Status: 10/31/2022 4:22 p.m
Alphabet, Amazon, Meta and Microsoft: Several tech giants have reported weak numbers in the past week and collectively burned hundreds of billions of stock market values. Why is that?
The tech companies from the USA – once stock market stars and high-flyers – have experienced rapid crashes in the past week. The Facebook parent Meta, which also owns WhatsApp and Instagram, lost around 28 percent of its market value within just three days. Amazon’s shares fell more than 14 percent on the US technology exchange Nasdaq.
The papers of the Google mother Alphabet and Microsoft slipped by almost eight and almost six percent respectively. According to the financial service “Bloomberg”, the four major corporations burned a total of almost 700 billion dollars in market value from Tuesday to Friday. Why are the tech giants so weak?
Investor expectations not met
“In some cases, the companies have not met the expectations of investors,” explains capital market strategist Stefan Risse from Acatis asset management in an interview with tagesschau.de. The results in the third quarter weren’t even as bad as one might expect in view of the price slump. All four companies reported black figures in the months from June to September.
Alphabet made a profit of $13.9 billion and Microsoft even $17.7 billion. Amazon ($2.9 billion) and Meta ($4.4 billion) also made gains. And yet: “This week will go down in the history books as one of the worst for Big Tech,” said Dan Ives, analyst at the investment company Wedbush, the “Handelsblatt”. Because it’s the business development that makes investors nervous.
“The stock market always has an expectation and there is speculation on a certain event. If this turns out to be worse than expected, there is a beating and the prices fall,” explains Risse. Analysts had expected better quarterly results for both Alphabet and Amazon as well as Meta. In addition, profits were far lower than in the Corona peak phase, when the tech giants generated record sums thanks to their cloud and streaming offers, online trading and hardware for the home office.
High costs, less advertising and falling consumption
In addition, prospects on the markets play a major role. Some of the tech companies were pessimistic. The world’s largest online retailer Amazon, for example, warns of a surprisingly weak Christmas business in view of the high inflation and recession worries and expects a slump in profits due to rising costs. Alphabet and Microsoft also disappointed with their outlook.
However, that shouldn’t come as a surprise to anyone, says Risse. “We are heading towards a recession in the US and Europe. We have a lot of uncertainties.” One of the first steps companies take in such situations is to cut marketing spend. In other words, you place fewer ads. Online platforms such as Google, Amazon or Facebook notice this.
Added to this is high inflation and the associated decline in purchasing power. “Consumers are also currently unsettled. They have to spend a lot more on everyday things,” says Risse. Grocery prices have risen by 20 percent, leaving less money for online shopping – for example at Amazon.
Are the developments now priced in?
Furthermore, the expert refers to the currently rising interest rates: “In the case of growth companies, which also include the technology groups, the future profits are primarily valued on the financial market – which have to be discounted.” This automatically reduces the so-called intrinsic value of the company.
At the same time, the strong dollar is reducing foreign earnings in the US currency, with Amazon and Microsoft in particular suffering. With these aspects in mind, analysts at UBS Global Wealth Management advise investors to remain cautious when buying technology stocks. “Even though tech stocks have significantly underperformed the market so far, we don’t think the ongoing headwinds are fully priced in.”
Acatis strategist Riiße sees it differently: “The companies mentioned have all been hit hard on the stock market. Most of the poorer results and outlook are already included in the prices.” In the long term, the companies are still “extremely well positioned”. Microsoft, Google’s parent company Alphabet and Amazon have now become a kind of “supplier in everyday life”: “Who believes that in ten years we will no longer be using Google Maps or YouTube, that there will be no more software from Microsoft or that we will no longer have anything order on the Internet?” asks Risse.
Tech companies still well positioned – apart from Meta?
“The companies have an incredibly good market position,” the expert continued. Also, they wouldn’t have skyrocketing utility bills, no net debt, and high capital requirements to run their business. The war in the Ukraine also had little effect, since they were traveling in the virtual world and their company headquarters were geographically far away. “You have to realize that these companies continue to earn billions,” emphasizes the capital market strategist. Although the tech industry is also affected by some current problems, they are still doing well compared to steel mills or chemical companies.
Rise is only more skeptical about Meta: “I would also regard WhatsApp as a basic needs provider. Facebook and Instagram, on the other hand, contain a certain zeitgeist that can pass.” The group came under particular pressure in the past week. With a minus of almost 25 percent, the share recorded the second largest daily loss in the company’s history. As a result, the stock market value of the Facebook mother shrank by almost 86 billion dollars.
At $ 96.38, the meta paper was temporarily lower on Thursday than it had been in almost seven years. Analysts pointed out that Meta continues to pour money into capital-intensive projects while the advertising market dries up. CEO Mark Zuckerberg relies on the “metaverse” – a kind of digital world – and invests ten billion dollars a year, but only expects to earn money in ten years.