Earnings season each quarter provides investors with an opportunity to gain valuable insight into the best and brightest companies that could lead the market higher in the coming months.
It’s safe to say that mega-cap tech stock earnings are always the main focus, particularly due to the sheer weight of these companies in major indices.
For perspective, the 10 biggest stocks in the S&P 500 Index make up 26.4% of the index’s market value, which tells us that the overall direction of the market will certainly be impacted by the price action of the mega-cap tech stocks following their earnings this week.
Last quarter, we saw many mega-cap tech companies deliver outstanding results only to face heavy selling pressure after they reported.
Investors tend to get confused by this type of earnings reaction, which is why its important to understand that a stock will often rally up into the report and subsequently sell-off following the release.
This is the classic “buy the rumor, sell the news” scenario that plays out time and time again in the market, and keep in mind that the heavy volume after an earnings report provides hedge funds and institutions with an opportunity to exit large positions.
Of course, this chain of events doesn’t hold true for all stocks, but it’s something to keep in mind as we head into the climax of earnings season.
With the biggest tech stocks set to report their earnings and the fact that many have already rallied considerably leading up to their releases, it’s fair to assume that they might be priced to perfection.
While it’s hard to assess what the reaction will be to each company’s report, sometimes a post-earnings dip turns into a fantastic buying opportunity.
We’ve put together a rankings list of the biggest mega-cap tech stocks by market capitalization in terms of price upside potential along with a few things to look out for in each company’s report so that you are prepared for whatever comes this week.
All of these stocks offer something unique and are worthy additions to any portfolio, so this list is more an assessment of which businesses are currently thriving while offering future growth potential too.
1. - Microsoft (MSFT) – Earnings Announcement July 27 After Market Close
With so many things working in Microsoft’s (MSFT) favor at this time, it’s easy to rank it as the No. 1 mega-cap tech stock to consider adding for long-term growth at this time.
The iconic software company is helping companies with their digital transformations, selling tons of personal computing and software products given the rise of remote work, and has a lot of potential in the gaming industry thanks to innovative augmented and virtual reality offerings.
Investors should be particularly interested in Microsoft’s second-quarter Azure cloud services revenue, which could provide insight into whether or not the company is taking significant market share from key competitor Amazon in the cloud space.
2. - Facebook (FB) – Earnings Announcement July 28 After Market Close
Rumors of a slower than anticipated ad spend recovery were greatly exaggerated if Facebook’s (FB) first-quarter earnings were any indication, and the social media giant should easily surpass its second-quarter 2020 comps this week.
Investors should be on the lookout for continued acceleration in ad spending, user growth on Facebook’s leading social networks, and any growth in average revenue per user when the company reports its second-quarter results.
Facebook is perhaps the most undervalued big tech stock at this time given that it has the lowest P/E ratio out of any stock on this list, particularly when you consider the massive secular shift to digital advertising that is occurring.
3. - Alphabet (GOOGL) – Earnings Announcement July 27 After Market Close
It’s hard to find enough superlatives to describe how impressive Alphabet’s (GOOGL) business model is, with a truly dominant market position in online advertising and big data analytics.
Like Facebook, the company’s ad revenue figures are also a big focus this quarter and will provide some insight into just how quickly companies are rebounding from the impacts of the pandemic.
Investors should also listen closely for any comments from Alphabet’s management about antitrust and regulatory risks that the company faces, as this is really one of the only downside concerns to consider with the company for the long-term.
4. - Amazon (AMZN) - Earnings Announcement July 29 After Market Close
It will certainly be interesting to hear from Amazon’s (AMZN) new CEO Andy Jassy as the company tries to beat difficult year-over-year comparables.
Keep an eye out for a potentially big top-line beat as the company’s annual Prime Day could deliver a strong boost to the company’s second-quarter revenue. Although as pandemic-era lockdowns subside, the company’s sales might take a hit since more consumers are heading back to shop at physical retail stores.
Also, investors should be interested in the e-commerce giant’s Amazon Web Services growth and strength in the company’s Prime membership subscriptions as it continues to expand internationally.
5. - Apple (AAPL) – Earnings Announcement July 27 After Market Close
While Apple (AAPL) is one of the strongest brands in the world and a company that arguably has the best balance sheet out of all of the mega-cap tech stocks, it makes the bottom of this rankings list due to a few near-term risks.
The company has warned investors that the global semiconductor shortage could negatively impact sales growth for the quarter, which is certainly something to monitor this week.
There’s also the possibility that Apple’s sales momentum in China is waning, which could be a detriment to the stock price following the release if that is indeed the case.