Worried about how ASX 200 tech shares might perform this earnings season? Here’s what to watch

ASX tech shares have caught a bid since June.

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Global reporting season is well underway with a number of ASX 200 and US companies releasing financial results for the period to June 30 2022.

Over in the US, various names within the tech sector have posted earnings in recent weeks. Outcomes have been less than satisfactory.

Results point to a slow down in demand in the sector, with further macroeconomic headwinds looming on the horizon.

What to expect from ASX 200 tech shares

Tech giants such as Google, Meta and Apple have each posted earnings within the past few weeks. Alphabet (Google’s parent), saw its advertising revenue growth of 12% year on year, down from 22% in the 12 months to March.

Meanwhile, Meta (Facebook) also saw its first ever quarterly revenue decline and expects another pullback in the next quarter.

Chief to the two company’s issues have been changes Apple has made to its iOS devices. The decision gave a tidy haircut to advertising revenue for the duo.

Furthermore, chronic supply shortages of key components used in the manufacturing of equipment are also plaguing the outlook for tech shares.

The issue creates longer lead and processing times, generating longer payment cycles as well.

In Australia, tech shares haven’t seen the headwinds realized by our US counterparts – not yet anyhow. In fact, the wind would probably best be served to put out the blaze the ASX 200 tech sector has been on lately.

As seen on the chart below, ASX 200 tech shares have caught a bid since June, where the sector found a bottom and has traced back above 3-month highs.

The chart also shows the S&P/ASX All Technology Index (ASX: XTX), S&P/ASX 200 Index (ASX: XJO) and the Nasdaq 100 US Tech Index (NAS100)’s return since August 2020. Note the striking similarity.

TradingView Chart

Hence the question then turns to what this means for the ASX tech basket.

Considering the specific challenges in the US, companies such as Appen Ltd (ASX: APX) have already shocked the market and reported weaker than expected preliminary earnings this week.

Results were underlined by a softening in digital advertising demand. It saw a steeper than expected revenue decrease and negative cash flow from operations in the report.

Shares are down 23% on the week as a result, bringing losses to 65% for the year to date.

Meanwhile, analysts see positives in names such as Megaport Ltd (ASX: MP1), NextDC Ltd (ASX: NXT) and Macquarie Telecom Ltd (ASX: MAQ), according to RBC Capital Markets.

“The first two are developing new multi-billion dollar data centre projects in Sydney with cloud hyperscalers as anchor tenants, and are expected to benefit from continued demand for cloud data services underpinned by hyperscaler, enterprise and government customers,” The Australian reported.

Analysts at Citi led by Siraj Ahmed were a little more cautious and offered that “[w]hile valuation looks much more reasonable…risks [are] skewed to the downside as we expect consensus downgrades due to a slowing demand environment.”

Returns for each of these ASX tech shares over the past 12 months are observed below versus the tech index.

TradingView Chart

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Motley Fool contributor Zach Bristow has positions in Alphabet (A shares). The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet (A shares), Alphabet (C shares), Appen Ltd, Apple, MEGAPORT FPO, and Meta Platforms, Inc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Apple, MEGAPORT FPO, and Meta Platforms, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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