SpaceX Leads Tech Earnings This Week

Earnings season is still in full swing, with several major names expected to report this week that could swing market sentiment, affecting not just stock indices but also the market outlook.

What's Expected to Move

• Another batch of tech earnings could improve market sentiment that is already riding higher this week.
• After concern about capex spend dominated reports earlier in the season, the focus is now on the companies capturing that spending, which could provide a more positive tone.
• SpaceX earnings are likely to be the highlight, as investors focus on a breakdown of its results, including its Starlink unit, which is widely seen as a source of stability in revenue.
• AI infrastructure companies like AMD, SanDisk and Western Digital will be crucial for commentary on the current state of the market, as traders focus on strong margins driven by demand exceeding supply.

Will Tech Lead the Market Higher?

US equities hit all-time highs on Monday, shrugging off policy concerns and embracing optimism as oil prices fell after the US and Iran entered a new, tentative pause in fighting. The DJIA notched a new record high but, for once, wasn't reliant on rotation out of tech stocks, as the Nasdaq gained over 2.1% on the first day of trading this week. The move higher could signal that the tech doldrums of July (which left the tech-heavy Nasdaq in the red for the month) might be over, and the AI trade will recover. If that happens, it will likely depend heavily on a series of tech earnings this week supporting a positive narrative.

The tech sector lost around 8% last month, with megacaps generally underperforming amid growing investor concern about high spending levels. Hyperscalers are expected to spend as much as $1 trillion on AI infrastructure expansion next year, and investors are wondering when they will see a return on investment. However, most of those megacaps reported earlier in the season. Now it's the turn of the companies that are spending those hundreds of billions. Memory firms like SanDisk and Western Digital and chip names like AMD will update investors this week but have a high bar to clear, as their stock prices have risen in anticipation of strong sales gains. Another much-anticipated earnings report is SpaceX, which set its Q2 earnings release as the expiry date for its lockup, which could trigger selling even if its report beats estimates. Here's what's coming up and what traders will be looking at:

SpaceX Details Crucial to Outlook

Perhaps the most anticipated name this week, the space, AI and internet company will launch its inaugural earnings on Tuesday after the market close. The share price fell to record lows after trending lower from its post-IPO peak. Analysts predict the company will report a quarterly loss of -$0.29 per share on sales of $6.82 billion. However, as it's the first earnings report, there is likely significant uncertainty around the projections. As with most tech companies, what could be most important is the company's first formal guidance. The consensus is for SpaceX to turn profitable next quarter. With EPS of $0.08, that won't be enough to offset earlier-year losses, as full-year 2016 EPS is projected around -$0.55 and sales of $39.1 billion. It's not clear what kind of guidance SpaceX will provide, which could add to the volatility. Futures are giving the company an implied move of up to 14% in the aftermath of the earnings. As for fundamentals, traders are hoping the earnings report will provide additional insight into the company's performance and are looking for segment breakdowns. Particularly relevant are likely to be Starlink's stand-alone financials, including subscriber growth, ARPU and margins. Capital spend on AI development and revenue could be the Achilles' heel for SpaceX, like it was for other major tech firms this cycle.

AMD to Set the AI Tone

The chipmaker and now leading PC processor manufacturer is scheduled to report earnings after the market closes on Tuesday. The consensus is for earnings to more than triple to $1.61 from $1.48 a year ago, as sales advance 47% to $11.3 billion and analysts anticipate strong margins. The focus will likely be on commentary around demand for data centres and AI. Whether the company projects continued sales growth at a similar rate during Q3 could be crucial.

Will SanDisk Meet Lofty Expectations?

The storage and memory name will issue its quarterly report after the market close on Wednesday, with analysts expecting a whopping 341% jump in sales to $8.39 billion. The increase in the bottom line is expected to be even more shocking, jumping to $34.51 from just $0.29 a year ago. Crucial for the stock will be indications of whether demand for memory is expected to remain at similar levels going forward, to help support further upside and justify the price increase so far this year.

Western Digital to Have More Stable Growth

The other key player in the memory space will simultaneously report its earnings after the market close on Tuesday. However, it is expected to have more stable (and therefore sustainable) growth, with earnings anticipated to double to $3.30 from $1.66 in the same period last year. Revenue is expected to rise 42% to $3.7 billion, driven by higher pricing amid strong demand. This has helped boost the firm's margins, and traders are likely to be focused on whether the company expects current trends to continue through the year.