New excitement awaits technology investors.
Tech, the stock market’s dominant force, had a rough 2022. The S&P 500 information technology sector is down 17.4%, compared to a negative 13.3% for the index. The two worst performing sectors are consumer choice (20.4%) and communications (negative 28%).
But it was the reason tech and its biggest companies bought into the stock market for so long. They are the companies of tomorrow, the embodiment of what will drive the economy forward.
Will some stumble and perhaps fall? Very likely. Facebook parent MetaTrader 4 is showing every sign of being in deep trouble: a frantic search for a new corporate identity, the rise of competitors like TikTok, and Meta’s struggling stock is down 53% this year, the worst of any major tech titan.
Recent earnings reports show that many of the 2017-2021 champions still have juice. It’s true, rising interest rates are no friend of growth stocks, because they lower the outlook for future cash flows. What’s remarkable about this tech giant is that despite some current headwinds, they’ve shown resilience in a troubled second quarter that should be their priority going forward.
Amazon, whose stock has fallen 19 percent this year, is a case in point. As the economy weakened and the pandemic worsened the order-from-home trend, the company’s e-commerce sales declined. Earnings posted a second-quarter loss, but mainly on account of its stake in electric vehicle maker Rivian. Amazon is still a dominant force in online commerce, which should thrive once we get past the current economic crisis. Meanwhile, Amazon’s ad revenue is doing well because it’s benefiting from others.
But more important is the impressive results from its Amazon Web Services operation, which generated 15% revenue and 100% profit. AWS is the No. 1 cloud provider, in a rapidly expanding area. In fact, the cloud services of other tech giants, Microsoft and Google-parent Alphabet, show that the three are well positioned for the future.
Up more than 10%, Microsoft slightly missed analysts’ forecasts for its quarterly results. But the software kingpin forecast on earnings that operating income and revenue should show double-digit growth in the fiscal year ending June 2023.
Apple, which does not have a cloud platform, has beaten expectations. The supply shortage didn’t turn out to be as dire as initially believed, and it managed to convert a good number of Android users. It has been announced that the new version of the iPhone, which accounts for half of Apple’s revenue, will be released in the fall.
Apple admits it faces setbacks with factory closures in China, where iPads and Macs are manufactured. Although the stock is down 8 percent in 2022, the company expects earnings to post positive growth in the quarter ending in September.
Likewise, Alphabet (down 19 percent) seems to have a source of energy in any recession. While revenue may not be large, the company does not appear to have been significantly affected by Apple’s move to curb ad tracking, Evercourse ISI analyst Mark Mahaney said in a note.
It’s true, not all previous technology leaders seem marked for future greatness. Since Facebook’s core business has such low user demand, you have to wonder if Meta will make a profitable transition into the still-growing metasphere.
The rest are key players in the future of the economy and the market.
