Another Batch of Big Tech Earnings Amid Software Weakness

Tech stocks sold off last week as investors worried that AI could lead software companies to lose clients ahead of key Big Tech earnings, which could drive the market.

Key Takeaways

• Investors are exiting software stocks on fears that AI will reduce SaaS reliance while rotating into cloud providers where infrastructure demand remains high.
• AMD is reporting on Tuesday after the close, with earnings expected to hit $1.39/share on $9.7B revenue, and traders focused on market share and guidance.
• Alphabet earnings are due post-market close on Wednesday, with EPS at $2.65 and revenue at $111.5B, and focus on cloud growth and the Waymo robotaxi unit.
• Amazon is expected to report EPS of $1.96 on $211.2B in sales after the bell on Thursday, with AMZN likely depending on AWS performance over retail numbers.
• Traders remain wary of an AI bubble and are prioritising companies with tangible growth in cloud platforms over speculative broader tech plays.

Divergence Emerges Among Tech From AI Impact

While traders remain confident in AI demand, recent market performance suggests growing concern about how the technology will affect software providers. All of the major software companies that have reported so far this season have seen their stock prices drop, contributing to a steep tech sell-off on Thursday and to the Nasdaq turning red for the week. Investors are worried that advances in AI will enable customers of software-as-a-service (SaaS) companies to develop their own products using LLMs, reducing reliance on providers like Salesforce. SaaS has been a major driver for many tech companies over the last few years. AI also reduces entry barriers for startups, potentially increasing competition in the space. This has contributed to a divergence among Big Tech firms, with those that rely more on software development and less on AI underperforming their peers. However, cloud providers have continued to lead the market, as chipmakers suggest they are still unable to meet demand, keeping AI infrastructure prices elevated. Traders will be looking at a new crop of Big Tech earnings this week to see whether the trend continues, especially after the Nasdaq rose on Monday following the ISM Manufacturing report that surprised to the upside.

Big Tech Earnings Focused on AI This Week

Advanced Micro Devices (AMD) will report earnings after the market closes on Tuesday, with earnings expected to advance to $1.39 from $1.09 last year. Sales are expected to rise 26.3% to $9.7 billion, with traders looking to the company's guidance for signs of continued demand for AI chips. Traders will be looking to see if the company can continue to gain market share and if it echoes other chip companies that have said demand is outstripping supply.

Alphabet (GOOG), the owner of Google and YouTube, confirmed it will report earnings on Wednesday after the market closes. Earnings are expected to advance to $2.65/share from $2.15 a year ago, while revenue is projected to increase 15.6% to $111.5 billion. Traders will likely focus on the company's cloud sales after both Microsoft and Meta said they would increase AI spending. Although a small factor in the company's profits, there is growing interest among traders in the company's Waymo unit, which might outcompete Tesla in the robotaxi race.

Amazon (AMZN) is scheduled for Thursday after the closing bell, with a median EPS forecast of $1.96, up from $1.86 a year ago. Sales are anticipated to rise 12.5% to $211.2 billion. The market will likely be looking at the company's retail sales numbers over the crucial holiday season for insights into the US economy and consumer behaviour. But the company's stock could react more to performance in its AWS unit, the leading global cloud provider. Amazon has also been advancing in the agentic AI space, which could garner investor attention.

Traders Looking for Durable Growth

Investors will be looking to see whether last week's divergence among major tech players is repeated in the upcoming earnings cycle. Analysts note that traders remain wary of an AI bubble despite Intel and TSMC saying demand remains solid and are prioritising investments in companies with more obvious growth, such as those offering cloud platforms like Google's and Amazon's AWS.