Big tech and big oil earnings

Key takeaways

• Earnings announcements are an important moment for investors to assess how a company is performing against their expectations.
• While earnings can cause bigger movements in share prices, investors should keep focused on the reasons they bought a stock. 
• Big tech and big oil companies reporting this week may shed light on the trajectory of major trends from AI to global consumption.

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Earnings announcements are an important moment for investors to pause and reflect on how a company is stacking up against their expectations. 

While it’s important to understand where expectations are and how they could change, it’s also crucial that investors keep focused on the original reasons they invested. If your original reason for investing starts to change, then maybe it’s time to reconsider a position. 

Remember that this content is not intended as advice to either buy or sell any of the shares that we mention. You should always do your own research and only make investment decisions based on your long-term financial objectives. If you’re unsure about investing, you should seek financial advice. 

Here’s a look ahead at what to expect from some of biggest companies reporting this week 👇

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Tuesday: BP (29 October)

BP is one of the largest oil companies in the world in terms of annual production. And with that, it’s facing challenges from falling crude oil prices over the last few months. A lower cost per barrel is a result of demand growth cooling, with China’s economic slowdown cited as a major factor. 

On the supply side, the US, Canada, and Brazil are increasing production, which also means competition’s fiercer.

BP forecasted lower production for this quarter compared to last, which could also weigh on profitability.

Although BP’s fuel sales were expected to benefit from seasonally higher volumes, as the summer is peak season for industrial output and consumer travel, greater costs may have impacted margins. 

Investors will also be looking at how BP is navigating its green transition strategy. The firm committed to spending between $3bn to $5bn annually on low-carbon energy by 2025, but it simultaneously decided to backtrack on goals of reducing oil output by 25% in the next five years. An over-reliance on traditional energy may continue to hinder BP’s financial performance relative to peers, like Shell and ExxonMobil, that have committed more significant resources to green transition plans.

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Tuesday: Alphabet (29 October)

All eyes are on Alphabet’s ability to monetise AI.

The firm increased spending on AI and data infrastructure by 92% last quarter, bringing its total investment in these areas up to $13.2bn. The spending boost aims to support both Google Cloud and Alphabet’s broader AI ambitions, which are deeply interconnected. As AI drives more uptake of Google’s fleet of services, its cloud platform becomes more integral to delivering those AI services to its business clients. 

And although Google Cloud reached $10bn in revenue last quarter, it still has plenty of room for growth, albeit in a fiercely competitive market. The revenue segment lags well behind Google Search, which generated $48.5bn. It stands to be seen whether Alphabet can boost cloud profitability in line with all of that spending.

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Wednesday: Microsoft (30 October)

Speaking of intense cloud computing competition (say that three times fast), last quarter, Microsoft’s Azure cloud platform disappointed investors.

It’s historically been a key pillar for the firm, but Azure’s 29% growth failed to meet expectations which forecasted growth of 30-31%.

Looking ahead, Microsoft expects capital expenditures will rise as it expands infrastructure needed to meet growing AI demand. With 65% of the Fortune 500 now using Azure-hosted OpenAI, the appetite’s clearly there. But margins will likely be tight until the infrastructure begins to bear fruit, and profits may slow if cloud growth continues to stagnate.

Investors will also be looking for updates on Microsoft’s Activision Blizzard acquisition, and other parts of the gaming division. It’s raised prices on the ‘Game Pass’ while simultaneously cutting 650 jobs at its Xbox gaming unit. This set of earnings will indicate whether these strategies have resulted in the growth they’re yearning for ahead of the crucial Christmas sales period.

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Wednesday: Meta (30 October)

Advertising is Meta’s bread and butter. In the first quarter of 2024, 97% of revenue came from ads, will likely continue to play an integral part in its upcoming Q3 earning.

While the US election is expected to have provided a tailwind for growing advertising spend, it’s also projected that advertising revenue could fall come November. This year’s American presidential race pumped $12bn into ad spend, nearly 20% more than the 2020 cycle. Whether Meta can sustain its substantial ad revenue growth once that quiets down remains a big question.

Then there’s Reality Labs, Meta’s virtual reality business. It posted modest gains last quarter, with a 28% increase in revenue driven by Quest headset sales. Though, that still represented just $353m, a drop in the bucket compared to the $40bn it plans to spend on AI this year. 

Investors will want to see whether Meta’s Ray-Ban Meta smart glasses can provide meaningful revenue for its AI efforts this quarter, but CFO Susan Li already admitted that she expects Reality Labs’ “operating loss to increase meaningfully year-over-year”. 

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Thursday: Apple (31 October)

It’s all eyes on the iPhone 16 at this week’s earnings release. 

So far, Apple’s latest iPhone launch has underperformed versus expectations. It sold just 37m units, 12% less than the iPhone 15’s launch.

Investors will be keen to see whether Apple has tangible plans to reverse these meek figures next quarter and beyond. Apple’s AI-powered ‘Apple Intelligence’ was the key selling feature behind its latest release, but it’s failed to make waves just yet. For now, its capabilities include prioritising and summarising tasks and messages, along with greater privacy measures. 

But Apple plans to significantly scale out their suite of AI features. In the meantime, the fact it’s only available in English-speaking markets could hinder Apple’s growth, particularly in China where it’s already struggling. 

A recovery in iPhone sales could boost investor confidence, but weak results may fuel concerns about the company's reliance on hardware sales in a competitive smartphone market.

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Regardless of what happens in earnings season, it’s important for investors to keep focused on the long-term and make the most of any tax advantages they may be entitled to. 

That includes taking control of your pensions and investing them to meet your retirement goals.

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