This Week in Earnings – Q4’24
The Sector Beat: Technology
What a week it’s been as we contend with injections of instability and 2025 outlooks that paint a more conservative view than what investors and analysts were expecting heading into the year.
In today’s thought leadership, we cover:
- Key Events this week
- Earnings Snap, covering the S&P 500 stats to date
- Spotlight on Technology in The Sector Beat
Key Events
President Trump Administration
- President Trump agreed to a 30-day pause on his tariff threats against Mexico and Canada as America’s two largest trading partners took steps to appease his concerns about border security and drug trafficking. Justin Trudeau announced his government would name a fentanyl czar, list Mexican cartels as terrorist groups and launch a “Canada-U.S. Joint Strike Force to combat organized crime, fentanyl and money laundering.” Mexican President Claudia Sheinbaum said she was reinforcing the border with 10,000 members of her country’s National Guard and that the U.S. government would commit “to work to stop the trafficking of high-powered weapons to Mexico.” (Source: AP)
- China’s Finance Ministry said it will impose additional tariffs of 15% on coal and liquefied natural gas imports from the U.S., starting Feb. 10. China will also levy 10% higher duties on American crude oil, farm equipment, and certain cars and trucks, as well as enacting export controls on certain products related to critical minerals. (Source: CNBC)
- President Trump called for the U.S. to take long-term control of Gaza and for nearly two million Palestinian residents to leave for neighboring countries, a break with decades of U.S. policy that left the idea of a Palestinian state in tatters. (Source: WSJ)
Central Banks
- The Bank of England cut rates by a quarter percentage point to 4.5%, for the third time since August and lowered its forecasts for UK economic growth. This takes into account a recent rise in government bond yields and weakened confidence. The bank now sees GDP rising 0.75% this year, compared with 1.5% in November.(Source: WSJ)
Employment
- The U.S. economy added 143,000 jobs in January, and the unemployment rate edged down to 4%, showing cooling but still solid gains for the labor market. The gain in jobs was less than the 169,000 jobs that economists had expected, but the job counts for November and December were revised upward by a combined 100,000. (Source: Labor Department)
- Initial claims for state unemployment benefits rose 11,000 to a seasonally adjusted 219,000 for the week ended February 1. Labor market resilience is the driving force behind the economic expansion and has given the Federal Reserve room to pause interest rate cuts while policymakers assess the impact of the fiscal, trade, and immigration policies of President Trump’s administration. (Source: Labor Department)
Euro Inflation
- The Euro zone inflation accelerated to a hotter-than-expected 2.5% in January on an annual basis as energy costs jumped. Economists had expected the January inflation print to come in at 2.4%. (Source: Eurostat, CNBC)
Earnings Snap
62% of the S&P 500 has reported earnings to date
Q4'24 Revenue Performance
- 63% have reported a positive revenue surprise, above the 1-year average (62%) and below the 5-year average (69%)
- Blended revenue growth (combines actual reported results for companies and estimated results for companies yet to report) is 4.8%
- Companies are reporting revenue 1.1% above consensus estimates, slightly above the 1-year average (+1.0%) and below the 5-year average (+2.1%)
Q4’24 EPS Performance
- 76% have reported a positive EPS surprise, below the 1-year average (77%) and the 5-year average (77%)
- Blended earnings growth (combines actual reported results for companies and estimated results for companies yet to report) is 14.8%
- Companies are reporting earnings 6.4% above consensus estimates, above the 1-year average (+4.9%) and below the 5-year average (+8.5%)
The Sector Beat: Technology
Guidance Trends
We analyzed annual revenue and EPS guidance for a basket of selected U.S. Technology companies with market caps greater than $1B that have reported to date.1 Below are our findings.
For comparison purposes, we provide an “All-Company” benchmark, which tracks in real-time a basket of calendar year companies larger than $1B in market cap across all sectors that have reported earnings to date (n = 177).
Guidance Breakdown by Industry
| Industry | Number of Companies |
|---|---|
| Software | 7 |
| Electronic Equipment, Instruments & Components | 3 |
| IT Services | 2 |
| Technology Hardware, Storage & Peripherals | 1 |
| Total | 13 |
Annual Revenue and EPS Guidance
Revenue: 64% Narrowed spreads relative to last year, double the proportion observed in the all-company benchmark, followed by 27% Widening guidance; 91% of midpoints are above 2024 actuals
EPS: 50% Widened spreads relative to last year, well above the all-company benchmark (25%); 70% of midpoints are above 2024 actuals
Earnings Call Analysis
We analyzed earnings calls across the Technology sector to identify key themes shaping the industry’s outlook.
The Tech sector is seeing broad momentum entering 2025, fueled by AI-driven demand, stable software spending, and expectations for a supportive U.S. policy environment. However, not all pockets of the industry are benefiting equally — while semiconductors, cloud, and enterprise software continue to see strength, some areas, including consumer electronics and legacy IT services, remain challenged.
AI remains the dominant growth driver, particularly for semiconductors and hyperscale cloud providers. Companies highlight increasing demand for compute power and AI-driven applications, but also acknowledge the rapid evolution of AI models — exemplified by China’s DeepSeek — could reshape the global competitive landscape. Some argue that lower cost, more efficient LLMs will act as another tailwind, accelerating adoption and making AI “more ubiquitous”.
Trump 2.0 policy uncertainty, particularly tariffs, remains a hot topic on earnings calls. Executives emphasize that while the situation remains highly fluid, companies are leveraging past experiences — such as navigating tariffs during the first Trump administration — as well as lessons learned from COVID-era supply chain disruptions. Businesses underscore proactive measures, including potential pricing adjustments and efficiency improvements to help absorb any headwinds, while highlighting mitigation strategies developed during prior tariff rounds, such as the benefits of reshoring efforts.
Looking ahead, Tech executives generally remain constructive on their 2025 outlooks compared to other sectors, though they are maintaining a degree of caution given ongoing macro and geopolitical uncertainties. While AI and cloud adoption continue to drive secular growth, the pace of enterprise investment, potential trade policy shifts, and China’s evolving role in the global tech landscape remain key areas to watch.
Key Technology Themes
Outlook and Macro
Industry Gains Momentum with Growth Expected in 2025, Driven by AI Investment, Stable Software Demand, and Expected U.S. Policy Support; However, Global Uncertainty is Leading to Mixed Customer Trends Elsewhere
- KLA ($102B, Semiconductors & Semiconductor Equipment): “The industry outlook continues to gain momentum in the near term, driven by an increasing investment in leading-edge logic, high-bandwidth memory, and advanced packaging.”
- Roper ($56.9B, Software): “From a macro point of view, compared to where we were this time last year, we certainly feel it’s a more stable outlook for the macro, which is positive for sure.”
- Microsoft ($3,185.8B, Software): “Our outlook has many of the trends we saw in last quarter continue through this quarter. Demand for our differentiated cloud and AI offerings across the Microsoft Cloud should drive another quarter of strong growth. In commercial bookings, we expect growth to be roughly flat YoY.”
- Meta ($1562.4B, Interactive Media & Services): “This is also going to be a big year for redefining our relationship with governments. We now have a U.S. administration that is proud of our leading companies, prioritizes American technology winning, and that will defend our values and interests abroad, and I am optimistic about the progress and innovation that this can unlock. I think that this is the most exciting and dynamic time that I have ever seen in our industry.”
- Plexus ($4.6B, Electronic Equipment, Instruments & Components): “We continue to forecast revenue growth across each of our market sectors for fiscal 2025. This growth is driven by new program ramps and share gains as trends in our sectors remain mixed associated with shifts in the timing of certain customer program ramps and changes in customer forecasts. Our outlook reflects the trends revealed through our constant dialogue with our customers and the current status of global trade policies, while acknowledging an evolving geopolitical environment.”
- DXC Technology ($3.8B, IT Services): “Global uncertainties ranging from trade policy, geopolitical conflicts, inflation and labor costs continue to pressure corporate spending for discretionary projects. At the same time, clients are balancing cost optimization with investments in AI-driven transformation programs. We also see some clients committing to projects for the full year ahead. Our pipeline continues to grow, including a higher mix of larger deals in Consulting & Engineering Services. While these engagements have less near-term revenue impact, we believe they build on a solid foundation for future growth.”
Demand
AI and Cloud Expansion Fuel Growth, While Stabilizing IT Spending and 5G Transition Support Recovery; Consumer and Legacy Tech Businesses Remain Mixed
- Intel ($94.3B, Semiconductors & Semiconductor Equipment): “I remain very optimistic on our opportunity at Intel Foundry. The pervasive growth of AI is driving accelerating and unprecedented demand for silicon and there continues to be an unmet need for greater choice and overall manufacturing capacity in the industry today.”
- KLA ($102B, Semiconductors & Semiconductor Equipment): “AI continues to be a crucial catalyst for KLA. We are well aware of the recent revelations of DeepSeek and the implications that it portends a diminished demand for advanced semiconductor in support of the AI infrastructure build-out. As a company that has been developing AI models for use in our own inspection systems for many years, our own experience supports the theory that increased compute efficiency enables more adoption of AI on our platforms. The demand is clearly elastic.”
- Microsoft ($3,185.8B, Software): “AI scaling laws are continuing to compound across both pre-training and inference time compute. We ourselves have been seeing significant efficiency gains in both training and inference for years now. And as AI becomes more efficient and accessible, we will see exponentially more demand. Therefore, much as we have done with the commercial cloud, we are focused on continuously scaling our fleet globally and maintaining the right balance across training and inference as well as geo distribution. From now on, it’s a more continuous cycle governed by both revenue growth and capability growth, thanks to the compounding effects of software-driven AI scaling laws and Moore’s Law.”
- Viavi Solutions ($2.3B, Communications Equipment): “…Revenue in fiscal Q2 grew YoY, driven by recovery and growth across many of our product segments. We expect this momentum to continue through the remainder of fiscal 2025. Fiber field saw solid demand from service providers and NEMs, particularly in fiber monitoring systems, in support of fiber network buildout. We expect this momentum to continue. We are also seeing signs of stabilization and green shoots in our wireless business, driven mostly by the resumption of 5G deployment in North America. We expect the gradual recovery to continue during the first half of calendar 2025.”
- F5 ($15.5B, Communications Equipment): “The quarter’s strength is multi-faceted and reflects a continuation of the trends we observed in the second half of last year. First, we are benefiting from consistently strong expansion of our software subscriptions, many of which have exceeded our expansion forecast. Second, with a more stable IT spending environment, new software demand continues to grow as customers resume transformative and modernization projects. And third, technology refresh activity is increasing, driving demand for both software and systems. Our pipeline shows these drivers will persist into Q2.”
- AMD ($198.4B, Semiconductors & Semiconductor Equipment): “For 2025, we expect the demand environment to strengthen across all of our businesses, driving strong growth in our Data Center and Client businesses and modest increases in our Gaming and Embedded businesses. Against this backdrop, we believe we can deliver strong double-digit percentage revenue and EPS growth YoY.”
- Badger Meter ($6.5B, Electronic Equipment, Instruments & Components): “Our durable business model is underpinned by replacement driven demand, secular AMI (advanced metering infrastructure) adoption drivers, and the expanding need for real-time data visualization and analytics spanning the water network. Our order book and opportunity pipeline, along with constructive customer budgets, continue to support the high single-digit average top line growth we’ve been communicating for some time now.”
- Littelfuse ($5.9B, Electronic Equipment, Instruments & Components): “Electronics market trends were mixed but improved through the fourth quarter. Data center remained the strong growth driver, in part driven by AI applications. Medical demand was mixed, while demand for consumer products, appliances and building technologies remained subdued. And as the quarter progressed, we observed some emerging signs of stabilization, particularly in North America and Asia regions.”
Tariffs
Companies Remain Largely in Wait-and-See Mode, Avoiding Offering Prescriptive Measures to “What If” Questions; In General, Expect to Mitigate Impact through Regional Production Shifts, Pricing Strategies, and Operational Efficiencies
- Plexus ($4.6B, Electronic Equipment, Instruments & Components): “It’s very fluid, so we’re continuing to monitor it very closely. One of the things we’ve done over the course of the past year is we’ve invested quite heavily in our trade compliance organization to monitor and help our customers. So, we’ve invested in people, organization, and tools to be better equipped to provide great solutions on that front. A couple of things to remind people of is, one, from a footprint standpoint, we’re in really good shape, so if we need to move products around based off tariffs, we’re well positioned to be able to do that. Also, I’d point out that when we look at the cost of tariffs, those are costs that we pass on to our customers. So, we’re cognizant that it could impact demand overall, but we shouldn’t bear those costs directly within our business. So again, we’re continuing to monitor it very closely and just taking a wait-and-see. But we’ll respond very rapidly as things occur and change.”
- Intel ($94.3B, Semiconductors & Semiconductor Equipment): “We have a fairly good sense of what customers need…quarter-to-quarter. In a couple of instances, customers ordered more than we think they were digesting. They’re doing that for a reason, and we know tariffs are a big subject for a lot of our customers. It was in the Asian region, as you might expect, that we saw this. It’s hard for me to extrapolate this beyond this quarter. A lot is not known yet around what might be the plans on tariffs. I just thought it was a little bit of hedging going on by customers that pulled revenue into Q4 and away from Q1.”
- Badger Meter ($6.5B, Electronic Equipment, Instruments & Components): “I’ll tell you what we do know and what we can control. Clearly, everyone would have some impact from tariffs regardless of however this comes through. But the things to remember are from a China point of view, we source very little, we’ve done a considerable amount of reshoring back to North America over the last several years. We certainly have capacity in some of our U.S. facilities that we can continue to use. So, I have no idea yet what the administration will do or how that will go, but through the last several years I think we’ve done a great job of being able to control what we can. We’ve seen the threat of tariffs in the first Trump administration. We’ve been through COVID. We’ve been through supply chain challenges. And I think our hallmark has been understanding what we can control, acting with urgency around mitigating those actions, and having a best-in-class operating model.”
- Teledyne ($22.4B, Electronic Equipment, Instruments & Components): “Please remember that I am not any more knowledgeable than anybody else, but I can relate it to our businesses. Let’s talk about tariffs first. If you look back a couple of years, 2022, where we had all these shortages coming out of COVID, we had experienced peak supply chain challenges. That cost us about $100M. What did we do? We increased prices in some of our businesses that we could, but we also improved margins. So, we made up for it between those two and our own efficiencies. The way the tariffs are laid out, at least initially in Canada and Mexico, China, we think the impact would be less than what we experienced in 2022, maybe half as much. So, we think we can deal with that.”
- Amphenol ($87.7B, Electronic Equipment, Instruments & Components): “Specific to tariffs, this is not a new topic. We dealt with tariffs from the U.S. back in…2017. Those tariffs were mostly directed at China, but not only at China. And what we saw in that time is our team did a fabulous job of mitigating the impact of those tariffs through a wide variety of measures. There was not a one-size-fits-all solution. Underlying all of that is the backdrop that we tend to make our products in the regions where our customers buy them, not 100%, but that we always try to be close to our customers. But if you really get to the essence of why we were so successful in mitigating the last phase of tariffs, it comes down to this unique entrepreneurial organization.”
CapEx
Big Tech Execs Justify Outsized CapEx Commitments Tied to AI-Infrastructure Buildout Amid Overspending Scrutiny in Wake of DeepSeek Announcements; On the Other Hand, Semis Moderate Spend and Highlight Benefits from Prior Investments
- Alphabet ($2424.3B, Interactive Media & Services): “As we mentioned on the Q3 call, as we expand our AI efforts, we expect to increase our investments in capital expenditure for technical infrastructure, primarily for servers followed by data centers and networking. We expect to invest approximately $75B in CapEx in 2025, [up from $52.5B in 2024], with approximately $16B to $18B of that in Q1.”
- Microsoft ($3185.8B, Software): “We are working super hard on all the software optimizations. Not just the software optimizations that come because of what DeepSeek has done, but all the work we have done, too. For example, reducing the prices of GPT models over the years in partnership with OpenAI. In fact, we did a lot of the work on the inference optimizations on it, and that’s been key to driving. One of the key things to note in AI is you don’t just launch the frontier model. If it’s too expensive to serve, it’s no good. It won’t generate any demand. So, you’ve got to have that optimization, so that inferencing costs are coming down and they can be consumed broadly. And so, that’s the fleet physics we are managing. And also, remember, you don’t want to buy too much of anything at one time because the Moore’s Law every year is going to give you 2x, your optimization is going to give you 10x. You want to continuously upgrade the fleet, modernize the fleet, age the fleet, and at the end of the day, have the right ratio of monetization and demand-driven monetization to what you think of as the training expense. So, I feel very good about the investment we are making, and it’s fungible and it just allows us to scale more long-term business.”
- Meta ($1562.4B, Interactive Media & Services): “[Regarding DeepSeek], it’s probably too early to really have a strong opinion on what this means for the trajectory around infrastructure and CapEx and things like that. The field continues to move quickly. There’s a lot to learn from releases from everyone who does something interesting, not just the ones over the last month. We’ll continue to incorporate that into what we do as well as making novel contributions to the field ourselves. I continue to think that investing very heavily in CapEx and infra is going to be a strategic advantage over time.”
- IBM ($207.4B, IT Services): “We are going to continue to invest in this business, and that CapEx number is going to go up a couple hundred million dollars as we invest in our software, our GenAI, our next generation mainframe, et cetera. Quantum, by the way, we continue to invest in.”
DeepSeek Impact
AI Model Innovation Accelerates as Cost of Inference Drops; Tech Leaders See Opportunity in Expanded AI Adoption and Application Development, While Some View China’s Advances as a Competitive Wake-Up Call
- ServiceNow ($226.5B, Software): “It’s actually fantastic news for ServiceNow because as these models are being commoditized at a rapid rate and probably more rapid than anyone could have dreamed of, it’s super, super exciting for platform and app vendors like us since the competitive differentiation will happen at our level in terms of the applications, the business processes, how you can help these companies run better and then, ultimately, get a business outcome. And as it relates to DeepSeek, we have a deep belief here in measuring twice, if not three times, and counting once. So we believe very strongly in understanding what’s really going on and we’re highly committed to responsible AI.”
- Microsoft ($3185.8B, Software): “I think DeepSeek has had some real innovations…When token prices fall, inference computing prices fall, that means people can consume more, and there’ll be more apps written. That type of optimizations means AI will be much more ubiquitous. And so, therefore, for a hyperscaler like us, a PC platform provider like us, this is all good news as far as I’m concerned.”
- Meta ($1562.4B, Interactive Media & Services): “[Regarding DeepSeek], there’s a number of novel things that they did that we’re still digesting. And there are a number of advances that we will hope to implement in our systems. And that’s part of the nature of how this works, whether it’s a Chinese competitor or not. I expect that every new company that has a launch is going to have some new advances that the rest of the field learns from, and that’s sort of how the technology industry goes.”
- AMD ($198.4B, Semiconductors & Semiconductor Equipment): “Looking further ahead, the recent announcements of significant AI infrastructure investments like Stargate, and latest model breakthroughs from DeepSeek and the Allen Institute highlight the incredibly rapid pace of AI innovation across every layer of the stack, from silicon to algorithms to models, systems, and applications. These are exactly the types of advances we want to see as the industry invests in increased compute capacity while pushing the envelope on software innovation to make AI more accessible and enable breakthrough generative and agentic AI experiences that can run on virtually every digital device.”
- Palantir ($166.5B, Software): “I think one of the obvious lessons of DeepSeek-R1 is something that we’ve been saying for the last two years, which is that the models are commoditizing. Yes, they’re getting better across both closed and open, but they’re also getting more similar. And the price of inference is dropping like a rock. But I think the real lesson, a more profound one is that we are at war with China. We are in an AI arms race… But one of the things I want to make sure we all do realize is that the engineering in DeepSeek-R1 is exquisite. The optimizations that they’ve done are really impressive. And I don’t think you can get away with the facile explanation that the Chinese just copy and we’re the only innovators. We have to wake up with a respect for our adversary and realize that we are competing. But they absolutely did steal a lot of that through distillation of the models and perhaps they stole even more.”
In Closing
It seems like all eyes are on Tech — and for good reason. The sector is at the center of AI as a secular tailwind, among those most exposed to the rapidly developing yet still opaque tariff trade wars, and has been thrust into the pole position of the geopolitical power play.
With all this in mind, executive commentary this quarter is clear-eyed yet optimistic. Demand trends continue moving up and to the right across most end markets, while capex commitments remain stable to improving, even as the pace of AI advancement raises questions about long-term spending efficiency. Some industry leaders marveled at the speed of innovation, particularly with regard to the latest developments out of China, while others pounded the table over the need for U.S. exceptionalism to prevail. It’s certainly an interesting time in Tech World…and the world at large.
However, the rise of DeepSeek is leading prominent strategists at institutional investment firms to encourage clients to diversify portfolios, creating opportunities for companies to capture mindshare through amplifying their equity brand…more to come in March from Corbin on this topic.
As always, remember to anchor your responses in what is within your control — the steps your company is taking to navigate these challenges and seize opportunities.
Up next week: Materials in our Sector Beat.
- Calendar year reporters; as of February 6, 2024