Marking outside the Nasdaq MarketSite in New York on March 23, 2023.
Stephanie Keith | Bloomberg | Getty Images
With quarterly earnings from tech big-caps largely in the rearview mirror, one thing is clear: Wall Street is nervous.
The Nasdaq Composite fell 3.4% this week, extending its three-week slide to 8.8%. That’s the worst performance for the tech-heavy index in that time since September 2022, when the market was in freefall on soaring inflation and rising interest rates, according to FactSet.
As of late 2022, the narrative has been mostly positive for the tech sector, with the US economy recovering from the pandemic and excitement building around the growth opportunities sparked by artificial intelligence.
The Nasdaq rallied 43% last year and remains up 12% year to date after climbing to a record high last month.
But last earnings season was disappointing, with some companies pointing to weaker-than-expected growth and others worried that AI infrastructure development may hit some roadblocks.
Hovering over the sector are concerns about the overall US economy. The Labor Department said on Friday that job growth slowed much more than expected in July, while unemployment rose, a day after economic data showed an unexpected rise in jobless claims and a weakening manufacturing sector.
Josh Koren, founder of Musketeer Capital Partners, said tech giants with trillion-dollar valuations are increasingly a macro play because they are so large that softness in aggregate data will naturally show up in their results.
Amazon and apple Both reported earnings on Thursday, with Amazon missing revenue and issuing a disappointing forecast and Apple posting growth of just 5%.
“As the economy slows down, a business like Amazon, like Apple, will also slow down,” Koren said on CNBC’s “Squawk Box Europe” on Friday. “That’s what you see in the profits.”
Amazon plunged 8.8% on Friday, extending its three-week decline to 14%. Executives on the earnings call attributed some of the revenue lag to consumers buying cheaper household goods and fewer big-ticket items such as computers and televisions.
“We’re seeing a lot of the same consumer trends that we’ve been talking about for the last year, consumers being careful with their spending, trading down,” Amazon chief financial officer Brian Olsavsky said on the call. “We see signs of that continuing into the third quarter.”
Apple’s results were less worrisome — the company beat estimates for earnings and revenue — and the stock closed slightly higher on Friday and for the week. But that came after falling more than 5% in the previous two weeks.
Microsoft is down 4% this week and has fallen 10% over the past three weeks. The tech giant issued a weaker-than-expected forecast for the current quarter and missed growth in its Azure cloud division. Mizuho analysts wrote in a note after the report that Azure’s “core consumption was impacted by capacity constraints and softness in some European geographies.”
Shares of Alphabet were down slightly this week after falling 10% in the previous two weeks. In its earnings report, the company’s YouTube ad revenue missed estimates and managed just 11% overall ad growth. He was far below the opponent Afterwhich increased by 22%.
Meta is the exception
Meta stood out among the pack, with its stock up nearly 5% this week after the company beat Wall Street estimates and issued an upbeat forecast for the current quarter. CEO Mark Zuckerberg said the company’s massive investments in artificial intelligence are paying off by creating more relevant ads and making it easier for marketers to create campaigns.
“The ways it’s improving recommendations and helping people find better content and making ad experiences more efficient, I think there’s a lot of upside,” Zuckerberg said on the earnings call last month. “These are already products that are at scale. The AI work we’re doing will improve that.”
Even after that rally, though, the Meta has been down for the past three weeks.
The only large-cap tech company yet to report results is Nvidia, which has been the biggest winner in the artificial intelligence boom. The stock is down 17% from the Nasdaq’s three-week decline, though it’s still up more than 110% year-to-date.
Nvidia is counting on spending from its top tech peers as they develop their AI infrastructure. Due to Nvidia’s parabolic rally in recent years, any hint of a potential slide could have a huge impact on its stock. The company is scheduled to report results on August 28.
On the other side of the semiconductor market is Intel.
Formerly the world’s largest chipmaker, Intel has been crushed by competitors in recent years and is far behind in the artificial intelligence race. The stock had its worst day in 50 years on Friday, falling 26% to a level not seen since 2013.
Intel reported a big loss in profits and announced a massive restructuring that includes eliminating 15% of its workforce. CEO Pat Gelsinger told CNBC on Friday that this is “Intel’s most substantial restructuring since the memory microprocessor transition four decades ago.” Investors aren’t sure it will work.
In a note on Friday, analysts at KeyBanc Capital Markets cut estimates and maintained their hold recommendation on the stock, saying there is a tough road ahead.
“With all the challenges INTC has, such a significant reduction in headcount is likely to make it more difficult to achieve its goals,” they wrote.
