Apple and Microsoft earnings must shine again as tech shares stumble this month

If ever there was a time for megacaps like Apple and Microsoft to show off surprisingly strong profit growth, it’s now. 

Big tech needs a big showing this latest earnings season as technology stocks have stumbled into the new year, with the Nasdaq 100 Index down about 6% on fears that US interest rate hikes to combat inflation will curb valuations for the sector. 

The Nasdaq benchmark was falling again today with Facebook parent Meta Platforms falling as much as 4% at one stage, as US bond yields spike anew.

So if ever there was a time for megacaps like Apple and Microsoft to show off surprisingly strong profit growth, it’s now. 

Unfortunately for bulls, that’s not what’s in the forecast for fourth-quarter results.

With Citrix Systems to kick off earnings tomorrow, profits for S&P 500 tech companies are projected to expand 15% after three straight periods of better than 40% growth, Bloomberg Intelligence data show. 

Estimates are worse for the heavyweights — Apple, Microsoft, Amazon, Google, and Meta. 

Their profits are projected to expand just 5%, the slowest since 2020’s second quarter.

“It is critical that these companies hit or beat estimates just to tread water,” said Michael Casper, an equity strategist with Bloomberg Intelligence.  

The tech sector, which contains many companies valued mainly on the promise of future profits, has been under pressure because of the surge in the US Treasury yields. 

So far, most of the carnage has played out in corners of the market with the highest valuations such as software companies and innovation stocks. Zoom Communications and DocuSign, for example, have lost more than half of their market values from peaks. 

Megacaps like Apple, down about 5% from a record, have held up relatively well.

Many US tech stocks are being treated as “a safe harbour” because of their robust earnings, strong balance sheets and mature businesses, according to Kristina Hooper, chief global market strategist at Invesco.