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Tech earnings season is coming and AI is at the top of the agenda

Apple (AAPL), Microsoft (MSFT), Nvidia (NVDA) and the rest of their Big Tech cohorts are gearing up for what’s expected to be one of the most eventful earnings seasons in a while. Generative AI will undoubtedly be top of mind as the push to monetize the technology continues and investors look for indications that those billions of dollars in investments are starting to pay off.

“We predict this will be around 8% growth as a kind of collective growth rate for the big tech companies,” said Alex Smith, head of Canalys’ channels research division. “In terms of overall growth, Nvidia will far outpace the rest of the market.”

But generative AI isn’t the only thing on investors’ minds. Apple’s earnings should be eventful after a rocky start to the year, with the iPhone maker dealing with everything from antitrust lawsuits to slowing sales in China, one of its key markets.

Meta (META) and Google parent Alphabet (GOOG, GOOGL), meanwhile, will give Wall Street an idea of ​​how the digital advertising market is performing. Both companies saw revenue increase in the previous quarter, but Alphabet did not meet analyst expectations. The search giant will have to flip the script this quarter.

Brace yourself, because it’s going to be a wild few weeks.

Generative AI is back in focus

The generative AI explosion continues to reverberate across Wall Street, as shares of major players like Nvidia and Microsoft continue to rise. But after a year of hype, companies will have to show that the excitement is paying off.

NEW YORK, NEW YORK - APRIL 03: The Microsoft logo is seen at an Experience Center on Fifth Avenue on April 3, 2024 in New York City.  A Cyber ​​Safety Review Board, created in 2021 by executive order and led by Homeland Security, released a report detailing Microsoft's failures that led to a targeted Chinese hack of Microsoft's email last year top US government officials, including Commerce Secretary Gina's email.  Raimondo.  (Photo by Michael M. Santiago/Getty Images)

Microsoft is set to report earnings on April 25, as investors wait for more information on how the company is monetizing its AI strategy. (Photo by Michael M. Santiago/Getty Images) (Michael M. Santiago via Getty Images)

“We can be absolutely certain that the first and most important thing investors will pay attention to is for companies to clean up their AI [saying something uses AI even if it doesn’t] and turning it into meaningful contributions to the top and bottom lines,” Daniel Newman, CEO of technology consulting and research firm The Futurum Group, told Yahoo Finance.

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Nvidia shares are up about 75% this year and 225% over the past twelve months as hyperscalers like Google, Microsoft, Amazon and Meta get their hands on as many of the company’s AI chips as possible. That sent Nvidia’s revenue through the roof. In the fourth quarter, Nvidia reported revenue of $22.1 billion, compared to $6.1 billion in the previous year.

But the company will start to surpass its explosive growth rates this year, which could put a damper on investor enthusiasm even if it continues to perform well.

“You’ve had huge bursts, but once you get out of that first year of huge bursts, the growth rates will be more average,” says Bob O’Donnell, president of TECHnalysis Research.

That doesn’t mean Nvidia will give up its market lead anytime soon. It’s still miles ahead of rivals AMD and Intel in terms of market share, and it just debuted its Blackwell architecture at the GTC developer conference in March, which should push it even further ahead.

CEO Jensen Huang talks about processing units during the Nvidia GTC keynote address in San Jose, California, Monday, March 18, 2024. (AP Photo/Eric Risberg)CEO Jensen Huang talks about processing units during the Nvidia GTC keynote address in San Jose, California, Monday, March 18, 2024. (AP Photo/Eric Risberg)

Nvidia CEO Jensen Huang talks about processing units during the Nvidia GTC keynote speech in San Jose, California, on March 18. (AP Photo/Eric Risberg) (ASSOCIATED PRESS)

“They’re still very much ahead and sharing, and their influence is enormous, and they’re not slowing down, which is to their credit,” O’Donnell said. “But at some point the law of large numbers starts to apply.”

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Then there are the hyperscalers like Microsoft, Amazon (AMZN) and Google. While they’ve been on the AI ​​hype train, many of their generative AI software offerings are still in the works, meaning it’s still a bit early to get a full picture of overall adoption among enterprise and consumer customers. Still, Wall Street will likely be looking for at least some revenue growth from the companies’ AI investments.

“How much does AI drive [Microsoft’s] Azure? To what extent will AI drive Google Cloud’s growth? How much will it continue to help AWS, which has seen its numbers slow somewhat,” Newman said.

In the latest quarter, Microsoft announced that AI services contributed 6 percentage points of Azure revenue growth, compared to 3 percentage points in the previous quarter. And you can bet that analysts will be looking to see if the company can sustain that kind of growth in the current quarter.

Amazon also pointed to AI as a growth catalyst during its latest earnings call, saying sales are “accelerating rapidly” as customers showed interest in the technology. It will be interesting to see if the company provides more context around this acceleration in its upcoming earnings call.

MOUNTAIN VIEW, CALIFORNIA - MAY 10, 2023: CEO Sundar Pichai speaks at the Google I/O annual developer conference at the Shoreline Amphitheater in Mountain View, California on Wednesday, May 10, 2023. (Melina Mara/The Washington Post via Getty Images)MOUNTAIN VIEW, CALIFORNIA - MAY 10, 2023: CEO Sundar Pichai speaks at the Google I/O annual developer conference at the Shoreline Amphitheater in Mountain View, California on Wednesday, May 10, 2023. (Melina Mara/The Washington Post via Getty Images)

Alphabet CEO Sundar Pichai speaks at the annual Google I/O developer conference at the Shoreline Amphitheater in Mountain View, California, on May 10, 2023. (Melina Mara/The Washington Post via Getty Images) (The Washington Post via Getty Images)

Google, like Microsoft, will also likely face questions about sales of its AI-enhanced productivity suite and how customers respond. The company, which will host its I/O developer conference in May, has also faced controversy over its AI rollout, withdrawing its Gemini AI generator after it generated historically inaccurate images.

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Apple to deck

Apple’s earnings will also be a hot ticket, but don’t expect the company to reveal anything about its future generative AI plans.

“Apple needs to make an announcement, but the company has never really been in a rush to pacify industry investors,” said Patrick Moorhead, CEO of Moor Insights & Strategy. “I think they’ll wait until WWDC in a few months to release that.”

Outside of AI, investors are eagerly awaiting Apple’s iPhone sales figures and comment on the lawsuits. On Monday, market intelligence firm IDC reported that global iPhone shipments fell nearly 10% in the current quarter. That could have a significant impact on Apple’s overall revenue.

Sales in China are also a problem for the company. Apple reported that sales in its third-largest market fell 13% in the previous quarter. That, combined with declining iPhone shipments, could spell trouble for the company’s revenues.

Despite the headwind, there can still be a bright spot. According to Wamsi Mohan of BofA Global Research, Apple should report double-digit growth in its Services segment, which could boost overall revenue.

Subscribe to the Yahoo Finance Tech Newsletter.Subscribe to the Yahoo Finance Tech Newsletter.

Subscribe to the Yahoo Finance Tech Newsletter. (Yahoo Finance)

The company’s upcoming earrings will also give investors a first look at Vision Pro sales, which should provide some insight into early consumer and enterprise interest in the AR/VR headset.

Digital ad sales are increasing

Meta and Google will also be there to show if they can keep up the momentum in the digital advertising market. In the previous quarter, Meta’s ad sales rose 24%, while Google’s ad sales, including YouTube ads, rose 11%.

Amazon, which has built its own impressive advertising business, could also see continued growth in ad sales. In the previous quarter, the company reported advertising revenue of $14.7 billion, up 27% year over year. Such a performance could give a nice boost to the company’s results.

Analysts will also be watching to see if AI impacts ad sales.

“Theoretically, targeting should be better using AI even if the cookie no longer exists, but we haven’t seen that yet,” Moorhead said. “For me, the proof is that I should see a higher cost per click or a better CPM.”

We’ll find out all that and more when Big Tech’s earnings kick off next week. Get ready.

Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.

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