Chief Investment Strategist
Summary: The Q1 earnings season has been better than feared showing companies that are still confident about the outlook and the technology sector is showing so far that operating income is growing again following significant cost-cutting. In this week's earnings we focus on AMD, Novo Nordisk, and Apple where all three companies face quite steep expectations from investors following strong share price performances this year.
Technology is back in growth mode
The significant amount of cost-cutting among technology companies is beginning to yield results for technology companies with Nasdaq 100 expanding EBITDA in Q1 q/q while both the S&P 500 and the STOXX 600 are so far reporting declines in EBITDA q/q. Another key observation is that European companies continue to do well relative to US companies underpinning the case for European equities this year. The US companies are always leading the earnings season so these conclusions may change before the season is over and this week’s results from AMD and Apple could change the positive turnaround in operating income that we are observing so far in the Nasdaq 100. While US equities have come back recently, the main risk and issue with US equities remain the high equity valuation relative to other equity markets and with a 12-month 12.8x EV/EBITDA the US equity market comes with a significant valuation premium to global equities.
Another busy earnings week with focus on AMD, Novo Nordisk, and Apple
The three stocks we are focusing on for this week’s earnings releases are AMD, Novo Nordisk, and Apple because there are all popular companies, with strong growth record, and important for their respective industries.
Will AMD continue to ride the AI hype?
AMD reports Q1 earnings tomorrow after the US market close with analysts expecting revenue of $5.3bn down 10% y/y and EBITDA of $1.27bn down from $1.71bn a year ago reflecting increased input costs and lower demand as corporate technology spending is declining and gaming is not as hot as during the pandemic. With expectations set low for Q1 we expect AMD to clear this bar easily, but expectations are certainly steeper for the coming quarters as the AI hype with ChatGPT has lifted AMD’s share price 38% this year and thus the Q2 guidance will be key for the market’s reaction.
Novo Nordisk is up against extreme expectations
Novo Nordisk reports Q1 earnings on Thursday before the market opens in Copenhagen with analysts expecting Q1 revenue of DKK 51.8bn up 23% y/y and EBITDA of DKK 25bn up from DKK 20.8bn a year ago driven by strong growth in the company’s weight loss drug Wegovy. Back in early February we wrote a game changer equity note on Novo Nordisk with a special focus on Wegovy as the company’s next important growth driver. Novo Nordisk has got a head start on this new class of weight loss drugs with Eli Lilly waiting for its FDA approval and the market is really excited about the growth outlook sending Novo Nordisk shares up 21% this year.
Can Apple get back to above average growth?
Apple reports FY23 Q2 earnings (ending 31 March) on Thursday after the market close with analysts expecting revenue of $92.6bn down 5% y/y and EBITDA of $30.2bn down from $32.7bn a year ago as input costs remain hot demand has been negatively impacted by high inflation in key markets reducing consumers appetite for Apple’s pricier electronic devices such as the iPhone. We expect Apple to guide weak Mac sales and the risk has gone up that iPhone guidance could disappoint as well. With the share price up 31% this year expectations might be too high for even Apple.
The list below shows all the most important earnings releases to watch this week with especially Thursday being the main course with key earnings from Shopify on e-commerce, Maersk on logistics, Volkswagen and BMW on EV growth, Infineon on semiconductor pick-up, Rheinmetall on EU military spending, Zalando on EU consumer spending, Shell on energy markets, ArcelorMittal on steel demand, Booking on travel, Ferrari on luxury, and lastly Fortinet on cyber security.
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