers as both companies work toward finalizing a new, multi-year deal. As the entertainment landscape shifts, DIS’ multi-channel approach could unlock new revenue streams and drive future growth.

Expanding Reach Through Traditional and Streaming Platforms

The renewed partnership between Disney and DirecTV comes at a critical time when consumer viewing habits are increasingly split between traditional linear TV and streaming services. As part of the deal, DirecTV will now offer customers more flexibility with multiple genre-specific packages, including those focused on sports, entertainment, and kids & family programming.

For instance, the agreement includes continued carriage of Disney’s entertainment, sports, and news programming from its linear portfolio, comprising the ABC Owned Television Stations, the Disney-branded channels, Freeform, the FX networks, and the National Geographic channels. Certain DirecTV packages will also include Disney’s leading streaming services—Disney+, Hulu, and ESPN+.

In a joint statement, the companies said: “DIRECTV and Disney have a long-standing history of connecting consumers to the best entertainment, and this agreement furthers that commitment by recognizing both the tremendous value of Disney’s content and the evolving preferences of DIRECTV’s customers.”

This strategic agreement bridges the gap between traditional and digital viewing preferences. DirecTV’s subscriber base, which has been slowly declining due to the rise of cord-cutting, now has access to a broader array of content options through Disney’s streaming services. For customers still tethered to satellite TV, this hybrid model offers them a reason to stay while granting Disney access to an audience that may not have subscribed to its streaming services independently.

Bundling linear TV programming with streaming services offers DIS a competitive advantage, especially as the entertainment giant looks to capitalize on both sides of the evolving content landscape. The inclusion of Disney+, Hulu, and ESPN+ in DirecTV’s packages serves multiple purposes. Firstly, it provides a gateway for traditional TV subscribers to explore Disney’s streaming offerings, potentially converting them into long-term streaming customers.

Secondly, this bundling strategy solidifies Disney’s position in the streaming wars, where competition from platforms like Netflix, Inc. (NFLX), Amazon.com, Inc.’s (AMZN) Amazon Prime, and Apple Inc.’s (AAPL) Apple TV+ is fierce.

DIS can leverage its expansive content library to meet different viewer preferences. Families may gravitate toward the kid-friendly programming on Disney+, sports enthusiasts will value the breadth of ESPN+, and fans of original series and award-winning content can indulge in Hulu’s offerings. The diversity of content will allow the company to capture a wider audience, which could drive subscriber growth and retention across its platforms.

Potential Financial Gains and a Case for Disney Stock

For investors, DIS’ multi-channel strategy is an encouraging sign. Disney has long been a dominant player in the entertainment industry, and this renewed partnership with DirecTV further underscores its ability to adapt to changing market conditions. As Disney continues diversifying its revenue streams—balancing traditional TV and the increasingly lucrative streaming business—its future earnings potential looks robust.

The inclusion of Disney+, Hulu, and ESPN+ in DirecTV’s packages provides Disney with a more sustainable and diversified revenue model, which could be particularly important as the company faces intense competition in the digital streaming segment. Disney’s unique blend of original programming, sports content, and lids & family entertainment gives it a distinct edge in attracting and retaining subscribers.

Moreover, DIS’ streaming and linear programming continues to captivate audiences and critics, with the company garnering an impressive 183 nominations at this year’s Primetime Emmy® Awards—a record high for Disney and more than any competitor.

DIS delivered an outstanding financial performance in the third quarter, beating analyst estimates for revenue and earnings as the company’s combined streaming businesses turned a profit earlier than anticipated. For the quarter that ended June 29, 2024, the company reported revenues of $23.16 billion, surpassing analysts’ expectations of $23.09 billion.

Disney’s total segment operating income grew 19% year-over-year to $4.23 billion, led by solid results for its entertainment unit, especially streaming. The entertainment segment's operating income nearly tripled year-over-year due to better performance in Direct-to-Consumer (DTC) and Content Sales/Licensing and Other.

The company’s combined streaming business, which comprises Disney+, Hulu, and ESPN+, reported an operating profit of $47 million, compared to an operating loss of $512 million in the same period of 2023. Further, the company posted an adjusted EPS of $1.39, up 35% from the previous year’s quarter. That compared to the consensus EPS estimate of $1.19.

Due to robust financial performance in the third quarter and supported by its balanced portfolio of assets, DIS set a new full-year adjusted EPS growth target at 30%. The company added that it remains on track for the profitability of its combined streaming businesses to improve in the fourth quarter, with both Entertainment DTC and ESPN+ expected to be profitable.

Bottom Line

The renewed Disney-DirecTV deal is poised to unlock new growth opportunities by expanding Disney’s reach across both traditional linear TV and streaming platforms. By bundling Disney+, Hulu, and ESPN+ with DirecTV packages, Disney will effectively tap into untapped audiences, diversify its revenue streams, and strengthen its position in the competitive streaming market.

With the company’s robust financial performance, improving profitability in the combined streaming business, and diverse portfolio, this multi-channel strategy positions Disney for continued subscriber and earnings growth, making DIS stock an attractive option for investors.

Why Rivian’s Partnerships Make It a Strong Buy After the Recent Rally

Federal Reserve Chair Jerome Powell recently signaled an imminent shift in policy, with the likelihood of interest rate cuts on the horizon, possibly as soon as September. This news was a breath of fresh air for electric vehicle (EV) stocks, which have been under pressure from rising rates.

Higher interest rates have made financing big-ticket purchases like EVs more expensive, squeezing consumer demand and forcing companies to cut prices, often at the expense of their margins. Additionally, like many in the EV sector, the increased cost of capital and reduced present value of future earnings have been significant headwinds for companies still in the growth phase.

As the prospect of lower interest rates lifts the EV sector, Rivian Automotive, Inc. (RIVN) is positioned to benefit significantly, thanks in part to its high-profile partnerships with Amazon.com, Inc. (AMZN) and Volkswagen AG (VWAPY). With its stock rallying nearly 9% last Friday, RIVN’s recent gains underscore investor optimism. But what exactly makes these partnerships pivotal to the company’s long-term success? Let’s explore.

Is Rivian’s Partnerships With Amazon and Volkswagen a Catalyst for Growth?

For Rivian, 2024 has been a challenging year, particularly as an unprofitable EV maker navigating a tough market. Despite a recovery from its April lows, RIVN remains down nearly 40% year-to-date. However, there’s optimism about its future, especially with its strategic partnerships.

In June, Rivian announced a joint venture with Volkswagen, starting with an initial $1 billion investment from the German auto giant and an additional $4 billion planned through 2026. This partnership is all about collaborating on software and electrical architecture, which is crucial for Rivian as it works on ramping up production for its upcoming R2 electric SUV and a new mid-size electric vehicle.

The $5 billion investment isn’t just cash in the bank; it’s a game-changer for the company’s capital structure, providing it with the resources to vertically integrate its software and electrical systems. CEO RJ Scaringe echoed this optimism, stating that the integration with Volkswagen is “moving along very well’ and should be finalized by the fourth quarter of this year, helping Rivian’s technology reach more global markets.

Meanwhile, as part of the Climate Pledge to achieve net-zero carbon by 2040, Amazon has partnered with Rivian to roll out 100,000 electric delivery vehicles (EDVs) by 2030. To date, 15,000 of these vehicles have been deployed across the U.S. since 2022. However, Rivian has temporarily halted production of these EDVs due to a parts shortage. While this has impacted the delivery vans, the electric vehicle maker has reassured investors that it won’t affect consumer models like the R1S and R1T. Despite this setback, Rivian expects to compensate for lost production and keep the partnership on track.

These high-profile partnerships are more than just business deals; they represent Rivian's strategy to leverage collaboration for accelerated growth, technological innovation, and global market penetration, particularly as the company navigates a shifting economic landscape.

Financial Performance: A Mixed Bag With Positive Outlook

On August 6, RIVN reported its second-quarter earnings, revealing a loss of $1.46 per share, which was worse than the $1.27 loss reported in the same period last year. This figure came in above analysts’ expectations, who had predicted a loss of $1.19 per share. However, its revenue for the quarter came in at $1.16 billion (up 3.3% year-over-year), slightly surpassing analyst expectations of $1.15 billion. The company also reported $17 million in revenue from regulatory credits.

Despite a weak bottom line, Rivian's financial position remains solid as it ended the quarter with $7.87 billion in cash and investments, including $1 billion from an unsecured convertible note issued to Volkswagen. Moreover, the company successfully completed a retooling upgrade at its Normal, Illinois plant, producing 9,612 vehicles and delivering 13,790 units.

For 2024, Rivian has set a production target of 57,000 vehicles, incorporating necessary downtime for further upgrades and cost reductions. It aims for a 30% improvement in production line rate and a 20% reduction in material costs compared to its previous platform, reflecting its efforts to enhance efficiency and reduce expenses.

Rivian has also revamped its R1 pickup and SUV models, increasing prices slightly while maintaining competitive starting points for the R1S and R1T. The updated models are expected to drive higher revenues and support Rivian's goal of achieving positive gross profit per vehicle by the fourth quarter. While Rivian continues to face challenges, the company’s strategic initiatives and strong cash position provide a foundation for potential future growth.

Is Rivian a Strong Buy?

Several analysts are bullish about RIVN’s prospects, pointing out that its strong financial backing makes it a solid long-term bet. Despite facing challenges in scaling up operations, the company’s substantial cash reserves and strategic investments in expanding production capacity, like the new Georgia facility set to produce 250,000 vehicles annually by 2025, make its future promising.

With over 90,000 pre-orders for its R1T and R1S models, we can see that the consumer demand remains strong. Plus, the upcoming R2 platform is set to attract even more customers. So, while there are short-term bumps in the road, Rivian’s strong financial position and strategic moves suggest it’s well-positioned for long-term success. For investors ready to look past the immediate challenges, RIVN could be a great addition to your portfolio.

Why DELL Could Be a Big Winner in the AI Cloud Spending Boom

As the tech world grapples with the ebb and flow of generative AI hype, one thing remains clear: the major players are doubling down on their investments. Despite a nearly 15% drop in the Nasdaq since July’s highs and concerns about a potential repeat of the dot-com bubble, the tech giants aren’t flinching.

The second-quarter earnings season revealed that major technology companies like Amazon.com, Inc. (AMZN), Microsoft Corporation (MSFT), Alphabet Inc. (GOOGL), and Meta Platforms, Inc. (META) are more bullish than ever, continuing to fuel their AI ambitions with hefty investments. Together, these companies have poured around $40 billion into cloud computing, with a significant portion allocated for GPUs and other AI-related tech.

For example, the partnership between Microsoft and OpenAI has sparked a massive capital expenditure (CAPEX) buildout and triggered a surge in demand for GPUs. So far, enterprise adoption of generative AI has mostly involved exploratory projects within the public cloud.

Following the release of second-quarter results by these tech behemoths, Susquehanna analyst Mehdi Hosseini raised his 2024 global capital expenditure forecast for the top 12 cloud computing providers by 3%, bringing the total to $192 billion, up by 55% from last year. And if that wasn’t robust enough, Hosseini predicts spending will rise by another 40% to 42% in 2025.

Amid this surge in AI investment, Dell Technologies Inc. (DELL) is emerging as an unexpected contender. Traditionally recognized for its personal computing products, Dell is now aggressively expanding its footprint in AI and cloud computing. With the growing need for data centers and advanced cloud solutions, Dell’s strategic shift positions it well to benefit from this boom.

So, could DELL be a major winner in the AI revolution? Let’s find out.

Dell’s Strategic Position in the AI Server Market

Dell Technologies has evolved far beyond its origins as a producer of Windows-powered PCs. While high-end laptops and gaming stations remain significant, Dell’s focus has increasingly shifted toward becoming a leading player in the AI and cloud infrastructure space.

The company’s extensive portfolio includes everything from data centers to edge computing solutions, positioning it as a versatile player in the tech world. DELL’s infrastructure solutions are particularly noteworthy, as they cater to the growing demand for advanced AI computing power. The company has built a strong reputation for assembling efficient, high-performance data centers, a crucial asset as AI and machine learning drive demand for robust computing infrastructure.

Moreover, Dell’s partnerships with major cloud providers and tech giants like NVIDIA Corporation (NVDA) underscore its critical role in the AI ecosystem. NVDA’s endorsement of Dell as a premier solution for building data centers is a testament to its capabilities. The “AI Factory” initiative, highlighted by Nvidia CEO Jensen Huang, marks DELL as a leading player in the transition to AI-accelerated computing environments.

The company’s infrastructure solutions segment, which generated $4.3 billion in operating income last year, stands to benefit immensely from the accelerating demand for advanced AI computing systems. This growth potential is reinforced by the company’s strategic focus on high-performance servers and storage solutions tailored for AI applications.

In the first quarter ended May 3, 2024, DELL’s net revenue increased 6% year-over-year to $22.24 billion, exceeding the analysts’ expectations of $21.65 billion. Its Infrastructure Solutions Group’s (ISG) revenue stood at $9.23 billion, up 22% year-over-year. Thanks to strong demand across AI and traditional servers, the company’s servers and networking revenue grew 42% from the year-ago value to $5.47 billion.

On the bottom line, DELL’s net income and EPS came in at $955 million and $1.32, indicating an increase of 65% and 67% from the prior year. The company returned $1.10 billion to shareholders through share repurchases and dividends, ending the quarter with $7.30 billion in cash and investments.

Dell’s consistent ability to meet or exceed expectations, coupled with its aggressive cash returns to shareholders, has proven to be a winning strategy. This, along with its strong positioning in AI, has driven the stock price to more than double over the past twelve months. Shares of DELL have surged more than 45% year-to-date and nearly 95% over the past year.

As companies invest more in AI computing systems, the company’s infrastructure solutions are expected to see substantial growth. With tens of billions, potentially even hundreds of billions of dollars up for grabs, DELL is well-positioned to capture a significant share of this expanding market. If it continues to leverage its partnerships and infrastructure expertise, it could emerge as a major beneficiary of the AI boom, making it an intriguing stock for investors to consider.

Big Tech’s In-House AI Chips: A Threat to Nvidia’s Data Center Revenue

Nvidia Corporation (NVDA) has long been the dominant player in the AI-GPU market, particularly in data centers with paramount high-compute capabilities. According to Germany-based IoT Analytics, NVDA owns a 92% market share in data center GPUs.

Nvidia’s strength extends beyond semiconductor performance to its software capabilities. Launched in 2006, CUDA, its development platform, has been a cornerstone for AI development and is now utilized by more than 4 million developers.

The chipmaker’s flagship AI GPUs, including the H100 and A100, are known for their high performance and are widely used in data centers to power AI and machine learning workloads. These GPUs are integral to Nvidia’s dominance in the AI data center market, providing unmatched computational capabilities for complex tasks such as training large language models and running generative AI applications.

Additionally, NVDA announced its next-generation Blackwell GPU architecture for accelerated computing, unlocking breakthroughs in data processing, engineering simulation, quantum computing, and generative AI.

Led by Nvidia, U.S. tech companies dominate multiple facets of the burgeoning market for generative AI, with market shares of 70% to over 90% in chips and cloud services. Generative AI has surged in popularity since the launch of ChatGPT in 2022. Statista projects the AI market to grow at a CAGR of 28.5%, resulting in a market volume of $826.70 billion by 2030.

However, NVDA’s dominance is under threat as major tech companies like Microsoft Corporation, Meta Platforms, Inc. (META), Amazon.com, Inc. (AMZN), and Alphabet Inc. (GOOGL) develop their own in-house AI chips. This strategic shift could weaken Nvidia’s grip on the AI GPU market, significantly impacting the company’s revenue and market share.

Let’s analyze how these in-house AI chips from Big Tech could reduce reliance on Nvidia’s GPUs and examine the broader implications for NVDA, guiding how investors should respond.

The Rise of In-house AI Chips From Major Tech Companies

Microsoft Azure Maia 100

Microsoft Corporation’s (MSFT) Azure Maia 100 is designed to optimize AI workloads within its vast cloud infrastructure, like large language model training and inference. The new Azure Maia AI chip is built in-house at Microsoft, combined with a comprehensive overhaul of its entire cloud server stack to enhance performance, power efficiency, and cost-effectiveness.

Microsoft’s Maia 100 AI accelerator will handle some of the company’s largest AI workloads on Azure, including those associated with its multibillion-dollar partnership with OpenAI, where Microsoft powers all of OpenAI’s workloads. The software giant has been working closely with OpenAI during the design and testing phases of Maia.

“Since first partnering with Microsoft, we’ve collaborated to co-design Azure’s AI infrastructure at every layer for our models and unprecedented training needs,” stated Sam Altman, CEO of OpenAI. “Azure’s end-to-end AI architecture, now optimized down to the silicon with Maia, paves the way for training more capable models and making those models cheaper for our customers.”

By developing its own custom AI chip, MSFT aims to enhance performance while reducing costs associated with third-party GPU suppliers like Nvidia. This move will allow Microsoft to have greater control over its AI capabilities, potentially diminishing its reliance on Nvidia’s GPUs.

Alphabet Trillium

In May 2024, Google parent Alphabet Inc. (GOOGL) unveiled a Trillium chip in its AI data center chip family about five times as fast as its previous version. The Trillium chips are expected to provide powerful, efficient AI processing that is explicitly tailored to GOOGL’s needs.

Alphabet’s effort to build custom chips for AI data centers offers a notable alternative to Nvidia’s leading processors that dominate the market. Coupled with the software closely integrated with Google’s tensor processing units (TPUs), these custom chips will allow the company to capture a substantial market share.

The sixth-generation Trillium chip will deliver 4.7 times better computing performance than the TPU v5e and is designed to power the tech that generates text and other media from large models. Also, the Trillium processor is 67% more energy efficient than the v5e.

The company plans to make this new chip available to its cloud customers in “late 2024.”

Amazon Trainium2

Amazon.com, Inc.’s (AMZN) Trainium2 represents a significant step in its strategy to own more of its AI stack. AWS, Amazon’s cloud computing arm, is a major customer for Nvidia’s GPUs. However, with Trainium2, Amazon can internally enhance its machine learning capabilities, offering customers a competitive alternative to Nvidia-powered solutions.

AWS Trainium2 will power the highest-performance compute on AWS, enabling faster training of foundation models at reduced costs and with greater energy efficiency. Customers utilizing these new AWS-designed chips include Anthropic, Databricks, Datadog, Epic, Honeycomb, and SAP.

Moreover, Trainium2 is engineered to provide up to 4 times faster training compared to the first-generation Trainium chips. It can be deployed in EC2 UltraClusters with up to 100,000 chips, significantly accelerating the training of foundation models (FMs) and large language models (LLMs) while enhancing energy efficiency by up to 2 times.

Meta Training and Inference Accelerator

Meta Platforms, Inc. (META) is investing heavily in developing its own AI chips. The Meta Training and Inference Accelerator (MTIA) is a family of custom-made chips designed for Meta’s AI workloads. This latest version demonstrates significant performance enhancements compared to MTIA v1 and is instrumental in powering the company’s ranking and recommendation ads models.

MTIA is part of Meta’s expanding investment in AI infrastructure, designed to complement its existing and future AI infrastructure to deliver improved and innovative experiences across its products and services. It is expected to complement Nvidia’s GPUs and reduce META’s reliance on external suppliers.

Bottom Line

The development of in-house AI chips by major tech companies, including Microsoft, Meta, Amazon, and Alphabet, represents a significant transformative shift in the AI-GPU landscape. This move is poised to reduce these companies’ reliance on Nvidia’s GPUs, potentially impacting the chipmaker’s revenue, market share, and pricing power.

So, investors should consider diversifying their portfolios by increasing their exposure to tech giants such as MSFT, META, AMZN, and GOOGL, as they are developing their own AI chips and have diversified revenue streams and strong market positions in other areas.

Given the potential for reduced revenue and market share, investors should re-evaluate their holdings in NVDA. While Nvidia is still a leader in the AI-GPU market, the increasing competition from in-house AI chips by major tech companies poses a significant risk. Reducing exposure to Nvidia could be a strategic move in light of these developments.

The Magnificent 7 Earnings: How to Position Your Portfolio

As earnings season ramps up, investors closely watch the “Magnificent Seven,” a group of high-profile tech companies that play a pivotal role in market dynamics. This week, three of these tech giants—Amazon.com, Inc. (AMZN), Apple Inc. (AAPL), and Meta Platforms, Inc. (META)—are set to report their quarterly earnings.

On July 30, the Nasdaq Composite declined sharply ahead of Microsoft Corporation (MSFT) earnings. Microsoft shares fell nearly 7% in extended trading on Tuesday as disappointing cloud results overshadowed better-than-expected revenue and earnings.

For the fourth quarter that ended June 30, 2024, MSFT’s revenue increased 15% year-over-year to $64.70 billion. That slightly surpassed the consensus revenue estimate of $64.44 billion. The company’s top segment, Intelligent Cloud, which includes its Azure services, reported $28.52 billion in revenue. It was up around 19% but fell short of analysts’ expectations of $28.68 billion.

Microsoft’s cloud business holds significant importance for Wall Street, as the company competes with Amazon Web Services and Google for AI workloads. All three firms heavily invest in enhancing AI capabilities, aiming to attract startups and large corporations as generative AI models advance rapidly.

In addition, MSFT posted fourth-quarter net income and earnings per share of $22 billion and $2.95, up 10% year-over-year. That compared to analysts’ EPS estimate of $2.94.

Mega-cap tech stocks had surged tremendously on high hopes for growth driven by artificial intelligence (AI). The upcoming earnings reports from major tech giants, including AMZN, AAPL, and META, will have far-reaching implications for the market. Positive results could reinvigorate confidence in Big Tech, while disappointing numbers might accelerate the shift to underperforming sectors like mid- and small-cap stocks.

Moreover, the earnings season coincides with a pivotal Federal Reserve meeting. Fed officials are expected to hold rates steady but may signal a potential rate cut in September following better news on inflation and signs the labor market is cooling. This decision will add another layer of complexity to market dynamics, influencing investor sentiment and market movements.

Key Earnings Reports: What to Watch For

Amazon.com, Inc. (AMZN)

With a $1.89 trillion market cap, Amazon.com, Inc. (AMZN) engages in the retail sale of consumer products, advertising, and subscription services via online and physical stores. The company operates through North America, International, and Amazon Web Services (AWS) segments.

Amazon’s second-quarter earnings, scheduled to be released on August 1, will shed light on consumer spending and enterprise cloud adoption. Investors will be keen to see how AWS is performing, as it is a significant revenue driver for the company. In the last reported first quarter, AWS segment sales rose 17% year-over-year to $25 billion.

“The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate (now at a $100 billion annual revenue run rate); our Stores business continues to expand selection, provide everyday low prices, and accelerate delivery speed (setting another record on speed for Prime customers in Q1) while lowering our cost to serve; and, our Advertising efforts continue to benefit from the growth of our Stores and Prime Video businesses,” said Andy Jassy, AMZN’s President and CEO in first-quarter earnings release.

“It’s very early days in all of our businesses and we remain excited by how much more we can make customers’ lives better and easier moving forward,” Jassy added.

For the second quarter 2024 guidance, the tech giant’s net sales are expected to be between $144 billion and $149 billion, or grow between 7% and 11% compared to the second quarter of 2023. AMZN’s operating income is anticipated to be between $10 billion and $14 billion, compared with $7.7 billion in the second quarter of 2023.

Notably, on July 18, Amazon announced record-breaking sales for the 2024 Prime Day shopping event. During the 48-hour event, Prime members shopped millions of deals with over 35 categories and purchased more items than any prior Prime Day shopping event. Rufus, the company’s new AI-powered conversational shopping assistant, has assisted millions of customers quickly and easily navigating Amazon’s extensive selection.

Analysts appear bullish about the e-commerce giant’s prospects. Street expects AMZN’s revenue and EPS for the second quarter (ended June 2024) to increase 10.6% and 56.9% to $148.62 billion and $1.02, respectively. Moreover, the company topped consensus revenue and EPS estimates in all four trailing quarters, which is remarkable.

Shares of AMZN have surged about 14% over the past six months and more than 19% year-to-date. However, the stock has plunged around 6% over the past month.

Solid AWS growth in the second quarter and resilient consumer spending might justify increasing exposure to Amazon. However, slowing growth or rising costs could suggest reducing positions or hedging.

Apple Inc. (AAPL)

Apple Inc. (AAPL), valued at a $3.36 trillion market cap, is a global leader in consumer electronics, software, and services. Apple is renowned for its innovative products, including the iPhone, its flagship product which accounts for a significant portion of the company’s revenue, Mac computers, iPad, Apple Watch, AirPods, and services like the App Store, Apple Music, iCloud, and more.

AAPL’s third-quarter earnings, scheduled for August 1, will reflect the performance of its key product lines. For the second quarter that ended March 30, 2024, the company posted revenue of $90.75 billion, down 4% year-over-year. However, the revenue surpassed analysts’ estimate of $90.45 billion. Also, iPhone sales fell 10% year-over-year during the quarter. The company realized $5 billion in delayed iPhone 14 sales from Covid-based supply issues.

Furthermore, the company’s net income was $23.64 billion for the third quarter, down 2% from the prior year’s quarter. Apple reported quarterly earnings per share of $1.53, compared to the consensus estimate of $1.51.

In the last quarter, the company announced that its Board of Directors authorized $110 billion in share repurchases, an impressive 22% rise from last year’s $90 billion share authorization. It’s the largest buyback in the company’s history.

Apple did not offer formal guidance, but CEO Tim Cook told CNBC’s Steve Kovach that overall sales are expected to grow in the “low single digits” for the June quarter.

During an earnings call with analysts, AAPL CFO Luca Maestri indicated that the company will deliver double-digit year-over-year growth in iPad sales for the to-be-reported quarter. Additionally, he noted that the Services division is projected to continue growing at the current high rate observed over the past two quarters.

Analysts expect AAPL’s revenue and EPS for the third quarter to increase 3.2% and 6.5% to $84.38 billion and $1.34, respectively. Additionally, Apple surpassed consensus EPS estimates in each of the trailing four quarters.

Over the past month, AAPL’s stock has soared more than 2.5%. Further, the stock climbed approximately 16% over the past six months and around 13% year-to-date. Robust sales across key product lines could indicate solid consumer demand, driving Apple’s shares. However, updates on supply chain challenges and mitigation strategies will be crucial in the upcoming earnings report.

Meta Platforms (META)

With a market cap of $1.18 trillion, Meta Platforms, Inc. (META), formerly known as Facebook, Inc., is a tech conglomerate with key products, such as Facebook, Instagram, WhatsApp, and Messenger. It operates in two segments: Family of Apps and Reality Labs.

META is expected to report its second-quarter 2024 earnings on July 31 after the market closes. Meta’s first-quarter revenue was $36.46 billion, compared to the consensus estimate of $36.22 billion. Its revenue was up 27.3% year-over-year. The company’s ad impressions delivered across its Family of Apps grew by 20% year-over-year, and the average price per ad grew by 6%.

Further, the company reported an EPS of $4.71 for the March quarter, exceeding analysts’ expectations of $4.36 and being up 114% year over year.

Meta Platforms no longer provide data on daily active users (DAUs) and monthly active users (MAUs). Instead, it reports a consolidated figure called family daily active people (DAP). DAP was 3.24 billion on average for March, an increase of 7% year-over-year.

In the last earnings release, Meta’s founder and CEO, Mark Zuckerberg, said, “It's been a good start to the year. The new version of Meta AI with Llama 3 is another step towards building the world's leading AI. We're seeing healthy growth across our apps and we continue making steady progress building the metaverse as well.”

In April, META announced the latest version of Meta AI with Llama 3, one of the world’s leading AI assistants. This version is free and readily available in several countries. Meta AI is available across its apps, including Facebook, Instagram, WhatsApp, and Messenger, to get things done, learn, create, and access real-time information. The new advances in Meta AI with Llama 3 are expected to extend META’s market reach and boost its profitability.

For the second quarter of 2024, META expects sales between $36.50 billion to $39 billion. The midpoint of the range, $37.75 billion, will represent nearly 18% year-over-year growth. Meanwhile, analysts anticipate the company’s revenue for the June quarter to increase 19.7% year-over-year to $38.31 billion, and the consensus EPS estimate of $4.78 indicates an improvement of 60.5% year-over-year.

Meta has raised investor expectations due to its improved financial performance in recent quarters, leaving little room for error. The stock is up about 2% over the past five days and nearly 30% year-to-date. In February 2023, META CEO Mark Zuckerberg announced it would be the “year of efficiency,” which sparked the rally.

At that time, Zuckerberg stated that the company would focus on eliminating unnecessary projects and reducing bloat, aiming to transform Meta into a “stronger and more nimble organization.” Consequently, the company cut about 21,000 jobs in the first half of 2023, with Zuckerberg indicating in February this year that hiring would be “relatively minimal compared to historical levels.”

The headcount decreased by 10% in the first quarter of 2024 compared to the previous year, bringing it down to 69,329 employees.

Meta’s capital expenditures for fiscal 2024 are projected to be between $35 billion and $40 billion, up from a prior forecast of $30 billion to $37 billion. This increase is attributed to accelerated infrastructure investments to support the company’s artificial intelligence (AI) roadmap, META said.

Bottom Line

As earnings reports from tech giants, including META, AAPL, and AMZN, approach, investors should prepare for potential market shifts. Investors can better position their portfolios by closely monitoring these results and considering broader economic signals, such as the Federal Reserve’s actions. A balanced approach with diversification, sector rotation, and hedging can help manage risks and capitalize on opportunities in this critical earnings season.