The earnings season is drawing to a close with 381 S&P 500 members or 82.7% of the index’s total market capitalization having reported quarterly results, per the latest Earnings Outlook. Total earnings of these companies are up 25% on a year-over-year basis on 10.4% higher revenues.
Technology is one of the 14 sectors anticipated to report double-digit earnings growth this quarter. As of Aug 2, total earnings for the sector are up 31.6% on 12.2% higher revenues.
Key Catalysts to Watch Out For
We note that the technology sector fared impressively on a year-to-date basis in the first-half of 2018. The Technology Select Sector SPDR ETF (XLK – Free Report) returned 15.6% in the year-to-date period compared with the S&P 500’s gain of 8.4%.
Solid demand for cloud-based platforms, growing adoption of Artificial Intelligence (“AI”) solutions, Augmented/Virtual reality devices, autonomous cars, cybersecurity, advanced driver assisted systems (“ADAS”) and Internet of Things (“IoT”) related software and hardware continue to drive the sector.
Improving Internet penetration trends and rapid adoption of 4G Volte technology have been acting as tailwind to tech providers.
Moreover, growth in PC shipment is a key catalyst. Per latest data from Gartner and IDC, the improved PC shipment results were mainly driven by higher demand in business markets due to migration to Windows 10.
Robust increase in overall IT spending is giving further momentum to tech sector. Per the latest report by Gartner, worldwide IT spending is projected to grow 6.2% on a year-over-year basis, to reach $3.7 trillion this year.
However, increasing regulations for social media companies like the implementation of EU’s General Data Protection Regulation is an overhang. Further, the uncertainty created due to the ongoing trade war between the United States and China is also a concern.
How to Make the Right Pick?
