Two tech giants featuring prominently in this week’s bustling earnings calendar are Alphabet – known by its ticker symbol GOOGL – and International Business Machines, commonly referred to as IBM. They are scheduled to announce their Q2 results on Tuesday, July 24 and Wednesday, July 25, respectively.
Part of the elite Magnificent Seven-themed stocks, GOOGL has seen a remarkable 30% surge this year, outpacing the S&P 500 and Nasdaq, while IBM has recorded a 12% increase, slightly lagging behind the broader market. Nevertheless, both companies have delivered strong outperformance over the last three years.
Considering that both stocks are priced at just over $180 per share, let’s delve into whether now is the opportune time to acquire shares in Alphabet or IBM.
Alphabet Q2 Expectations
Alphabet, deriving a significant portion of its search engine revenue from Google, is anticipated to witness a 10% uptick in Advertising segment sales to $64.27 billion during Q2, as estimated by Zacks. The Cloud segment, a key growth driver for Alphabet, is projected to see a formidable 25% surge in revenue to reach $10.08 billion.
Overall, Alphabet’s Q2 sales are forecasted to climb by 13% to hit $70.55 billion, compared to $62.07 billion in the corresponding quarter. Additionally, earnings are expected to rise by 28% to $1.84 per share, a significant jump from EPS of $1.44 in Q2 2023.
It is worth noting that Alphabet has exceeded earnings forecasts for the past five quarters, boasting an average earnings surprise of 11.34% based on its most recent four quarterly reports.
IBM Q2 Expectations
While Alphabet has established itself as a paragon of tech innovation in the modern era, IBM is undergoing a transformation into a provider of cloud and data platforms.
Predominantly recognized for its hardware and integrated computer solutions, IBM is anticipated to witness a modest uptick in Q2 sales to $15.58 billion, up from $15.48 billion in the same quarter last year. However, Q2 EPS is likely to experience a slight decline of approximately -1% to $2.16.
IBM has also outperformed earnings expectations for five consecutive quarters, delivering an average earnings surprise of 5.2% in its past four quarterly reports.
Valuation Comparison
As the stock prices of both companies approach the $200 mark and trade at similar levels, it is pertinent to note that IBM holds an 18.5X forward earnings multiple, representing a significant discount relative to the S&P 500’s 23.2X multiple, while GOOGL is trading at 23.3X.
Furthermore, in terms of price to sales ratio, IBM’s P/S stands at a more moderate 2.7X, below the benchmark of 5.4X, whereas GOOGL commands a higher 7.5X P/S ratio.
Bottom Line
Ahead of their Q2 earnings announcements, shares of Alphabet and IBM both carry a Zacks Rank #3 (Hold). While the growth potential of Alphabet in the upcoming quarter is certainly appealing, IBM’s attractive valuation makes it a compelling option, positioning both companies as sturdy long-term investments within the tech sector.