Gloomy results from Microsoft and Alphabet fueled fears of a global economic slowdown and disrupted an earnings-led surge in the stock markets on Wednesday, while setting the pace for results from other megacap technology titans.
The Nasdaq (.IXIC) slid almost 2% as the results highlighted the fallout of a strong dollar and weak demand on the tech sector against the backdrop of soaring inflation and surging borrowing costs.
Shares of Microsoft (MSFT.O) and Google-parent (GOOGL.O) plunged about 8% in early trading. Meta Platforms Inc (META.O), which will announce after markets close, lost 4%, while Apple Inc (AAPL.O) fell 1% and Amazon.com Inc (AMZN.O) 4% in the run-up to their results on Thursday.
Heavyweights Netflix (NFLX.O), Amazon, Meta, Alphabet, Microsoft, and Apple have already lost a combined market value of more than $2.5 trillion so far this year and were set to lose another $330 billion on Wednesday.
Laith Khalaf, head of investment analysis at AJ Bell, said:
“The results of the big technology firms were seen as a key determining factor in market sentiment going into the U.S. third-quarter reporting season and both Microsoft and Alphabet have given investors reason to worry.”
Alphabet failed to reach Wall Street’s target for revenue growth in the third quarter as ad sales remained low, while inflation and a strong dollar caused Microsoft to record its slowest topline growth in five years.
At least 21 analysts lowered their price target on Alphabet, cutting it by as much as $36, while 17 of them reduced their targets on Microsoft.With analysts projecting a pullback in budgets for advertising owing to surging prices, investors worry that Meta’s business too could come under pressure as its revenue relies largely on ads.
Buy Crypto NowSophie Lund-Yates, an analyst at Hargreaves Lansdown, stated:
“Investors will be bracing for Meta’s results with some trepidation, with a common thought being that if Google’s struggling, the rest of the tech pack faces a marathon climb.”
For Meta, Google Search’s soft results are causing worry while YouTube and Snap’s weakness indicate that macro and ad targeting challenges carried on in the third quarter, JMP Securities analyst Andrew Boone wrote.
Meanwhile, a slowdown in growth at Azure, Microsoft’s cloud platform and one of its most profitable businesses, posed concerns about Amazon’s cloud business. While the majority of Big Tech stocks have edged higher in the past few weeks, overall it has been a grim year for the sector. This sector has shed nearly 15% to 60% of its value.
Wednesday’s selloff also affected Europe’s tech index (.SX8P), skidding 2.3% to lead to sectoral losses in the region.
