The US earnings season has been relatively strong, most notably for a number Tech companies, with most having beaten analyst’s expectations.
The likes of Amazon, Google and Apple have all posted solid revenue increases demonstrating the dominance of the US Technology sector.
Amazon (NASDAQ:AMZN) released results last week, disclosing an unexpected profit of $23.18 billion; the company’s first profit. Analysts had expected Amazon to lose $0.14 per share on revenue of $22.39 billion. Following its earnings beat, Amazon shot up more than 14 percent in after-hours trade.
Google’s stock jumped more than 7 percent in the after-market hours on Thursdayas the company also reported strong earnings results for the second quarter. Total income for the period ended June 30 was $3.93 billion, up 17 percent from $3.35 billion in the second quarter of 2014.
Apple posted a profit rise of 38% to $10.7bn; however, investors seemed disappointed with the results, and the stock dropped 5%. This sell-off is representative of the high standards investors are demanding from the sector.
The social media giants are set to release results this week; Twitter (NYSE:TWTR) is scheduled for Tuesday, and Facebook (NASDAQ:FB) rolls out on Wednesday. Their stocks have often become volatile after earnings results with investors being quick to sell or buy; Twitter has beaten consensus five out of six times since it went public in 2013, yet investors typically sell the first chance they get, pushing shares down 4.6 percent on average.
Twitter has suffered significantly over the past quarter, with CEO Dick Costolo stepping down and uncertainty surrounding his replacement affecting share price. The company went into this quarter at a similar price to rivals Facebook and Google and is now trading at around 50% lower than both.
Facebook, however, has followed a similar trend to Google over the past 3 months, with Google spiking before and falling slightly after releasing their results earlier in July. Facebook are set to release on Wednesday and have remained fairly steadier, but may be set to do the same following a sell-off of shares if they report increased earnings as expected.
Whilst the Dow Jones and S&P 500 are largely flat year to date, the tech dominated NASDAQ is up 7% having made a record high two weeks ago.
The strength in US tech stocks will give hope to investors who fear a negative impact of higher interest rates and some see further good news in 2015 for the sector.
“The question now is if the markets are fully valued and can they move higher without earnings growth,” said Jerry Braakman, chief investment officer of First American Trust
“Ultimately, it’s earnings that drive the market not revenue and a lot of the growth in earnings is expected to come in the second half of the year.”
Apple, Google and Amazon have accounted for around 37% of the NASDAQ’s gains but small caps within the sector have the potential to supersede US tech giant in terms of share price gains as investors seek the higher returns innovative early stage companies can yield.