- Following earnings announcements that indicated rough seas were ahead, tech stocks took a beating this week.
- Analysts predict that while Apple is a “bright spot,” Meta, Alphabet, and other companies face a challenging few months.
- Analysts say Meta has to focused on its core business, but those companies are better able to handle it.
Warren Buffett, a well-known investor, is fond of using the proverb “You don’t find out who’s been swimming nude until the tide goes out.”
Well, the tide is receding.
For IT companies, the employees they employ, and the consumers they service, all indications point to turbulent waters in the future. Numerous businesses appear to be planning job losses, persistent inflation is forcing consumers and businesses to restrain their spending, and the threat of a recession is still very real.
Although the epidemic may have made some tech firms astronomically wealthy, the current economic climate makes it difficult for them to produce money, according to New York Stock Exchange Senior Market Strategist Michael Reinking, who spoke with Insider on Thursday.
Following a time of unsustainable expansion, “it’s evident that there are headwinds for the business coming out of the pandemic, iOS privacy restrictions, rising competition, and macro challenges,” Reinking added.
How are the large tech businesses likely to fare, therefore, if things are growing worse? What businesses could be in desperate need of a swimsuit?
Apple
According to Wedbush analyst Dan Ives, Apple is in the greatest health and represents a “bright light” in the otherwise dismal major tech results. According Apple Market Watch, Barclays analyst Tim Long referred to the iPhone manufacturer as “a relative safe haven in the macro storm.”
The privacy modifications it implemented, which let users fine-tune their settings to prevent ad monitoring, hurt rivals but only served to bolster Apple’s operating system moat.
And the company’s overall successful quarter was unaffected by somewhat worse-than-anticipated iPhone sales. Even CEO Tim Cook seemed surprised by overall consumer resilience when he commented, “Demand was high and stronger than we thought that it would be,” in a conference call with investors.
Alphabet
Alphabet, the parent company of Google, surprised Wall Street with less-than-pleasant quarterly earnings. The company’s search advertising division suffered a slump. Given that advertising expenditures are frequently the first to be cut during times of economic austerity, this is a worrying indication for the economy as a whole.
According to Nikhil Lai, a senior analyst at Forrester, “Alphabet’s weaker-than-expected search ad revenues reflect how deeply the dread of a recession is holding consumers.”
Nevertheless, Sophie Lund-Yates, lead equities analyst at Hargreaves Lansdown, stated in a note that Alphabet will be “essentially protected from the worst of economic storms” because to its “leading market position and irreplaceable size.”
Amazon
Amazon’s shares fell sharply as a result of its poor third-quarter reports, wiping roughly $120 billion as of Friday in market value. Sales for the fourth quarter are expected to be below analysts’ forecasts, according to the company’s dismal Christmas outlook.
The headwinds on Amazon’s business are mostly macro-driven and not fundamental, but Wall Street is still upbeat about the e-commerce behemoth, according to a note from JPMorgan. That is to say, although the corporation as a whole is in good form, they are concerned about the economy.
Microsoft
Despite Microsoft’s weak projection for the current quarter, which was the worst quarterly sales increase in half a decade, analysts are upbeat about the software giant’s future. According to a report published by Goldman Sachs analysts on Tuesday, there may be a recovery in 2019.
Despite a slower growth environment, analysts said, “Looking beyond near-term dynamics, we remain bullish as we consider the firm well positioned to continue to win transactions and build its wallet share within its existing customer-base.”
Meta
Following the release of the company’s earnings on Wednesday, shares of Meta fell precipitously due to its disappointing projection and second consecutive quarter of declining sales. Investors are particularly concerned about the sums of money invested in the metaverse: Reality Labs, Meta’s subsidiary for virtual reality and the metaverse, has recorded operational losses of $9.4 billion thus far this year, and Zuckerberg stated the business intends to invest even more in the metaverse in the next year.
The company’s price has dropped more than 70% so far this year, and Insider Intelligence chief analyst Debra Aho Williamson noted that Meta has to concentrate on mending its core business, which includes Facebook and Instagram, and that it is “on unstable knees.”
Because of the failing global economy, difficulties with Apple’s App Tracking Transparency policy, and competition from other businesses, such as TikTok, for customers and income, she added, “Meta is under great pressure.”
According to analysts in a note published on Thursday, Morgan Stanley downgraded the stock of the company because Meta’s forecast and quarterly results are “thesis changing” and are “likely to weigh on the shares for some period…until the market can feel confident in execution and return on invested capital from these outsized investments.”