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Are Apple and Alphabet results the dash of cold water we needed?

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Big tech stocks have sat among the top holdings in many fund managers’ portfolios for what seems like years now. But there was some justification for this. Now it seems they will start costing investors money, as things don’t look quite as rosy in Silicon Valley.

Let’s start with Apple [NASDAQ:AAPL]. Last week Apple posted a decline in quarterly revenues for the first time in almost four years, citing the strong dollar, production issues in China and the overall macro environment. Sales declined by 5% in the key holiday quarter, with earnings per share falling by more than 10%. Sales of iPhones declined 8%, whilst the biggest declines were in Mac and iPads, which each declined by around 30%.

Solid performance at Other products and Services (+8% and +6% respectively) pointed to the resilience of the installed user base and longevity of its ecosystem. There were bright spots. Apple revealed it has 2bn active devices – up from 1.8bn a year before, and the company said the production issues were now fixed. Shares fell over 3% in after-hours trading on the news.

“This was a very weak report from Apple and it’s hard to see how they can blame it all on external factors like the dollar and China’s lockdowns hitting production,” said Neil Wilson, Chief Market Analyst at Finalto. “There is clearly a demand problem here as consumers dial back spend.”

Alphabet and Amazon results

Alphabet [NASDAQ:GOOGL] shares also declined more than 4% after it reported only the second quarterly contraction in advertising sales as advertisers cut spending and competition continues to intensify. The stock had gained about 7% in normal trading as the Nasdaq soared more than 3% with the lead from Meta, which jumped 23% after beating earnings expectations the day before. Cloud growth at Alphabet remained strong, up 32% to $7.32bn, though this was less than expected. Operating expenses rose 10% to $22.50 billion.

Amazon [NASDAQ:AMZN] shares also declined in the after-hours trading as its cloud business suffered a slowdown. Amazon Web Services sales growth declined to 20% – still healthy by most standards – but down from 40% a year earlier. Overall net sales rose 9% in the final quarter to $142.2bn. The problem for Amazon in these results is that AWS has been the prime driver of profits. Operating margins fell to 1.8% from 2.5% a year before, whilst operating income declined to $.27bn from $3.5bn in the same quarter a year ago.


Is the market rally justified?

“There is a strong smell of FOMO in this market – many of us didn’t think it should have rallied – or at least that it’s a bear market rally ready to fall to earth,” says Wilson. “So when it starts to grind up in a more deliberate manner, people incrementally start joining in – you wouldn’t want to miss out now if the bottom really was last year. The Fed’s wishy-washy, we don’t care about a bubble, it’s all going to be fine, financial conditions are easing narrative has only fuelled this further…for now it’s far from a slow grind higher.”

Big intra day jumps in the Nasdaq based largely on hot air – followed by disappointing earnings from the tech giants – underscore that there is still a huge amount of uncertainty and disagreement about where this market sits right now. But that is why it’s a market.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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