Big Tech's Earnings Growth and 9.4% ROE: A Deep Dive into the Industry's Performance

As we step into the second quarter of 2025, the tech industry's earnings growth and return on equity (ROE) have been a hot topic of discussion among investors. The 'Big 5 Tech Players' – Amazon, Alphabet, Meta, Microsoft, and Apple – have been standout performers in 2023, with their year-to-date performance relative to the S&P 500 index (red line at the bottom, up +8.3%). However, the earnings growth trends of these tech giants have been mixed, with some companies exceeding expectations while others fell short.

Meta Platforms (META), for instance, has been in a league of its own regarding stock market performance. Following the Q1 results, the magnitude of the positive reaction to Microsoft's results wasn't nearly as strong as it was for Meta, but it was nevertheless very favorable. Meta's revenue outlook for Q4 was in line with expectations, but with the top-end of guidance exceeding consensus by $1.7 billion. For 2024, post-earnings expectations for operating income from the Family of Apps have increased over $3.5 billion to $84.1 billion since the July quarter, driven by higher ad revenue per DAU in the US and EU.

Microsoft (MSFT), on the other hand, saw its Q1 earnings for fiscal year 2025 come in at $2.40 per share, which was 2.13% above analysts' estimates for earnings of $2.35 per share. Quarterly revenue of $124.3 billion was up 4% year-over-year and just above analysts' expectations of $124.1 billion. However, the stock fell by roughly 6% on Thursday due to disappointing Cloud segment results. Microsoft's Cloud segment revenue rose 21% to $40 billion but missed expectations for $41.1 billion, and the cloud unit margins decreased to 70%.

Amazon (AMZN) and Alphabet (GOOGL) shares lost ground following their quarterly releases, although they both exceeded estimates. Amazon's Q1 2024 earnings per share (EPS) of $0.15 missed analysts' estimates of $0.21. Revenue of $125.4 billion was up 10% year-over-year and in line with analysts' expectations. Amazon's cloud business, Amazon Web Services (AWS), grew 16% year-over-year, but the growth rate was lower than the previous quarter. Alphabet's Q3 2024 earnings per share (EPS) of $2.12 exceeded analysts' estimates of $2.05. Revenue of $88.3 billion was up 13% year-over-year and also beat analysts' expectations. Alphabet's Cloud segment generated a 17% operating profit margin, delivering a positive surprise and exceeding the top end of consensus estimates.

Apple (AAPL) reported Q1 2025 earnings per share (EPS) of $2.40, which was 2.13% above analysts' estimates for earnings of $2.35. Quarterly revenue of $124.3 billion was up 4% year-over-year and just above analysts' expectations of $124.1 billion. However, iPhone sales declined about 1% to $69.1 billion and missed Wall Street's estimates of $71 billion.



In comparison, total Q1 earnings for the Technology sector as a whole are expected to be down -13.2% from the same period last year on -3.6% lower revenues. The 'Big 5 Tech Players' are expected to bring in -9.1% lower earnings in Q1 on -4.1% lower revenues, which could potentially push the group's growth rate into positive territory if Apple's results are better than expected.

The 9.4% return on equity (ROE) for the technology sector can be attributed to several primary drivers, including cloud spending and market share gains, AI and machine learning investments, efficient capital allocation, growth in cloud and AI spending, and the strong performance of the 'Big 5 Tech Players'. These factors contribute to the overall earnings growth in the sector.

Investors should closely monitor the earnings and ROE of these companies to make informed decisions about the technology sector as a whole. The earnings growth and ROE of the 'Big 5 Tech Players' have a significant impact on the broader technology sector, influencing market sentiment, sector performance, peer comparison, investment opportunities, and industry trends. As the technology sector continues to evolve, understanding the earnings growth and ROE of these companies will be crucial for investors looking to capitalize on the industry's potential.