Big Tech companies posted higher profits than expected, but their future outlook for the fourth quarter is not as positive.
Most Big Tech companies reported higher profits than what Wall Street expected. However, there’s not-so-great news about their outlook for the fourth quarter.
Apple, Alphabet (Google’s parent company), Meta Platforms (formerly Facebook), and Tesla raised concerns about their future growth. Apple’s holiday outlook wasn’t very optimistic, Alphabet had underwhelming results in cloud computing sales, and Meta said the future is less predictable. Tesla also expressed worries about weakening demand for electric cars.
All of this is making investors nervous, despite the recent strong performance of the Nasdaq 100 Stock Index, which had its best week in a year, rising by 6.5%.
The recent performance of tech stocks has left investors concerned. These stocks were considered nearly perfect and were priced accordingly. When the companies didn’t meet these high expectations, investors were disappointed.
The tech stock market is now in a somewhat unstable state. The seven largest tech stocks have dropped by about 9% from their highest points in the past year. Apple alone has seen its market value decrease by more than $300 billion.
The recent selloff has made these stocks cheaper, but they’re still relatively expensive. With the future of these companies looking less certain, investors are hesitant to pay high prices for these stocks. The shares of the seven largest companies in the S&P 500 are currently priced at an average of 31 times projected profits, which is almost double the multiple of the other 493 stocks in the index.
Despite the recent challenges, profits for the seven biggest growth companies in the S&P 500 – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla – are still expected to increase by 50%. This is higher than the 36% increase that was anticipated before the earnings season started, although Nvidia’s report is still pending.
To Keith Lerner, who is co-chief investment officer at Truist Advisory Services, the pressure on Big Tech indicates that the correction in the S&P 500 may be close to ending. This could lead to stronger performance in the last two months of the year, which are typically good for stocks.
However, tech stocks still trade at a premium of nearly 36% to the index when looking at forward price-to-earnings ratios.
Scott Colyer believes that there could be more challenges ahead for larger growth stocks that may have become overvalued. He sees potential in Microsoft due to the company’s investments in artificial intelligence.
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Despite the recent positive news for the stock market, the battle between tech stocks and bond yields may continue in the coming weeks, which could pose a challenge for money managers who have reinvested in large US tech companies as yields fell.
Max Wasserman, a senior portfolio manager at Miramar Capital, advises caution and not getting overly optimistic about megacap tech stocks. Economic or geopolitical upheaval could quickly change the situation and impact these tech stocks and the broader market.