Tech investors may miss the fast-growth days of 2021. But those days are still here for a handful of S&P 500 tech stocks.
Ten S&P 500 stocks in the information technology sector, including Ceridian HCM, Enphase Energy and Onsemi , formerly On Semiconductor, are seen posting third-quarter adjusted profit growth of 30% or more in the ongoing reporting season, says an Investor's Business Daily analysis of data from S&P Global Market Intelligence and MarketSmith.
Growth is getting hard to find in the tech sector. Economic slowdowns, a semiconductor crash and rising interest rates are all cooling business down. S&P 500 tech companies' profit is seen dropping 4.6% in the third quarter, says John Butters of FactSet. That is a shocking reversal for a sector that's been the driving force of S&P 500 profit for years.
And all eyes are on technology profits this week, says Bespoke Investment Group. "It is the busiest week of earnings of the season both in terms of number of S&P 500 stocks reporting and their combined market cap," the stock research firm said. "For the ninth time, the MAGA stocks — Apple, Microsoft, Alphabet, and Amazon.com — will all report earnings in the same week."
Tough Times For Tech Growth
If analysts are right and S&P 500 tech profits drop nearly 5%, it's a brutal shift for investors. That would mean tech is contracting, not only absolutely, but also relative to the S&P 500. Profit in the S&P 500 is seen rising 1.5% in the quarter.
Additionally, that means S&P 500 technology's profit in the third quarter ranks as the sixth worst out of the 11 S&P 500 sectors. The top growers are energy with expected profit growth of 116% and industrials at nearly 25%. A third of the 75 stocks in the information technology sector are expected to post lower profit this quarter.
Even the tech-stock stalwarts aren't helping much. Apple, the world's most valuable company, is expected to only put up meager bottom-line growth of 2.4% when it reports on Oct. 27. What about Microsoft? Its profit is only seen inching up 1.6%.
So, where are S&P 500 investors to find robust profit growth still?
Tech Growth Isn't Where You Expect
If you're looking for big profit growth in the third quarter, you might as well forget about MAGA stocks. You'll have to go away from this overinvested path.
Take a look at Ceridian HCM, a provider of human resources software to companies. Analysts think the company will report a third-quarter profit of 12 cents a share. If that's right, it would mark impressive profit growth in the quarter of 146%. That's higher growth than any other stock in the S&P 500's information technology sector. The company is benefitting from still-strong labor markets. Shares, though, are still off more than 43% this year.
And that growth is followed by Enphase Energy, a widely held solar power equipment company. Analysts think the company will earn $1.09 a share in the third quarter. That's up more than 82% from the same year-ago period. Government incentives for cleaner energy continue to lift the company's future. Shares are up nearly 39% this year, even as the S&P 500 is down almost 20%.
Then there's Onsemi. Shares of the supplier of chips for electric vehicles are down just 4% in a year most semiconductor stocks are getting pounded. The iShares Semiconductor ETF is off more than 40% as the world is awash in a glut of memory chips and more capacity is coming online fast due to government incentives. Former chip darling Nvidia has seen half its value vanish this year. Its third-quarter profit is seen dropping nearly 40%.
But ON is avoiding all the industry's pain with its focus on vehicles. The company is expected to earn $1.31 a share in the third quarter, up more than 50% from the same year-ago period.
Tech is in a tough spot, but not an impossible one.
Fast Profit Growth In Tech?
S&P 500 tech companies seen putting up most third-quarter profit growth
| Company | Ticker | Expected third-quarter earnings growth |
|---|---|---|
| Ceridian HCM Holding | 145.8% | |
| Enphase Energy | 82.1 | |
| Monolithic Power | 69.3 | |
| Onsemi | 51.0 | |
| Analog Devices | 49.7 | |
| Arista Networks | 41.4 | |
| Fortinet | 38.2 | |
| Microchip Technology | 34.9 | |
| KLA | 34.2 | |
| Broadcom | 31.7 |
Sources: IBD, S&P Global Market Intelligence
Follow Matt Krantz on Twitter @mattkrantz
