Earnings Watch: Earnings Watch: Microsoft, Tesla and Intel are about to face the doubters

In the busiest week of the holiday-earnings season so far, three big names will take the stage on back-to-back-to-back afternoons. Here is what to expect:

Microsoft Corp.

Microsoft MSFT, +1.74% shed $737 billion in market value last year, the third-most of any S&P 500 company, then announced plans to lay off some 10,000 workers this month. Previously a Wall Street darling thanks to the phenomenal growth of its Azure cloud-computing offering, Microsoft now faces a cutback in enterprise spending on cloud and other products, as companies seek to cut their bills after spending wantonly during the early years of the COVID-19 pandemic.

First Take: Big Tech layoffs are not as big as they appear at first glance

When the company announced layoffs, Chief Executive Satya Nadella admitted customers were cutting, saying “as we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimize their digital spend to do more with less.” Analysts believe Azure may be holding up better than rivals, however, and will expect to hear about it when Microsoft results hit Tuesday afternoon.

“Our Azure checks were mixed, but generally better than public cloud sentiment that has turned highly negative over the past few months,” Mizuho analysts wrote. “More specifically, we have heard of increasing levels of optimization, but it is being partially offset by many organizations prioritizing digital transformation.”

From October: The cloud boom has hit its stormiest moment yet, and it is costing investors billions

As cloud growth slows down, expect Microsoft to point to the next big buzzword in tech: Artificial intelligence, specifically ChatGPT, the chatbot product developed by OpenAI, which Microsoft has invested heavily in and expects to incorporate into its products. D.A. Davidson analyst Gil Luria this month wrote that Microsoft’s investments in OpenAI would help it build out more AI technology, including in its search engine Bing. Microsoft announced a new investment in OpenAI on Monday morning, along with intentions to deploy ChatGPT widely in services.

Tesla Inc.

Tesla TSLA, +8.33% stock suffered a much larger percentage decline than Microsoft in 2022,as the electric-vehicle maker’s shares closed out their worst year on record with their worst quarter and month ever. After the year ended, Tesla began slashing prices in China and the U.S. in hopes of qualifying for more consumer tax incentives and reinvigorating demand, which could lead to questions about previously fat margins.

In-depth: Tesla investors await clues on demand, board actions and weigh downside risks in 2023

For Tesla, which reports fourth-quarter results Wednesday, the results will offer more context on production of the Cybertruck — currently set to start in the middle of the year — demand in China, competition and the impact of price cuts. Auto-information website Edmunds on Thursday said that Tesla’s decision to slash prices by as much as 20% in the U.S. and Europe led to a jump in interest in the vehicles.

While those cuts seem likely to hurt profit, Deutsche Bank analyst Emmanuel Rosner called it “a bold offensive move, which secures Tesla’s volume growth, puts its traditional and EV competitors in great difficulty, and showcases Tesla’s considerable pricing power and cost superiority.” And a survey from Wedbush analysts found that “76% of EV Chinese consumers are considering buying a Tesla in 2023.” But Toni Sacconaghi, an analyst at Bernstein, said Tesla needed more low-cost electric-vehicle offerings, which might not ship until 2025.

Tesla earnings preview: Price cuts in focus as stock hovers around 2-year low

With Tesla’s stock in the gutter, some analysts have raised the possibility of a share buyback to spur investor interest, and Chief Executive Elon Musk said such a plan was being discussed in the previous earnings call. Musk is not in great favor with many investors right now, however, following some heavy selling of Tesla shares in the wake of his purchase last year of Twitter, which some on Wall Street have said has distracted him from the needs of the auto maker. Musk’s tweets have landed him in trouble elsewhere: Opening arguments began last week for a trial centered on allegations that Musk put investors at risk when he tweeted in 2018 that he was “considering” taking Tesla private and had secured the money to do so.

‘He broke the stock’: Why a prominent Tesla investor wants Elon Musk to put him on the board

Intel Corp.

Intel’s INTC, +4.26% questions were not fresh in 2022, as the chip maker for years has seen rivals like Advanced Micro Devices Inc. AMD, +8.42% and Nvidia Corp. NVDA, +7.61% challenge it in ways that would have been unthinkable in previous generations. Shares still dove more than 43% last year, as declining sales led to plans for $3 billion in cost cuts.

There’s little hope for a big rebound when Intel reports Thursday afternoon. Personal-computer sales have experienced their biggest year-over-year declines ever recorded, and Intel’s long-delayed new data-center offering that is meant to answer AMD’s challenge only began selling this year.

Opinion: The PC boom and bust is already ‘one for the record books,’ and it isn’t over

Intel CEO Pat Gelsinger, though, has a chance to lay out his vision for a long-term Intel rebound, as he attempts to make Intel a chip-manufacturing powerhouse again after years of struggles. He was forced to trim his annual outlook multiple times last year, so it will be important for him to provide attainable numbers this time, but without reducing hopes in the path forward.

This week in earnings

Expectations remain low for fourth-quarter earnings season overall, with consumers squeezed by higher prices and interest rates, and hopes fading for any relief from the holiday shopping season. But even with a low bar, the fourth-quarter results from companies so far have been worse than the historical norm, with FactSet senior earnings analyst John Butters writing Friday that “the fourth-quarter earnings season for the S&P 500 is not off to a strong start.”

So far, 11% of S&P 500 companies have reported fourth-quarter results, with roughly two-thirds reporting earnings better than estimates, Butters reported. That’s lower than the 10-year average of 73%.

Still, Wall Street generally expects strong profit margins for companies in the S&P 500, as earlier price increases — which help businesses offset their own costs and test the limits of consumer demand — mix with more recent cost cuts.

For the week ahead, 93 companies in the S&P 500 index SPX, +1.67%, and 12 of the 30 Dow Jones Industrial Average DJIA, +1.21% components, are set to report quarterly results.

Mark your calendars! Here is MarketWatch’s full earnings calendar for the week

Among the highlights: General Electric Co. GE, +2.41% reports Tuesday for the first time since splitting off its GE HealthCare Technologies GEHC, +3.21% business. 3M Co. MMM, +2.64% — which makes Post-it Notes, duct tape, air filters, adhesives and coatings — also reports Tuesday, after the company in October said the costs of raw materials, a big driver of inflation, were showing signs of easing.

And as demand for goods eases amid worries about a downturn, a number of railroad operators that ship those goods report during the week. Union Pacific Corp. UNP, +1.83%, whose lines ship across the Western half of the U.S., reports on Tuesday, while CSX Corp. CSX, +1.47%, which covers much of the East, reports Wednesday. Norfolk Southern Corp. NSC, +2.30% also reports Wednesday.

Telecom giants Verizon Communications Inc. VZ, +0.33%, AT&T Inc. T, +0.49% and Comcast Corp. CMCSA, +2.16% report Tuesday, Wednesday and Thursday, respectively. Results there will offer a clearer sense of the state of demand for Apple Inc.’s AAPL, +3.21% iPhones, as premium models suffer from production snags, and for broadband, which saw heightened demand when more people were staying home due to the pandemic.

The call to put on your calendar

Southwest, post-meltdown: Southwest Airlines Co. LUV, -0.20%, which reports on Thursday, will offer executives with plenty to answer for, after bad weather and an overloaded, aging scheduling system caused thousands of flight cancellations over the holidays.

For more: Southwest Airlines turns to repairing its reputation after holiday meltdown

The implosion has raised questions about the air carrier’s investments in its own technology — after restarting dividend payments shortly before the disruptions — and airlines’ ability to handle the post-lockdown travel rebound. The breakdown has underscored the airline industry’s bigger issues with understaffing, after 2020’s wave of departures, as carriers try to reload flight schedules to meet pent-up travel demand.

Scott Kirby, chief executive at United Airlines Holdings Inc. UAL, -0.09%, said during his company’s earnings call last week that he felt the industry’s goals to expand their flight coverage this year and beyond were “simply unachievable.” And he said that airlines that tried to follow prepandemic patterns were destined to face trouble. He said manufacturers were suffering from delays in building jets, engines and other parts, and that airlines had outgrown their technology infrastructure.

For more: United Airlines swings to profit despite ‘worst’ winter storm’

“All of us, airlines and the FAA, lost experienced employees and most didn’t invest in the future,” he said. “That means the system simply can’t handle the volume today, much less the anticipated growth.”

American Airlines Group Inc. AAL, +0.31%, Alaska Air Group Inc. ALK, +1.06% and JetBlue Airways Corp. JBLU, +1.63% are also expected to report results Thursday morning, along with Southwest.

The numbers to watch

Visa, Mastercard and consumer spending: The return of travel and entertainment, along with rising prices, have helped prop up consumer spending. But as Visa Inc. V, +0.47%, Mastercard Inc. MA, +0.99%, American Express Co. AXP, +2.23% and Capital One Financial Corp. COF, +3.00% prepare to report, their finance-industry counterparts are getting nervous — and taking more steps to pad themselves against the fallout from consumers struggling to pay their bills.

Credit-card issuer Capital One reports results on Tuesday, while card payments-network providers Visa and Mastercard report on Thursday, with Amex on Friday morning. They’ll report after shares of Discover Financial Services DFS, +4.76% got hit last week after the company, which also offers credit cards and loans, set aside more money to cover souring credit, and reported a bump in its net charge-off rate — a measure of debt a company thinks is unlikely to be recovered.

Larger banks, like JPMorgan Chase & Co. JPM, +2.10%, have also set aside more money to guard against credit losses.