After a ho-hum fourth-quarter earnings season, investors are on the edge of their seats for the first quarter of this year. The beginning of 2017 was difficult for tech companies as they were exposed to risk of trade wars and the anti-immigration stance.
However, the tech sector had a relatively good run against a tough macroeconomic backdrop. Advancements in artificial intelligence (AI) technology, breakthroughs in chip-shrinking technology, self-driving cars, personal assistants, high-speed Internet and home automation kept the buzz surrounding the sector alive.
Moreover, as the global economy is gaining momentum, technology companies appear to be in the best position to prosper. They are also less susceptible to interest rates or deregulation. Among sector bellwethers, mega-cap tech names like Apple AAPL have surged this year, along with Alphabet Inc. GOOGL Amazon.com, Inc. AMZN , and Facebook, Inc. FB .
Here's a look at the performance of both the companies in the last quarter and what awaits them in the to-be reported quarter.
Apple Inc. emerged the top gainer for the Dow during the first quarter. Since the last earnings reported by Apple, its shares have added about 8.6%, outperforming the market.
Apple reported better-than-expected first quarter of fiscal 2017 results. Earnings of $3.36 per share and revenues of $78.4 billion easily topped the respective Zacks Consensus Estimate of $3.22 and $76.9 billion. On a year-over-year basis, both metrics registered growth of 2.4% and 3.3%.
A variety of factors contributed to the stock's gain, including a rebound in iPhone sales growth, investments made by Warren Buffet and the company's efforts to boost its services revenue. Apple has expanded its market capitalization by more than $140 billion over the period, an amount which is higher than the gains mopped by all other Dow components taken together.
Apple Looks Good
Apple, a Zacks Rank #2 (Buy) technology stock, generated a strong three-month return of around 18.86%. The company has a market cap of $743.07 billion. It has a VGM score of A.
The stock delivered three positive earnings surprises in the last four quarters with an average beat of 0.89%. Moreover, in the last 30 days, three estimates for fiscal 2017 were raised upward, pushing the Zacks Consensus Estimate up by 0.34% (3 cents) to $8.94.
One of the biggest catalysts for Apple this quarter could be the performance of the iPhone as always. Apple plans to introduce its customary updated versions of the iPhone with the release of the tentatively named iPhone 7s and iPhone 7s Plus. Besides the new iPhone offerings, the best news for Apple and its investors is the massively aging iPhone install-user base.
Coming to the stock performance, shares of Apple performed more or less in line with the broader Zacks Computer - Mini Computers industry in the last one year. While the industry gained 27.31%, the stock returned 26.29%
The in-line performance of the stock can primarily be attributed to good growth in its services revenues, especially with regard to Apple Music and App Store. However, the company is witnessing sluggish demand for its flagship offering, the iPhone in major markets worldwide. Also, intensifying competition and macroeconomic headwinds remain concerns for the company.
As usual, all eyes will be on the company formerly known as Google, Alphabet Inc., as the tech giant prepares to release its first-quarter earnings. The company missed its fourth-quarter earnings by 1.18%.
Higher cost of revenue and steeper taxes impacted the quarter's earnings. Since the last earnings reported by Alphabet, its shares have lost about 0.6%.
However, YouTube continues to remain a strong contributor benefiting from the increase in online video consumption. More than a thousand creators are currently engaged with the platform, bringing in a thousand subscribers every day.
Also, Google gained strength in the mobile platform. Management is focused on driving mobile experiences and the company is well positioned to pick up strong intent-to-buy signals as a result of studying mobile searches from its huge database. As a result, revenue from mobile platform is expected to increase in the upcoming results.
Also, Google platforms like Android, Chrome and Daydream continue to help it draw more users and sell more ads.
Alphabet Not Far Behind
Alphabet, on the other hand, also carries a Zacks Rank #2, and that's always a good sign heading into an earnings announcement.
Alphabet generated a return of 0.99% in the last three months. The company has a market cap of 573.85 billion.
Ahead of the report, Alphabet Inc. has seen one positive estimate revision in the last 60 days. Our current consensus estimates indicate earnings per share growth of 19.52% and sales growth of 19.32%. This helped the company to earn a "B" grade for growth. This is especially noteworthy given the relative size and status of Alphabet already.
The stock delivered two positive earnings surprises in the last four quarters with an average beat of 2.71%. Nevertheless, Alphabet currently has an Earnings ESP of 0.0%, which makes surprise prediction a bit more difficult.
Coming to the stock performance, over the past one year, shares of Alphabet have been steadily treading higher. The stock returned 8.72% compared with the Zacks categorized Internet Services industry's gain of 5.73%.
Apple and Alphabet are two of the biggest companies in the tech space. Both stocks have their share of positives and negatives. While Apple has been a steady performer, Google is in for some tough competition, which will likely unfold over the next five years or so. Both have strong balance sheets, ample financial flexibility, manageable debt capital ratios and strong shareholder return policies in place along with sound management.
But given the current scenario, we would bet on Apple because it is well-positioned to outpace the industry and is fundamentally strong enough to withstand risks.
You can see the complete list of today's Zacks #1 Rank stocks here .
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