Evidenced by Friday’s continued punishment in stocks, investors are seemingly less confident that the upcoming earnings results from the most-influential companies in the S&P 500 won’t be impressive enough to reverse the recent slide, particularly in tech stocks. Stocks have been under pressure in the first three weeks of the year, driven by several headwinds. Aside from high inflation, there are also rising interest rates and uncertainty regarding the direction of Fed Reserve policy.
Rising 10-year Treasury yields have also caused investors to run for the exits, especially riskier assets. The 10-year is up about 25 basis points this year near 1.74%. All of this makes a perfect recipe for sustained volatility. At the same time, however, this has also created an environment for value seekers to scoop up several beaten-down names, especially in technology, that now offer compelling prices, considering the fact that the Nasdaq Composite Index is now down 12% year to date.
This puts the Nasdaq Composite not only in correction territory (measured as at least a 10% decline from its recent record close), it has also breached its 200-day moving average — which is often considered a bearish technical trend. This is something the index had not done since April of 2020. All told, the Nasdaq ended Friday down 2.72%, losing 385.10 points to close at 13,768.92. It ended the week down 7.6%, and is on track for its worst start to a year in thirteen years. The S&P 500 index, which was down 5.7% for the week, on Friday gave up 1.89%, losing 84.79 points to close at 4,397.94, while the Dow Jones Industrial Average fell 1.3%, losing 4.6% for the week.
The main question heading into the week is whether this punishment will continue, particularly as Big Tech comes into focus with Apple (AAPL) and Microsoft (MSFT) slated to announce their results. The guidance they provide for the current quarter and beyond will reveal their level of confidence in navigating supply chain headwinds, among other woes. Understandably, given the many areas of uncertainty, stocks are responding cautiously. I suspect this will continue to be the case. Here are the names to keep an eye on for this week.
Advanced Micro Devices (AMD) - Reports after the close, Tuesday, Jan. 25
Wall Street expects AMD to earn 76 cents per share on revenue of $4.52 billion. This compares to the year-ago quarter when earning were 52 cents per share on $3.24 billion in revenue.
What to watch: Having surpassed both revenue and profit estimates in ten straight quarters, it appears AMD is finally getting the respect it deserves. But not everyone believes AMD’s success can last. AMD stock was under pressure last week, falling some 7% amid the tech selloff. Analysts at Piper Sandler fanned more bearish flames by downgrading the stock and slashing their price target. Citing several areas of concerns, including a decline in the PC market, analyst Harsh Kumar rated AMD down from Overweight to Neutral. Kumar also reduced his 12-month price target to $130. The analyst also expects potential headwinds with earnings and revenue growth from AMD’s recent deal for Xilinx (XLNX). In the meantime, investors are wondering is the decline the beginning of a trend or a buying opportunity; assuming the company’s growth metrics have not drastically decelerated, it would be a mistake to part with AMD stock.
Microsoft (MSFT) - Reports after the close, Tuesday, Jan. 25
Wall Street expects Microsoft to earn $2.31 per share on revenue of $50.88 billion. This compares to the year-ago quarter when earning were $2.03 per share on $43.08 billion in revenue.
What to watch: Microsoft has announced its Metaverse presence with some authority with its announced deal for video game giant Activision Blizzard (ATVI). Paying almost $69 billion, the all-cash deal is not cheap, but it is one that the company had to make not only to strengthen its grip in building its metaverse. Activision now gives Microsoft a massive ramp in the mobile gaming industry, among other things. Wall Street has broadly applauded the deal, which many expect to receive few regulatory challenges. Goldman Sachs analyst Kash Rangan has Microsoft on his Conviction Buy List with a $400 target, representing more than 30% upside from current levels. "As Activision has built a number of best in class franchises (Call of Duty, World of Warcraft, Diablo and Candy Crush) and engages millions of users (its mobile segment, King has 245m MAU), Microsoft stated that it sees opportunities to be a key player in the future metaverse era," Rangan wrote in a note to clients. Needless to say, this will be a major topic on the with analysts on Tuesday. Microsoft must also not only deliver goods on its current business segments, and better-than-expected guidance.
Intel (INTC) - Reports after the close, Wednesday, Jan. 26
Wall Street expects Intel to earn 90 cents per share on revenue of $18.32 billion. This compares to the year-ago quarter when earnings were $1.52 per share on revenue of $19.98 billion.
What to watch: Rumors of Intel’s (INTC) death have been exaggerated. Not only is the chip giant alive and kicking, it is deploying its massive cash stockpile to regain its lead in chipmaking technology. The company on Friday announced a whopping $20 billion investment for a new manufacturing facility near Columbus, Ohio. The company said it will build at least two semiconductor fabrication plants, or fabs, on the 1,000-acre site. Construction will begin this year and the plant should be operational by 2025. Intel also retains the options to scale up to 2,000 acres and to support eight fabrication plants. But will investors be patient enough to allow the company time to execute its strategy, especially at a time when rivals rivals AMD (AMD) and Nvidia (NVDA) are striving in several important chip developments? Intel shares have fallen 6% over the past six months, compared to 3% rise in the S&P 500 index. The stock is down about 11% over the past year, lagging the S&P 500’s 16% gain. Intel on Wednesday must prove the naysayers wrong, while selling the upside potential of its recent manufacturing plants.
Tesla (TSLA) - Reports after the close, Wednesday, Jan. 26
Wall Street expects Tesla to earn $2.26 per share on revenue of $16.2 billion. This compares to the year-ago quarter when earnings came to 80 cents per share on revenue of $10.74 billion.
What to watch: Tesla shares have been under pressure, heavily selling amid the recent punishment in tech stocks. The stock is down more than 10% in the past week and is off more than 23% from its 52-week high. Can Tesla shares rebound? I would not bet against it, especially when considering that both Giga Berlin and Giga Texas are due to start ramping up production this year. Without question, Tesla’s increased focus on its growth strategy, namely production and profit margins, have been a major factor in the company’s recent success. And the expected 185% rise in full-year profits underscores Tesla’s level of execution and efficiency. We know Tesla’s Q4 numbers are going to be strong. The question is, what will be the production and delivery forecast, along with financial guidance for the first quarter and full year 2022? There are also rumors that the Cybertruck might be delayed until 2023. These are the topics that will likely drive the stock on Wednesday.
Apple (AAPL) - Reports after the close, Thursday, Jan. 27
Wall Street expects Apple to earn $1.89 per share on revenue of $118.28 billion. This compares to the year-ago quarter when earnings came to $1.68 per share on revenue of $111.44 billion.
What to watch: The iPhone maker recently became the first company in history to reach a valuation of $3 trillion, when its shares reached $182.86 earlier in the month. While the $3 trillion market cap milestone was an impressive accomplishment, driven by successful new product launches, including its pivotal iPhone 13, there were questions being raised, suggesting this could be as good as it will get for Apple stock. Since that achievement, Apple stock has gotten sliced, falling some 12%. Shares are down 8.5% year to date, trailing the 7.73% decline in the S&P 500 index. In 2021, Apple saw gains of 35%. Is this an overreaction? The market is re-assessing tech valuations and Apple has seemingly gotten caught in that. The Street forecasted revenue for January quarter to grow just 6.5%, while the subsequent quarters may struggle due to the chip shortage. This, however, highlights the importance of Apple’s Services business, which now accounts for almost 30% of total revenue. Investors are hoping for more clarity and conviction on Thursday.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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