Bad Tech Earnings Are Priced In

There are many so-called “experts” and “economists” dumping on the upcoming tech earnings season.

I got it – they won’t be the best ever.

No need to beat a dead horse when it’s down.

They say that the optimism of a soft landing for the economy is dissipating as stubbornly high inflation keeps central banks hawkish.

It’s hard to believe that tech stocks have been on a tear in 2023 during a period of hawkishness.

Higher for longer luckily has not affected tech stocks yet, yet many are saying this earnings season could be the straw that breaks the camel’s back.

I must admit, at the intro level such as venture capitalism and start-ups, the rate environment has been nothing short of catastrophic.

Investors aren't giving money for just ideas anymore.

The good news is that at the incubator level, nobody cares because these paltry numbers don’t move the stock market and are decades away from going public.

It doesn’t matter to the tech market that the next Amazon or Facebook has a tough time borrowing with these sky-high rates.

Nobody cares because most people hold Apple and Tesla stock.

I am also willing to call B.S. on the negativity for the upcoming tech earnings season and will say it should be just fine.

I am not diminishing the belt-tightening going on inside the offices, it certainly is happening.  

Tech companies are hunkering down, which is true because the low-lying fruit has been plucked off the branch.

42% of respondents from a recent survey said the biggest negative for the earnings season will be the impact of further tightening of financial conditions.

I would say that if that is the biggest risk out there to respondents, then tech shares will certainly end the year higher from today.

There’s also a widespread belief that earnings per share (EPS) will fall off a cliff and then rebound to growth in the final three months of the year, according to data by Bloomberg Intelligence.

This seems like the perfect setup for tech executives to lower the bar.

While the tech rally was boosted by the hype around artificial intelligence, over 70% of survey participants say the impact of AI on tech earnings is overblown.

Amid the gloom, the biggest positive drivers for equities will be any signs of easing inflation and cost cutting, according to the majority of those surveyed.

Ultimately, it has already been baked into the pie that margins will come under pressure as companies lose the ability to keep raising prices when inflation cools and as growth slows.

That doesn’t mean there will be anything more than a technical and orderly pullback which I have been championing for.

A result like that would be healthy for tech stocks.

Tech shares simply cannot go up in a straight line forever, but they keep defying gravity in the first 7 months of the year.

Even if the big 7 tech stocks signal some downshifting revenue trajectories, it won’t be more than a few days' drop in shares signifying a marvelous opportunity to finally get into some of these premium names that rarely offer optimal entry points.

Expect nothing special from this earnings season and buy any garden variety dip from premium tech stocks.