Club holdings Alphabet (GOOGL), Microsoft (MSFT), Meta Platforms (META) and Amazon (AMZN) are all reporting earnings this week, and we're anticipating a tough quarter with pockets of resiliency. While profits are expected to be pressured by a slower economy, there are several key themes to watch that could have huge potential to shape longer-term growth. The information technology sector saw muted growth last quarter as elevated inflation and higher interest rates continued to weaken demand and curb both consumer and enterprise spending in core areas like advertising, cloud computing and online shopping. Decelerating growth has compelled tech titans to take a closer look at their cost structures and make significant headcount reductions to enhance productivity. The cost-cutting moves "should improve their margin profile," said Thomas Champion, analyst at Piper Sandler, in an interview with CNBC. The digital advertising market, Champion added, "could show signs of revenue stabilization" after spending levels were constrained to start the year. According to Piper's checks, it appears ad spend levels in March were more robust than in January or February. But a big question mark heading into first-quarter results is around cloud services spend. Cloud computing growth at these tech giants has been on a downward trend as companies scrutinize budgets heading into tougher economic times. So, investors like us will be looking for a clear outlook on what level of growth the cloud units will return to in the future. Artificial intelligence and how tech companies plan to monetize it will also be a central part of the conversation this week. AI made a huge splash in the tech world to start the year as ChatGPT went viral. "All of these companies will need to address how they think through their AI strategy," Champion said. Here's a breakdown of what the Club is expecting, hoping, to see from each of our mega-cap tech names that are reporting their quarters this week. (The following Wall Street consensus earnings and revenue estimates are provided by Refinitiv.) Alphabet Q1 Earnings-per-share (EPS): $1.07 expected Revenue: $68.8 billion expected Earnings date: Tuesday after the bell GOOGL YTD mountain Alphabet's stock performance year to date. What we expect: Alphabet has one of the best, if not the best online advertising business. However, in the fourth quarter of 2022, the Google parent company failed to dazzle investors , feeling the sting of tighter ad budgets in a slowing economy. We hope to see signs of ad-spending stabilization and hear commentary around a recovery in the quarters ahead. Ads account for a majority of total revenue. There's also room for growth in Google cloud computing, which has been under pressure in a challenging macroeconomy. However, we hope to see Google gaining market share in this competitive space. Management has also promised that the unit is on a path to profitability. While no profit is expected here anytime soon, we want to start seeing the magnitude of losses decline. CEO Sundar Pichai had called Alphabet an AI-first company, so it's reasonable to expect further investment in this area, especially as Microsoft's new AI-powered Bing search engine attempts to chip away at Google's leadership in search. But we need to understand how the technology gets used within Google products to make it more competitive and attract more customers. At the same time, management needs to ensure investors that these are measured investments that will pay off in the near term as growth at any cost is no longer tolerated. Last week, the Club downgraded Alphabet to a 2 rating stemming from concerns about search losing share to Bing and the government's antitrust case . Microsoft Fiscal Q3 EPS: $2.23 expected Revenue: $51 billion expected Earnings date: Tuesday after the bell MSFT YTD mountain Microsoft's stock performance year to date. What we expect: Microsoft has impressed the market with its AI initiatives around its backing of OpenAI, the startup behind ChatGPT. The aforementioned new Bing could further attract interest. If Bing were to grab a few percentage points of share from Google, that could be worth billions of dollars. That's why we're interested in seeing any confirmation that Bing user activity has increased from the prior quarter. Microsoft's cloud unit Azure has seen a deceleration in growth but it's still one of the top providers whose software products are widely used. Still, we'll be keenly watching whether the problem with cloud spending persists or if customers have maintained spending to continue their transformation into the cloud. We're looking for roughly 28% to 30% constant currency growth from Azure. In its hardware products, sales of devices have been lagging as consumers press pause on discretionary spending. We hope to see some level of recovery in the PC segment. Meta Platforms Q1 EPS: $2.03 expected Revenue: $27.6 billion expected Earnings date: Wednesday after the bell META YTD mountain Meta's stock performance year to date. What we expect: Meta has set the example among tech peers on how to get a business back on track after overspending on unprofitable projects and over-hiring during the Covid pandemic. CEO Mark Zuckerberg has drastically reduced headcount , backed away from the metaverse and restructured the company to focus on core initiatives that drive profitability. We admire management for its tough decisions and are expecting a strong quarter. Moreover, Meta has committed to incorporating generative AI into its products to produce more compelling ads to improve performance. The ad segment has been damaged by the privacy changes at fellow Club holding Apple (AAPL) last year. But in Q4 of 2022, Meta said it was making improvements on how it targets and measures ads. We'll be looking for more information on how recent updates have helped with ad targeting and what more can be done. We are also looking for continued momentum in Reels traffic and commentary regarding monetization. Reels, Meta's answer to TikTok short-form video, has been somewhat of a headwind to profits because it monetizes at a lower level than Feed or Stories. However, when Stories first launched, it monetized at a lower level than the Feed. But with adoption came better monetization. We are looking for Reels to take a similar path. Amazon Q1 EPS: 21 cents expected Revenue: $124.5 billion expected Earnings date: Thursday after the bell AMZN YTD mountain Amazon's stock performance year to date. What we expect: Amazon's profit margins are the big item to watch herein Q1, so we'll be looking for any additional effort management is making to reduce its bloated cost structure. To be fair, Amazon has made some tough decisions on headcount reductions, shuttering underperforming business units and halting warehouse expansion. But we believe that more can be done. Since many of these changes have been recent, they may not be reflected in earnings results this week but we'd like to hear management's insights on how these cost-cutting actions can improve margins. Another pain point is the slowdown in its cloud unit, Amazon Web Services (AWS). If there is any improvement in this business or a positive outlook is offered, it's possible the stock could go higher. Advertising also remains a strong division for the company. Amazon is a preferred online shopping destination, which makes it a favored partner for digital advertisers. While businesses of all sizes are watching their budgets closely, we hope to see continued momentum in Amazon's advertising business. (Jim Cramer's Charitable Trust is long GOOGL, META, AMZN, MSFT, AAPL. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
