The Easy Money Has Been Made In Big Tech Stocks. Will This Week's Earnings Be 'Good Enough' for Investors?

Key Takeaways

• Tech stocks have been hot lately, which could mean high expectations for their results, outlooks and spending plans when a slew of major reports land later this week.

• One expert, though, says big tech firms may not need to show AI leading to substantial revenue growth, rather than just cost savings and product improvements, until next year.

Tech stocks have been easy money all month. Now investors want to see hard proof that returns on big tech spending are coming.

Broad market indexes including the S&P 500 and Nasdaq have rallied in April as investors have bid up the U.S.’s biggest technology companies. Those moves have built anticipation for the big tech earnings show-and-tell this week, with reports due Wednesday from Alphabet (GOOGL), Amazon (AMZN), Meta Platforms (META), and Microsoft (MSFT), then Apple (AAPL) a day later.

Investors have backed off tech shares a bit today, but expectations for this quarter’s earnings are running hot. The Q1 blended net profit margin—a combination of results and estimates—of 13.4%, if realized, would be the highest on record since FactSet started tracking the metric, the organization’s John Butters recently noted. And if markets deem the tech majors’ earnings reports due this week “good enough,” experts say, U.S. stocks could continue climbing.

WHY THIS MATTERS TO YOU

Which way the war in Iran and monetary policy will swing remains an open question, making good results from major technology companies all the more important to investors.

The “key” this week is whether the companies that have spent hundreds of billions of dollars building their AI capabilities have enough to show for it, said Saira Malik, chief investment officer at Nuveen, on CNBC Tuesday.

“The easy money has been made in this rally,” said Malik, so the question now is whether the results are “going to be good enough for markets.”

There may be less risk for a “sell the news” situation around tech earnings now because not all investors have been buying the rumor. Despite the rally of the past few weeks, flows and portfolio allocations suggest that some investors were “skeptical of the bounce,” leaving “room for bullish capitulation” that could drive prices even higher, according to Barclays U.S. equity strategy team led by Venu Krishna.

At least one industry expert says that tech majors won’t have to “show the goods” until the end of the year as investors start to look to 2027,—but the goods will mean revenue growth, not just cost cutting and working large language models into products.

“Wwe have seen some big cost saving use-cases, right? I don’t like to see people get fired, but tech fired 80,000 people last quarter,” Paul Meeks, head of technology research at Freedom Capital Markets, told CNBC on Tuesday. “If you get a company like Apple, they’re really going to have to be successful not just putting AI on Siri, on your phone, but they have to come up with some standalone AI products that generate a lot of revenue.”

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