Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) are set to report quarterly earnings this week and investment firm Wedbush Securities believes the results from the two tech giants “could dictate the path of tech stocks over the coming months.”
Analyst Dan Ives, who rates Microsoft (MSFT) and Apple (AAPL) outperform, noted that the tech sector has split, with software, semiconductors, cyber security and product drive names leading the space higher.
In conjunction, those who benefited from the work-from-home trends during the pandemic, such as Netflix (NFLX), Meta Platforms (FB), Zoom Communications (ZM) and DocuSign (DOCU) are likely to see their earnings multiples move lower as results come off their highs.
“To this point, we are expecting strong numbers from both stalwarts Microsoft and Apple this week which would be much needed good news for the tech sector in this white knuckle time,” Ives wrote in a note to clients.
Microsoft (MSFT) shares fell slightly more than 1% to $270.97 in premarket trading, while Apple declined 1.5% to $159.30.
Ives noted that Microsoft’s (MSFT) cloud story is not slowing down, with “large transformational cloud deal” up more than 50% and it may be gaining market share from Amazon (AMZN) Web Services.
“We are seeing deal sizes continue to increase markedly despite macro jitters as enterprise-wide digital transformation shifts are accelerating with CIOs all focused on readying their respective enterprises for a cloud driven architecture with [Microsoft] poised to beat Azure whisper growth numbers of ~45% this quarter,” Ives wrote.
For Apple (AAPL), China is still the growth engine, even as the country deals with a crippling outbreak of COVID cases, resulting in multiple lockdowns.
Still, it’s likely that Apple (AAPL) gained roughly 3% of the smartphone market in China over the past 12 months due to the iPhone 12 and iPhone 13, both which have 5G services. It’s also possible that the company may benefit from higher average selling prices from China, which could help it drive further revenue gains.
Nonetheless, a slowdown in China’s economy has caused some investors to be concerned about slowing growth for Apple (AAPL) in the country, but Ives said there is still pent up demand for its products.
“While the supply chains issues have curtailed some growth (~15 million iPhone units) for Apple over the past few quarters on this massive product cycle, we believe the pent-up demand story is still being underestimated by investors and will be a laser focus of the Street later this week,” Ives added.
Earlier this month, research firm Canalys said Apple (AAPL) gained share in the smartphone market in the first-quarter, largely due to the “growing demand” for its iPhone 13.