The technology sector has been a bright spot in the third quarter of 2024, fueled by advancements in artificial intelligence (AI), machine learning and generative AI (GenAI). This transformative growth is underpinned by strong industry tailwinds, such as widespread digitalization and increased enterprise adoption of cutting-edge technologies.
Factors Supporting Tech Sector’s Growth
The relentless pace of digital transformation continues to boost technology companies. The rapid adoption of cloud computing, 5G networks, IoT devices and blockchain has created fertile ground for innovation and investment. Emerging trends such as wearables, augmented reality (AR) and virtual reality (VR) headsets and drone technology are energizing the sector.
The growing demand for AI solutions has accelerated the need for enhanced data center capacity. Leading cloud providers, including Amazon, Alphabet, Microsoft and Meta Platforms, are making substantial multi-year investments to meet this demand, underscoring the robust outlook for technology infrastructure.
Generative AI has emerged as a transformative force, attracting significant investments. Gartner projects spending on AI software to witness a compound annual growth rate (CAGR) of 19.1% between 2023 and 2027, reaching $297 billion by 2027. Spending on GenAI software alone is expected to soar from 8% in 2023 to 35% by 2027, indicating explosive growth.
Enterprise adoption of GenAI is also accelerating. Deloitte predicts a 30% increase in enterprise spending on GenAI in 2024, up from $16 billion in 2023. This surge reflects the technology's potential to revolutionize industries through its applications in automation, content creation and data analysis.
The rise of GenAI has spurred demand for advanced semiconductors, especially GPUs, which are vital for processing the massive datasets required by AI models. Semiconductor companies are capitalizing on this opportunity, as evidenced by data from the Semiconductor Industry Association. In October 2024, global semiconductor sales reached $53.1 billion, marking a 20.6% year-over-year increase. For the third quarter of 2024, semiconductor sales soared 23.2% year over year to $166 billion. These figures underscore the sector’s critical role in powering AI advancements and digitalization.
Stellar Technology Earnings This Season
The strong fundamentals of the technology sector are reflected in the robust earnings reported this season. According to the data compiled by Zacks, as of Nov. 13, 2024, 77.5% of technology companies in the S&P 500 had reported their quarterly results. These companies delivered an 18% year-over-year increase in total earnings on 8.8% higher revenues.
What stands out is the exceptional performance relative to expectations. Among the total reported tech companies, 85.5% beat earnings per share (EPS) estimates, and 77.4% surpassed revenue projections. These results highlight the sector’s resilience and ability to thrive amid macroeconomic challenges.
Upcoming Earnings to Watch
Many technology companies are set to report their earnings results over the next couple of weeks. Hence, finding technology stocks with the potential to beat earnings estimates can be daunting. However, our proprietary methodology makes it fairly simple.
You could narrow down the list of choices by looking at stocks that have the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP is our proprietary methodology for determining stocks that have the best chances to surprise with their next earnings announcement. It is the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with this combination of ingredients, the odds of a positive earnings surprise are as high as 70%.
3 Tech Stocks That Match the Criteria
The three technology stocks mentioned below have the right combination of elements to beat on earnings this reporting cycle:
Palo Alto, CA-based Rubrik, Inc. RBRK has an Earnings ESP of +0.42% and currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company is scheduled to report its third-quarter fiscal 2025 results on Dec. 5. The Zacks Consensus Estimate for the bottom line is pegged at a loss of 40 cents per share, unchanged over the past 60 days.
Rubrik, Inc. Price and EPS Surprise
Rubrik, Inc. price-eps-surprise | Rubrik, Inc. Quote
Santa Clara, CA-based Pure Storage, Inc. PSTG is scheduled to report its third-quarter fiscal 2025 results on Dec. 3. The company has an Earnings ESP of +2.98% and a Zacks Rank #3.
The Zacks Consensus Estimate for earnings has remained unchanged at 43 cents per share over the past 60 days.
Pure Storage, Inc. Price and EPS Surprise
Pure Storage, Inc. price-eps-surprise | Pure Storage, Inc. Quote
Texas-based Hewlett Packard Enterprise Company HPE is set to report fourth-quarter fiscal 2024 results on Dec. 5. The company has an Earnings ESP of +1.51% and a Zacks Rank of 3.
The consensus estimate for its earnings has been unchanged at 55 cents per share over the past 60 days.
Hewlett Packard Enterprise Company Price and EPS Surprise
Hewlett Packard Enterprise Company price-eps-surprise | Hewlett Packard Enterprise Company Quote
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