Tesla and Amazon Kick Off Tech Stock Earnings Season

Markets are looking forward to the key drivers of growth as Nasdaq trades at new records again, with high hopes that AI-based tech stocks can keep scoring outsized gains after Tesla deliveries rebound.

The Key Metrics Ahead of Earnings

• Markets remain bullish on tech stocks amid the potential for the US to reach a trade deal with China and the government to reopen, possibly as soon as this week.
• Tesla's increase in sales is attributed to timing for EV credits; markets expect EPS to drop to $0.55 from $0.72 a year ago.
• Amazon's cloud services are affected by an outage ahead of its earnings next week, with a focus on its AWS sector. Analysts expect the company to report an EPS of $1.56 on $177.6 billion in revenue.

Stocks Rise Ahead of Tech Earnings

Markets started the week in the green amid a flurry of generally good news over the weekend. Those include a pause in trade tensions and increasing hopes that the US government shutdown would end in the coming days. Markets are also looking ahead to the ramp-up in earnings season this week, which includes the first of the "Magnificent 7" tech stocks to report: Tesla. After beating delivery estimates, traders will be looking to see if the company can do the same with earnings. Amazon will be the next of the big tech names, reporting next week. But the company was in the news on Monday after a disruption of its cloud services briefly affected websites around the world but apparently left the stock price unscathed so far.

Will Tesla Profits Match Gain?

Tesla shares are rallying, up 30% since touching bottom in the summer, and aided by a recovery in its deliveries. At the start of October, the company reported that it sold 447.6K vehicles, +7% from a year earlier, and was apparently recovering from the sales slump following brand damage earlier in the year. However, some analysts note that the sales correspond to the period ahead of the expiry of the $7,000 EV subsidy, which might impact future sales.

Despite the recovery in deliveries, consensus among analysts is for Tesla's EPS to come in at $0.55 per share, down from $0.72 a year ago. However, this would still be a sequential improvement over the $0.40 in the second quarter. Revenue is projected to advance 5.5% to $26.6 billion. Though Tesla has failed to meet investor expectations seven out of the last eight times. Traders are likely to focus on updates around the robotaxi timeline, after management promised a full production launch next year. Additional insight into the impact of the lower-priced Model Y and 3 will likely be in focus, including how quickly production can be increased and if the company is facing supply challenges amid the trade war.

Amazon's Cloud Focus

The AWS outage, the first of this scale for Amazon's cloud unit, comes at an awkward time, as the company is scheduled to update investors about its Q3 activity on Thursday, October 30th. The cloud segment has been the fastest grower for the e-commerce giant, with analysts looking closely for insights into demand trends for AI hosting. The consensus among analysts is that Amazon will post earnings of $1.56 per share, up from $1.43 a year earlier. The company has a strong track record of beating estimates by a wide margin. Sales are projected to rise 12% to $177.6 billion.

Tesla in Wait-and-See Mode after Double Top

Tesla trades near its 1-year high of $490 per share, following a triangle breakout with a completed measured-move extension to around $450. Given the proximity to last December’s swing high, the current price action can be considered a double top, leaving the stock’s outlook under question. A break of $480 could set the stage for $500 and beyond if earnings beat expectations, while a disappointing report could see prices slide under $410 and towards the triangle breakout level of $350.

Source: SpreadEx | Tesla Motors