The technology sector had a strong second quarter of 2023, driven by an improving global macroeconomic environment and a less hawkish stance from the US Federal Reserve, as well as strong adoption of artificial intelligence (AI) and machine learning.
The lifting of COVID-related restrictions in China in early April and the easing of supply chain issues gave tech stocks a boost. The Fed’s decision to suspend interest rate hikes in June after ten consecutive increases also provided relief to the global economy.
Apart from these, the technology sector has benefited from the advent of generative AI. The success of ChatGPT has created massive interest in developing large language models (like GPT4, on which ChatGPT is built). Advances in natural language processing models, which help computers understand how we write and speak, are playing a huge role in the rise of generative AI.
Microsoft’s partnership with developer ChatGPT OpenAI has provided a boost, as it uses ChatGPT to enhance Bing’s search capabilities to challenge Alphabet GOOGL Search Dominance division of Google. Moreover, generative AI requires vast knowledge to create content and huge computing power, which is driving the demand for NVIDIA GPUs.
However, the PC and Smartphone segments remained downwind in the quarter ahead.
According to Gartner’s latest report, 59.7 million PCs were shipped in the second quarter (ending June) of 2023, down 16.6% from the prior year period. Lenovo, HP and Dell Technologies recorded declines of 20.8%, 0.9% and 21.8% respectively. Apple saw a decline of 0.3%, much better than HP and Dell.
According to Counterpoint’s latest update, global smartphone sales were down 8% year-over-year and 5% sequentially in Q2 2023. Samsung remained the market share leader, followed by Apple.
Upcoming gains to watch
A slew of tech companies are expected to report earnings over the next two weeks. We believe several are well positioned to beat earnings estimates with a strong AI-powered product portfolio.
Therefore, finding tech stocks with the potential to beat earnings estimates can be daunting. Our proprietary methodology, however, makes it quite simple.
You can narrow down the list of choices by looking at stocks that have the combination of a favorable Zacks ranking of #1 (Strong Buy), 2 (Buy), or 3 (Hold) and a positive ESP gain. You can discover the best stocks to buy or sell before they’re flagged with our earnings ESP filter.
Earnings ESP is our proprietary methodology for determining which stocks have the best chance of surprising with their next earnings announcement. This is the percentage difference between the most accurate estimate and the Zacks consensus estimate.
Our research shows that for stocks with this combination, the chance of an earnings surprise is as high as 70%.
Best bets
Five tech stocks mentioned below have the right combination of elements to beat on earnings this reporting cycle:
Based in San Francisco Airbnb ABNB has an Earnings ESP of +1.70% and is currently posting a Zacks Rank of 1. You can see the full list of today’s Zacks Rank #1 stocks here.
The company is expected to release its second quarter 2023 results on August 3. The Zacks consensus estimate for earnings was down a penny at 77 cents per share over the past 30 days.
Airbnb, Inc. Price and EPS Surprise
Airbnb, Inc. price-eps-surprise | Quote Airbnb, Inc.
Based in Kirkland, WA Monolithic Power The MPWR is expected to release its second quarter 2023 results on July 31.
The company has an earnings ESP of +0.31% and a #1 Zacks ranking.
The Zacks consensus estimate for earnings was unchanged at $2.81 per share over the past month.
Monolithic Power Systems, Inc. EPS Awards and Surprise
Monolithic Power Systems, Inc. price-eps-surprise | Quote from Monolithic Power Systems, Inc.
Plano, TX-based Tyler Technologies TYL has an earnings ESP of +0.54% and has a Zacks ranking of 1. The company is expected to report its second quarter 2023 results on July 27.
The Zacks consensus estimate for earnings has been flat at $1.86 per share over the past 30 days.
Tyler Technologies, Inc. EPS Awards and Surprise
Tyler Technologies, Inc. price-eps-surprise | Quote from Tyler Technologies, Inc.
Mountain View, Calif.-based Alphabet currently has a +2.49% Earnings ESP and a #2 Zacks rank.
The company is expected to release its second quarter 2023 results on July 25. The earnings consensus mark was down a penny at $1.32 per share in the past 30 days.
Alphabet Inc. Price and Surprise EPS
Alphabet Inc. price-eps-surprise | Alphabet Inc. Quote
Based in Menlo Parl, CA Metaplatforms META is expected to release its second quarter 2023 results on July 26. The company has an ESP profit of +5.83% and a Zacks ranking of 2.
Its consensus earnings estimate rose 1.1% to $2.87 per share in the past 30 days.
Meta Platforms, Inc. Price and EPS Surprise
Meta Platforms, Inc. price-eps-surprise | Quote from Meta Platforms, Inc.
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