Apple, Amazon And Meta Take Spotlight As Stock Rally Wavers

(Bloomberg) -- Big Tech’s struggle to meet lofty investor expectations this earnings season has taken air out of a record-breaking stock run. Pressure is now on Apple Inc., Amazon.com Inc. and Meta Platforms Inc. to come through on Thursday.  

The sector has led the S&P 500 lower this week after results from Microsoft Corp., Alphabet Inc. and Advanced Micro Devices Inc. were met with selling by traders. Investors had bid up the stocks to records on bets that artificial intelligence efforts are set to provide a big lift to profits and sales. 

“The market seems to want more and more from these companies,” said Quincy Krosby, chief global strategist of LPL Financial LLC. “The market knows it has gone too far too fast and is saying ‘unless you astound us, we’re going to bring you down a number of notches.’”

Big Tech stocks powered the S&P 500’s rally into record territory in January, but if this week is to set the tone for the month ahead, signs are pointing to uncertainty. The tech-heavy Nasdaq 100 Stock Index suffered its biggest drop in three months on Wednesday after earnings disappointed and Fed Chair Jerome Powell dashed hopes of a March interest rate cut. Futures pointed to a rebound Thursday, however.

Read more: Microsoft, Alphabet and AMD Struggle to Meet AI Expectations 

Apple’s results are top of mind for investors. The Cupertino, California-based company’s shares have reflected concerns over sluggish iPhone sales and its slow-moving approach to artificial intelligence. 

Wall Street analysts expect Apple to report about $118 billion in revenue for its first fiscal quarter, 1% higher than the same period a year ago. If the company meets the estimate, it would mark its first revenue expansion after four-consecutive quarters of declining sales.

A narrow return to growth would come despite global challenges for Apple, which include Chinese restrictions on foreign technology and antitrust scrutiny in Europe. While the firm earned its reputation as one of the Magnificent Seven of 2023, jumping nearly 50% and hitting a record as recently as December, the stock has struggled this year. 

At Amazon, the focus will be on its Amazon Web Services business, as well as expectations for its advertising segment after rolling out ads on the Prime Video service in the US.

AWS sales are expected to expand 12% to $24 billion of Amazon’s projected $166 billion in sales for the fourth quarter, according to the average of analyst estimates compiled by Bloomberg. Operating profit is expected to nearly quadruple.

Facebook-parent Meta Platforms is expected to deliver revenue of $39 billion in the fourth quarter, a 21% jump from the previous period. Of the three, the stock has posted the biggest gain in 2024, up 10%.

The company could begin to show some payoff from its AI investments, Bank of America analysts led by Justin Post wrote in a research note on Wednesday. 

The long game 

Of course, even though tech stocks face a difficult setup in the coming weeks, it doesn’t necessarily signal that the sector’s market-leading rally is destined to end in the near future. 

That’s because the top technology firms are still seen as safe bets for investors looking to protect their portfolios against a potential economic downturn or further geopolitical uncertainty - they have strong balance sheets and are expected to continue to grow earnings. 

“They are the destination in nearly any scenario,” because of the different macro backdrops they’ve navigated, said Krosby. 

And a pullback in Big Tech after all-time highs isn’t necessarily a bearish signal, especially if coupled with buying in smaller companies, showing a broadening of 2023’s rally. It could also provide bulls with opportunities to add to their positions. 

“These are still the stocks that you want to be in and it’s giving investors an opportunity to buy the dip,” said Jay Woods, chief global strategist at Freedom Capital Markets.

Tech Chart of the Day

Nvidia Corp. climbed 24% in January, its biggest monthly jump since May, in a clear indication that the chip giant is continuing to benefit from the artificial intelligence frenzy that gripped Wall Street over the past year. The rally dwarfed the 1.9% gain the tech-heavy Nasdaq 100 Index made in the same period.

Top Tech News

• In an unscripted scene during tense testimony Wednesday, Meta Platforms Inc. Chief Executive Officer Mark Zuckerberg apologized directly to the families of children who were victims of sexual exploitation on social media platforms.
• Elon Musk wants to deepen his links to Texas after a loss in court over his compensation at Tesla Inc.
• Universal Music Group NV, the world’s biggest record label, has begun pulling its artists’ music from TikTok after contract negotiations between the two companies failed to result in a new licensing agreement.
• Microsoft Corp.’s Xbox Game Pass has scored its biggest hit from an outside developer with , the viral sensation that’s earned the colloquial description of “Pokémon with guns.”
• Alibaba Group Holding Ltd. is considering selling its InTime department store arm, suggesting the Chinese internet company is rethinking a years-old ambition of dominating physical and online retail as it undergoes a broad restructuring.
• The Pentagon added China’s leading memory chipmaker and prominent players in AI, energy and automobiles to a list of companies it accuses of aiding the Asian nation’s military.

Earnings Due Thursday

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  • Macom
  • Allegro MicroSystems
  • Rogers Communications
  • Sirius XM
• Postmarket
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  • Amazon
  • Meta Platforms
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  • Open Text
  • Dolby Labs
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