The companies will publish their third quarter results fairly soon. Earnings expectations have already plummeted, especially for tech companies like
The quarter ends September 30, and the analyst’s overall earnings per share estimate for companies in the
have fallen 5.5% in the past two months or so, according to
This comes as several macroeconomic headwinds have set in. Inflation remains stubbornly high, eating away at consumer demand. Business costs are rising faster than consumer prices, putting pressure on corporate profit margins. Rising prices, meanwhile, force the Federal Reserve to aggressively raise interest rates to fight inflation. Although the economy hasn’t slowed down much yet, it likely will in the coming months.
The pain of reduced profits has been particularly acute in the technology sector. Third-quarter earnings estimates for the industry have fallen about 11% over the past two months, with semiconductor earnings forecasts down about 15%.
Nvidia (ticker: NVDA) lowered earnings expectations for the industry. The consensus earnings-per-share forecast for the chipmaker giant fell 48%. With a market capitalization of more than $300 billion, its earnings carry a large enough weighting to lower the overall forecast for the entire semiconductor industry.
Lower consumer demand is hurting Nvidia. The company said in late August that the weakening macroeconomic environment was reducing the number of gaming tokens it could sell. Management’s third-quarter sales forecast was $5.9 billion in the mid-range, $1 billion below analysts’ expectations. Analysts lowered their sales estimate on management advice.
E-commerce is another area of technology that has encountered challenges. E-commerce earnings forecasts have fallen by around 37%. This is partly because of a weakening consumer.
Recent challenges from Amazon (AMZN) have also hurt broader online retail earnings projections. Analysts lowered their quarterly earnings forecast by about 43%.
analysts lowered their third-quarter sales estimate for Amazon to $127.6 billion from $128.5 billion. They lowered their operating margin forecast to 2.6% from 3.9% and lowered their EPS estimate to 22 cents per share from 37 cents. Rising labor, freight and energy costs are eating away at margins, analysts wrote.
The good news is that many tech stocks have already been hit hard. With these stocks reflecting lower expected earnings, a beat in new expectations could drive them higher.
“The market’s greatest asset is that investor expectations are low and already prepared for bad news,” wrote Keith Lerner, co-chief investment officer at
This could be especially true for Nvidia. The stock is down around 13% for the second half of this year, compared to a slight gain for the
SPDR Fund for the Technology Sector
(XLK). And Nvidia could provide the juice needed to move its stock higher; it has beaten earnings expectations in each of the past seven quarters, according to FactSet.
The risk for Nvidia – and other similar stocks – is that there could be a few more rounds of profit cuts ahead before all is said and done.
Write to Jacob Sonenshine at email@example.com
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