A sign outside the Nasdaq MarketSite in New York on March 23, 2023.
Stephanie Keith Bloomberg Getty Images
With second-quarter earnings from tech mega-cap companies largely in the rearview mirror, one thing is clear: Wall Street is nervous.
The Nasdaq fell 3.4% this week, bringing its three-week slide to 8.8%. It was the worst performance for the technology-heavy index in the period since September 2022, when the market fell due to rising inflation and rising interest rates.
From the end of 2022, the narrative is generally positive for technology, with the economy recovering and excitement about expanding growth opportunities caused by artificial intelligence. The Nasdaq rose 43% last year, and remains up 12% in 2024 after hitting a record high last month.
But earnings season has been tough, with some companies showing weaker-than-expected growth and others raising concerns that the development of AI infrastructure could hit some snags. Hovering over all industries is economics. The Labor Department said on Friday that US job growth was slower than expected in July, while unemployment rose higher, a day after economic data showed an unexpected jump in unemployment benefits and weakness in the manufacturing sector.
Josh Koren, founder of Musketeer Capital Partners, said that tech giants with trillion-dollar valuations are increasingly playing macroeconomics because they are so large that softness in the overall data will be reflected in results. Amazon and Apple both reported earnings on Friday, with Amazon losing revenue and publishing disappointing forecasts and Apple showing top-line growth of only 5%.
“When the economy slows down, businesses like Amazon, like Apple, will also slow down,” Koren told CNBC’s “Squawk Box Europe” on Friday. “That’s what you see in earnings.”
Amazon fell 8.8% on Friday, bringing its three-week slide to 14%. Executives on the earnings call attributed some of the revenue shortfall to consumers buying cheaper household goods and smaller ticket items like computers and TVs.
“We’re seeing a lot of the same consumer trends that we talked about last year, consumers being cautious with spending, trade down,” Amazon chief financial officer Brian Olsavsky said on the call. “We see signs of that continuing in Q3.”
Apple’s results were less concerning – the company beat estimates for earnings and revenue – and the stock finished slightly higher on Friday and the week. But that comes after a drop of more than 5% two weeks earlier.
Microsoft slid 4% this week and fell 10% over the past three weeks. The software company issued a weaker-than-expected forecast for the current quarter and missed growth in the Azure cloud segment. Analysts at Mizuho wrote in a note after the report that Azure’s “core consumption was affected by capacity constraints and softness in certain European geos.”
Share from Alphabet down slightly this week after dropping 10% the previous two weeks. In last week’s earnings report, YouTube’s ad revenue missed estimates, and the company’s overall ad growth of 11% was far behind its rivals. Metawhich increased by 22%.
Meta is an exception
Meta is a standout among the group, with shares rising nearly 5% this week after the company beat Wall Street estimates and issued an optimistic forecast for the current quarter. CEO Mark Zuckerberg says the company’s massive investment in AI is paying off today by making ads more relevant and making it easier for marketers to create campaigns.
“The way to improve recommendations and help people find better content, as well as make the advertising experience more effective, I think there are a lot of benefits,” Zuckerberg said on the earnings call. “It’s already a product at scale. The AI ​​work we’re doing will improve.”
Even after the Meta rally went down over the last three weeks.
The mega-cap tech company that hasn’t posted results yet is Nvidia, which is the biggest winner of the AI ​​boom. The stock is down 17% during the Nasdaq’s three-week slump, though it’s still up more than 110% for the year.
Nvidia is considering spending from its top tech peers when building its AI infrastructure. Given Nvidia’s parabolic rally over the past few years, any sign of potential slippage could have a big impact on the stock. The company is scheduled to report results on August 28.
The flipside of the semiconductor market is Intel.
Once the world’s largest chipmaker, Intel has lost ground to rivals in recent years and is far behind in the AI ​​race. The stock had its worst day in 50 years on Friday, falling 26% to levels not seen since 2013.
Intel reported a huge revenue loss and announced a massive restructuring that included laying off 15% of staff. CEO Pat Gelsinger told CNBC on Friday that this is “Intel’s most significant restructuring since the memory microprocessor transition four decades ago.” Investors aren’t sure if it will work.
In a note on Friday, analysts at KeyBanc Capital Markets lowered their estimates and maintained a hold recommendation on the stock, citing a difficult road ahead.
“With all the challenges that INTC has, a large reduction in headcount will make it more difficult to achieve our goals,” he wrote.
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