Big Tech companies began reporting their latest quarterly results last week, with Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) both beating analyst expectations, driving noteworthy increases in their stock prices.
This week, a few more important prints are scheduled to come out, with Amazon (NASDAQ:AMZN) and AMD (NASDAQ:AMD) reports set to be “the biggest test of the week for the tech sector” according to Mizuho analysts.
“No disrespect to SMCI, AAPL or QCOM, but I just do not see any of them critical bellwethers that can impact sentiment and stock prices for broader Tech sector,” analysts wrote.
“Honestly, I am nervous on both AMZN and AMD partially because I remain quite bullish on both and feels like the volatility is extra high. But they are very different set-ups in my view,” they added.
Why Amazon and AMD are important for markets
Amazon stock witnessed a relatively flat performance over the past 30 days, unlike the broader S&P 500 which is down by 250 basis points and the Tech sector, which is down by 400 basis points.
With Google and Microsoft reporting improvements in year-over-year cloud revenue growth for the March quarter, Amazon “must” demonstrate similar progress in its AWS segment to maintain the stock’s positive momentum, Mizuho stressed.
“It would not be a good look if AWS growth shows no improvement vs peers MSFT and GOOG in my view,” the analysts said. “Hence, all that matters for AMZN’s stock is pretty much AWS growth getting to the buyside est of 15% (inline with Mizuho est) vs cons around 13%.”
According to Mizuho, most of the focus will be on Amazon’s capital expenditure numbers for AI and AWS, and how it compares to expenditures of Microsoft and Google.
Amazon's overall operating income trends and its e-commerce business performance will also be closely scrutinized, the analysts noted.
“The AMZN set-up into print tonight feels more similar to META (NASDAQ:META) (hence my nervousness), meaning bar relatively high with little room for error or surprise. It is not a set-up like GOOG where bar was lower,” they noted.
The set up for AMD, on the other hand, “is total opposite,” Mizuho expert writes. The stock has dropped 13% over the past 30 days amid reports of reduced GPU orders from Microsoft and potential supply issues with HBM DRAM from Samsung (KS:005930), prompting many investors to short the chipmaker’s shares and question its 2024 revenue forecasts.
“It is not like AMD is now a super cons short, but it is shorted and many investors I speak with will not touch it ahead of the print on fears not raising the current Mi300 rev target of $3.5B for ’24 would lead to a implosion in stock.”
“One day implied move in AMD options is 7.7% and that feels pretty low to me.”
Focusing entirely on one quarter or updates regarding the Mi300 rather than the bigger picture “feels like what is wrong with this market,” the analyst added.
However, it is no surprise that with AMD’s high GPU growth expectations and valuation, investors are keen on a clear path to $10 billion in Mi300 revenue next year.
“Anything that suggests that is at risk will flush out weak hands, many that likely dumped over past month,” they continued.
Moreover, AMD's competition with Nvidia (NASDAQ:NVDA), which is rapidly expanding its product development cycle to every 12 months and employing aggressive pricing, elevates concerns about the company’s market share in the long run.
“I honestly do not think this debate or competition will be decided on tonight’s print and guid. That is not how this works. I am in the “patience required” camp and that it will be handsomely rewarded for AMD investors.”
However, the “fast-money” trading community has set high expectations for AMD, creating a setup where the company needs to raise its revenue target from $3.5 billion to at least $4 billion or even $4.5 billion to retain investor trust, “not seeing any customer cancellations or push-outs and can track to $8-10B in revs next yr.”
“And this is why I am extra nervous into the print,” they concluded.
