Signage outside the Nasdaq MarketSite in Latest York on March 23, 2023.
Stephanie Keith | Bloomberg | Getty Images
With quarterly earnings from tech’s mega-cap firms largely within the rearview mirror, one thing is evident: Wall Street is nervous.
The Nasdaq Composite slumped 3.4% this week, bringing its three-week slide to eight.8%. That is the worst performance for the tech-heavy index over that length of time since September 2022, when the market was in free fall on account of soaring inflation and rising rates of interest, based on FactSet.
Because the end of 2022, the narrative has been mostly positive for the tech sector, with the U.S. economy in recovery following the pandemic, and excitement constructing around the expansion opportunities sparked by artificial intelligence.
The Nasdaq surged 43% last yr, and stays up 12% yr so far, after climbing to a record last month.
However the past earnings season has been disappointing, with some firms pointing to weaker-than-expected growth and others raising concern that the AI infrastructure buildout may hit some snags.
Hovering over the industry are concerns concerning the overall U.S. economy. The Labor Department said on Friday that job growth slowed far more than expected during July, while unemployment ticked higher, a day after economic data showed an unexpected jump in filings for unemployment advantages and a weakening of the manufacturing sector.
Josh Koren, founding father of Musketeer Capital Partners, said tech giants with trillion-dollar-plus valuations are increasingly a macroeconomic play because they’re so big that softness in the general data is of course going to point out up of their results.
Amazon and Apple each reported earnings on Thursday, with Amazon missing on revenue and issuing a disappointing forecast and Apple showing top-line growth of just 5%.
“Because the economy slows down, a business like Amazon, like Apple, they will decelerate as well,” Koren told CNBC’s “Squawk Box Europe” on Friday. “That is what you are seeing within the earnings.”
Amazon plunged 8.8% on Friday, bringing its three-week decline to 14%. Executives on the earnings call attributed a number of the revenue shortfall to consumers buying cheaper household goods and fewer bigger-ticket items like computers and TVs.
“We’re seeing a variety of the identical consumer trends that we now have been talking about for the last yr, consumers being careful with their spend, trading down,” Amazon finance chief Brian Olsavsky said on the decision. “We’re seeing signs of it continuing in Q3.”
Apple’s results were less concerning — the corporate beat estimates for earnings and revenue — and the stock ended barely higher on Friday and for the week. But that got here after a drop of greater than 5% the prior two weeks.
Microsoft slid 4% this week and is down 10% over the past three weeks. The tech giant issued a weaker-than-expected forecast for the present quarter and missed on growth in its Azure cloud segment. Analysts at Mizuho wrote in a note after the report that Azure “core consumption was impacted by capability constraints and softness in certain European geos.”
Shares of Alphabet were down barely this week following a ten% drop the previous two weeks. In its earnings report, the corporate’s YouTube promoting revenue missed estimates and it managed only 11% overall ad growth. That was far below rival Meta, which expanded 22%.
Meta is the exception
Meta was the standout among the many group, with it stock rising almost 5% this week after the corporate beat Wall Street estimates and issued an optimistic forecast for the present quarter. CEO Mark Zuckerberg said the corporate’s hefty investments in AI are paying off by creating more relevant ads and making it easier for marketers to create campaigns.
“The ways in which it’s improving recommendations and helping people find higher content, in addition to making the promoting experiences more practical, I believe there’s a variety of upside there,” Zuckerberg said on the earnings call last month. “Those are already products which are at scale. The AI work that we’re doing goes to enhance that.”
Even after that rally, though, Meta is down over the past three weeks.
The one mega-cap tech company that is yet to release results is Nvidia, which has been the most important winner within the AI boom. The stock is down 17% over the Nasdaq’s three-week slump, though it’s still up greater than 110% yr so far.
Nvidia counts on spending from its top tech peers as they construct out their AI infrastructure. Due to Nvidia’s parabolic rally over the past few years, any sign of potential slippage can have an outsized impact on its stock. The corporate is scheduled to report results on Aug. 28.
On the flip side of the semiconductor market is Intel.
Formerly the world’s largest chipmaker, Intel has gotten trounced by rivals lately and is much behind within the AI race. The stock had its worst day in 50 years on Friday, plummeting 26% to a level not seen since 2013.
Intel reported a giant earnings miss and announced a mass restructuring that features eliminating 15% of its workforce. CEO Pat Gelsinger told CNBC on Friday that it is the “most substantial restructuring of Intel for the reason that memory microprocessor transition 4 a long time ago.” Investors aren’t confident it should work.
In a note on Friday, analysts at KeyBanc Capital Markets lowered estimates and maintained their hold suggestion on the stock, citing a troublesome road ahead.
“With all of the challenges INTC has, such a significant headcount reduction is probably going going to make it tougher to attain its targets,” they wrote.
