Big Tech’s Profits Surprise Wall Street, but Bleak Outlook Raises Concerns for Investors
Big tech companies have delivered impressive profits in the last quarter, surpassing Wall Street’s expectations. However, their outlook for the fourth quarter is appearing dim, causing unease among investors. Industry giants like Apple, Alphabet, Meta, and Tesla are facing various challenges that have raised concerns about their performance.
Apple’s muted holiday outlook and Alphabet’s lower cloud computing sales have become a cause for worry. Additionally, Meta has witnessed a decline in active users, and Tesla’s demand for electric cars is showing signs of weakening. As a result, the tech stocks are experiencing instability, with the seven biggest tech companies collectively down by around 9 percent from their 52-week highs. Notably, Apple alone has lost over USD 300 billion in market value.
When compared to the other 493 stocks in the benchmark, the shares of these seven major companies in the S&P 500 Index are priced at an average of 31 times projected profits, nearly twice as high. However, despite Tesla missing its earnings, Bloomberg predicts that the profits for the seven largest S&P 500 companies, including Apple, Microsoft, Alphabet, Nvidia, Meta, and Tesla, are set to rise by 50 percent. Furthermore, Tesla is expected to surpass the estimated 36 percent increase before the next financial year.
Although there is significant hype surrounding artificial intelligence (AI) in the market, the tech sector in the S&P 500 still maintains a nearly 36 percent premium to the index on a forward price-to-earnings basis. It is noteworthy that S&P 500 companies in the US have been trading at a low for the past three months. The potential increase in Federal Bank interest rates in the near future poses a potential problem for investments in major US companies.
In conclusion, while big tech companies have exceeded profit expectations, the gloomy outlook for the fourth quarter has sparked concerns among investors. The decline in active users, lower sales, and weakening demand in specific sectors have contributed to the uncertainty surrounding these tech giants. With tech stocks on shaky ground, market stability remains a key concern. Investors will closely monitor the performance of these companies and keep a watchful eye on the potential impact of rising interest rates.