Big Tech earnings hold up for now but repeat performances are uncertain

Apple, Google-owner Alphabet, Facebook-owner Meta, and Tesla all gave investors reason to fret about growth in the latest earnings season

Apple alone has lost more than $300bn (€280bn) in market value as the seven biggest tech stocks are down an average of about 9% from 52-week highs.

Earnings for most of Big Tech are out and the group delivered even bigger profits than analysts anticipated, but the bad news is that the outlook for repeat performances has dimmed.

Apple, Google-owner Alphabet, Facebook-owner Meta, and Tesla all gave investors reason to fret about growth. From Apple’s muted holiday outlook to Alphabet’s lacklustre cloud computing sales results, a recurring theme for the cohort was caution. Meta warned that the year ahead is looking less predictable, while Tesla raised concerns that demand for electric cars is starting to weaken.

That’s stirring angst for investors even as the tech-heavy Nasdaq 100 Stock Index rallied last week, rising 6.5% and clocking in its best week in a year.

“This is all about failure of future guidance,” said Scott Colyer, chief executive at Advisors Asset Management. “Big tech stocks were priced to historic perfection so that left investors disappointed after those companies came up short.”

Tech stocks are now on shaky ground. The seven biggest tech stocks are down an average of about 9% from 52-week highs. Apple alone has lost more than $300bn (€280bn) in market value.

The selloff has made valuations cheaper, but they’re still pricey and with future expansion less certain, investors are balking at paying up for the stocks. Shares of the seven biggest companies in the S&P 500 Index are priced at an average of 31 times projected profits. That’s nearly twice the multiple of the other 493 stocks in the benchmark.

Profits for the seven biggest so-called growth companies in the S&P 500 — Apple, Microsoft, Alphabet, Amazon, chip-maker Nvidia, Meta, and Tesla — are on course to rise 50%, according to data compiled by Bloomberg Intelligence. 

Despite Tesla missing earnings, the group is poised to surpass the 36% increase estimates called for before earnings season began. Nvidia is the last to report, on November 21. 

To Keith Lerner, co-chief investment officer at Truist Advisory Services, the pressure on Big Tech is a sign that the correction in the S&P 500 is close to running its course, setting the stage for outperformance in the last two months of the year, which tend to be a good time for stocks. 

Bloomberg