FOMC Came & Went 📈 | AI Is Turning Out To Be Whale Territory Only 🐳 | What You Need To Know Ahead Of AAPL Earnings 🍎
FOMC Came & Stocks Fell In Response 👀
The market closed in a mix fashion today while the market digested the commentary from the Fed chair Jerome Powell after announce that the central bank will hold interest rates steady in todays FOMC meeting. Let’s take a look at how our indexes moved:
The S&P500 and Nasdaq Composite shed 0.3% at market lose
The Dow Jones Industrial Average saw 0.2% pop
In earnings news we had the likes of & headline the market with both chip makers losing points throughout the day. AMD fell nearly 10% throughout the day while SMCI fell 14% respectively, NVDA joined in on the losses with a 4% loss at market close as well. saw an 18% slide after reporting a lower than expected Q2 forecast, while continued to tumble after an abysmal earnings report.
AI Earnings = Big Money To Make Money 💰
The tech earnings season has revealed that significant investments are required to generate revenue from AI. Companies such as Amazon, Google, Meta, and Microsoft have reported increased sales due to AI, but this growth comes with a cost. These tech giants are spending billions on capital expenditures to meet the demand for AI.
In Q3, Microsoft spent $14 billion on AI-related capital expenditures, a substantial increase from $7.8 billion in the same period last year. Google’s parent company, Alphabet, spent $12 billion in the last quarter and plans to continue at this pace for the rest of the year. Meta has also increased its spending forecast for 2023 from $30 billion-$37 billion to $35 billion-$40 billion, with further increases expected in the following year. Amazon announced that it would surpass last year’s $48.4 billion in capital expenditures, with $14 billion spent in Q1 alone.
These investments are necessary to test and implement generative AI applications across various business segments. Although AI is driving revenue growth, it may take 12 to 18 months before companies see significant returns on their investments. Despite the long-term commitment, tech companies are preparing investors for a lengthy investment period to fully realize the potential of AI.
Set To Report Earnings Under Pressure 👀
Apple is due to report its Q2 earnings on Thursday, and experts predict a decline in iPhone sales in China. According to Counterpoint Research, iPhone sales in China fell by 19% in the quarter, while Huawei, Apple’s competitor, has been recovering from the US ban on accessing US chips. This decline in sales follows two consecutive quarters of revenue decreases in Greater China, one of Apple’s most crucial sales regions. Revenue is expected to drop by 4.75% year-over-year to $90.3 billion.
Apple’s shares have not performed as well as its competitors, with a 5% decline year-to-date and a flat performance over the past 12 months. In contrast, Microsoft and Google shares have increased by 25% and 37%, respectively, over the past year.
For the quarter, Apple is expected to report earnings per share (EPS) of $1.50, representing a 4.75% year-over-year revenue decline. Specifically, iPhone revenue is anticipated to decline by 10.8% to $45.75 billion, while iPad revenue is set to fall by 11%. Analysts also predict that Mac and Wearables revenue will decline by 5% year over year. However, there are some positive aspects to look forward to in the quarter. Services revenue is expected to grow by 11% year over year to $23.28 billion. Additionally, gross margin is anticipated to improve by 5% year over year to 46.59%.
