As we gear up for the U.S tech sector’s fourth-quarter earnings results, let us recall the sector’s outperformance last year and decade, over which it has surpassed all sectors, climbing a whopping 328%.
But, last month, the tech sector somehow lagged the S&P 500. And analysts predict a 4.3% fourth-quarter earnings decline from the same period last year. However, the sector continues to see more companies issuing positive than negative guidance.
What’s more, tech stocks are expected to collectively record 3.9% higher revenues compared to last year. Notably, Netflix posted impressive fourth-quarter revenue results, helping the streaming giant surpass $20 billion in revenues last year. By the way, IBM’s revenues grew in the quarter following five quarters of declines (read more: Q4 Earnings Season Showing Revenue Momentum).
Now, with threats of a trade war on the back burner, investors’ sentiment on the tech sector has bolstered. After all, many U.S. tech stocks have considerable exposure to the China market and any unrest between the countries may hamper trade.
So, when the Trump administration and its counterparts in Beijing declared at the end of the fourth quarter that the counties were moving toward a resolution, not surprisingly tech shares scaled north.
Needless to say, tech hardware currently leads the sector growth. Most prominent among them is Apple Inc. AAPL. The iPhone maker recently saw its shares hit record highs after data showed that iPhone sales in China soared nearly 18% last year. Apple had a terrific last year. Shares of the iPhone maker surged 86% to close at $293 a share last year, making it the best-performing stock listed on the Dow (read more: Top Tech Predictions for 2020).
Cloud-software or software-as-a-service (SaaS) companies are expected to see high margins in the fourth quarter since costs linked with delivering a cloud-hosted software service is relatively less. Widely speaking, SaaS stocks are winners in the near term with fat margins and steady revenue streams (read more: 4 Best Cloud-Software Stocks to Buy for 2020).
Chipmakers, in the meantime, have outpaced the S&P 500 since the end of third-quarter 2019. Much of the stellar performance can be attributed to the trade war resolution.
Nonetheless, as investors continue to be optimistic on the prospects of 5G wireless connectivity, demand for chips has improved in the fourth quarter. Further, high-end gaming, emergence of IoT and automation are expected to drive chip demand further. To top it, e-sport, a multiplayer video game for professional gamers, needs thousands of semiconductor chips for production, while chips are an essential part of crypto mining as these provide the processing power needed for decoding blockchain algorithms.
Thus, world’s biggest semiconductor companies, including Intel, AMD, Qualcomm and NVIDIA are widely expected to post healthy quarterly results. But NVIDIA should stand out as the company has seen immense opportunities in ray-traced gaming, rendering, high-performance computing, AI and self-driving cars. NVIDIA’s shares have gained 76% last year and seem to be gaining momentum. Overall, the PHLX Semiconductor Index is close to a 52-week high.
5 Tech Stocks to Report Explosive Earnings
Given that the tech sector will stay afloat this earnings season, investing in some solid tech players expected to report a significant uptick in fourth-quarter earnings seems prudent. These stocks flaunt a positive Earnings ESP — our proprietary methodology for determining stocks that have the best chance to surprise with their next earnings announcement. It provides the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Apple designs, manufactures, and markets smartphones, personal computers, tablets, wearables and accessories. The company’s iPhone sales improved last December and iPhone 11 is widely expected to have seen strong demand in the last three months of 2019. These have likely boosted the company’s top line.What’s more, its services and wearables segment, which includes products such as Apple Watch, Air Pods, and Beats earphones, is doing pretty well. In the reporting quarter, the company’s wearables segment is expected to have become Apple’s biggest earnings growth driver.
The company is expected to report earnings results for the quarter ending December 2019 on Jan 28. Apple has an Earnings ESP of +4.08%. The company’s expected earnings growth rate for the next quarter and current year is 15.5% and 10.7%, respectively. The stock has a Zacks Rank #2 (Buy) (read more: Will FAANGs Have Enough Bite This Earnings Season?).
Apple Inc. Price and EPS Surprise
Apple Inc. price-eps-surprise | Apple Inc. Quote
CEVA, Inc. CEVA licenses signal processing platforms and AI processors for semiconductor companies. The company is expected to report earnings results for the quarter ending December 2019 on Feb 18. CEVA has an Earnings ESP of +27.06%. The company’s expected earnings growth rate for the next quarter is a staggering 500%. The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CEVA, Inc. Price and EPS Surprise
CEVA, Inc. price-eps-surprise | CEVA, Inc. Quote
Five9, Inc. FIVN provides cloud software to contact centers. The company offers software products such as workforce management, speech recognition, predictive dialer, and voice applications. The company is expected to report earnings results for the quarter ending December 2019 on Feb 18. Five9 has an Earnings ESP of +1.02%. The company’s expected earnings growth rate for the current year is 28.3%. The stock has a Zacks Rank #2.
Five9, Inc. Price and EPS Surprise
Five9, Inc. price-eps-surprise | Five9, Inc. Quote
Silicon Motion Technology Corporation SIMO designs, develops, and markets NAND flash controllers for solid state storage devices. The company is expected to report earnings results for the quarter ending December 2019 on Feb 6. Silicon Motion Technology has an Earnings ESP of +5.88%. The company’s expected earnings growth rate for the next quarter is 66.7%. The stock has a Zacks Rank #1.
Silicon Motion Technology Corporation Price and EPS Surprise
Silicon Motion Technology Corporation price-eps-surprise | Silicon Motion Technology Corporation Quote
MKS Instruments, Inc. MKSI provides instruments, subsystems, and process control solutions that measure, monitor, deliver, analyze, power, and control critical parameters of manufacturing processes. The company is expected to report earnings results for the quarter ending December 2019 on Jan 28. MKS Instruments has an Earnings ESP of +8.41%. The company’s expected earnings growth rate for the next quarter is 11.6%. The stock has a Zacks Rank #1.
MKS Instruments, Inc. Price and EPS Surprise
MKS Instruments, Inc. price-eps-surprise | MKS Instruments, Inc. Quote
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