“The bar is already very high simply because valuations are very high. Investors have become accustomed to the Mag7 and tech and AI-related names not just beating forecasts but smashing them—and then raising guidance for the next quarter,” AJ Bell investment director Russ Mould said.
Both companies have seen stock fluctuations, with Apple dipping as much as 1.6% and Amazon falling 3.7% on Thursday, contributing to tech’s position as the worst-performing sector in the S&P 500 Index, which was tracking its steepest decline since early September.
Thursday’s reports could prove even more significant given that Microsoft and Meta both recently highlighted increased AI spending, which failed to buoy their stock prices. Microsoft shares fell after a disappointing Azure cloud forecast, while Meta’s revenue guidance barely met the midpoint of analysts’ expectations, leading to declines of 6.1% and 4.7%, respectively.
Apple faces high expectations in particular, even with a forecasted revenue growth below 2% for 2024. With a valuation over 50% above its 10-year average, the pressure is on Apple to show how its new AI offerings could reinvigorate growth. Downgrades from KeyBanc and Jefferies this month reflect growing caution among analysts about overblown expectations for its AI-focused products.
Meanwhile, Amazon’s outlook depends heavily on AWS’s performance, with analysts predicting $27.5 billion in revenue—a 19% increase year-on-year, according to Bloomberg estimates. A miss on this front could fuel concerns over AWS’s competitiveness, as John Belton of Gabelli Funds noted, “If Amazon misses those expectations, you could see this narrative of AWS being a share loser in cloud infrastructure gain some steam.”
