MW Apple looks strong on AI; Amazon rules the cloud. Earnings will show how much.
By Louis Navellier
Expect positive surprises from these two 'Magnificent Seven' standouts
Apple $(AAPL)$ and Amazon.com AMZN command a combined U.S. stock-market value of $5.5 trillion and represent one-third of the aggregate market cap of the so-called Magnificent Seven.
That alone makes their respective earnings reports on Thursday after the close a source of interest and intrigue for the stock market.
Apple's third-quarter report will likely be predictable, with an iPhone upgrade in the bag and the release of a new line of iMac computers running on its' M4 chip that is better able to process AI tasks.
Since the Apple iPhone 16 is now largely selling due to its new AI features, the importance of AI as a catalyst for Apple's sales growth is coming into sharp focus. The new iMacs will further test this hypothesis.
Regardless, Apple is monetizing AI better than Microsoft $(MSFT)$ right now. This may be baked into the $300 billion disparity between Apple and Microsoft's market caps. However, it's important to remember that AI is a marathon and not a sprint. So kudos to Apple, which typically enters the fray late and comes from behind. Perhaps Apple's early lead monetizing AI through its embedded customer bases will hold.
After being fined by the European Union $(EU)$ and Department of Justice for its app store, plus its $14.4 billion EU tax assessment, Apple Chief Executive Tim Cook is looking for some love again, while former U.S. President Donald Trump, the Republican presidential candidate, is happy to listen to Apple's long-term goals.
Cook bet big on China and is now manufacturing some of Apple's products in India. Since Tesla $(TSLA)$ CEO Elon Musk is a Trump adviser and has vast business holdings and connections with China, perhaps he can help Apple appease a possible Trump administration that wants to onshore manufacturing in America.
As far as Apple's third-quarter results are concerned, its sales are forecasted to rise 13%, while its earnings are expected to rise 11.8%. Wall Street analysts have been cautious with their estimates on Apple, but after better-than-expected iPhone 16 sales in China, some analysts have revised consensus estimates higher. Overall, I expect Apple to post a small earnings surprise, but the company's guidance and enthusiasm for its AI-related M4 chips will likely be more important to Apple shareholders.
Amazon in the clouds
Amazon is expected to have blowout third-quarter results. Wall Street is expecting 11.2% sales growth to $157.2 billion and 32.6% earnings growth to $1.14 per share. The stock has a strong earnings-surprise history ranging from 18.1% to 62.3% over the past four quarters, so I am expecting another nice earnings surprise.
The recent increase in the cost of an Amazon Prime membership has not hindered the company's retail sales and unlike the old days, Amazon's retail operations do not lose money. Due to Amazon's economies of scale and massive service centers around the U.S., it is extremely hard for any rival to compete with Amazon. Its acquisition of Whole Foods Market has boosted its Amazon Prime membership, so customers can save on groceries.
Finally, Amazon remains more dominant than ever in cloud computing via its AWS cloud services. Microsoft had an embarrassing crash in its cloud services that it blamed on the European Union forcing it to have an open operating system, so I expect AWS to gain even more share in cloud services.
Louis Navellier is founder and chief investment officer of Reno, Nev.-based Navellier & Associates, Inc., a SEC-registered family office that manages more than $1 billion.
Navellier & Associates owns Apple (AAPL), Amazon.com $(AMZN)$, and Microsoft $(MSFT.UK)$ in managed accounts. Louis Navellier and his family own Apple (AAPL) and Microsoft (MSFT) via a Navellier-managed account, and Apple (AAPL), and Amazon.com $(AMZN.UK)$ in a personal account. A few accounts own Tesla $(TSLA.UK)$ per client request. Louis Navellier does not own Tesla (TSLA) personally.
More: Amazon 'has never been stronger.' So why isn't its stock getting more love?
Also read: Apple and Amazon must show the stock market that AI spending is paying off
-Louis Navellier
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October 31, 2024 12:39 ET (16:39 GMT)
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