Alphabet and Meta Earnings Surpass Expectations, but Tech Stocks Drop
Alphabet’s earnings exceeded Wall Street’s predictions, followed by Meta’s strong performance. However, the Nasdaq experienced a 3.5% decrease over two days despite the positive results from these tech giants.
The upcoming release of Amazon’s third-quarter report and Apple’s announcement next week has shifted the focus of tech investors towards the future rather than the past. They are more concerned about what lies ahead as the year comes to a close.
Analysts were worried about the numbers from Google Cloud division in Alphabet’s earnings report. The division is heavily investing to compete with Amazon and Microsoft in managing artificial intelligence workloads. However, the cloud group fell short of analysts’ revenue estimates.
Meta’s CFO, Susan Li, expressed concerns about the advertising market in the fourth quarter due to the Middle East conflict. As a result, Meta provided a wider revenue guidance range than usual, attributing the softer ads to the start of the conflict.
Alphabet and Meta’s stock prices dropped by 11% and 7% respectively in the past two days. Amazon’s stock also saw a decline of more than 6% leading up to its quarterly report.
Despite these recent drops, 2023 has been a successful year for mega-cap tech companies. Meta is the second-best performing stock in the S&P 500, with a gain of approximately 140% for the year.
All three internet companies, including Alphabet and Meta, have implemented cost-cutting measures and eliminated experimental projects to improve efficiency. However, concerns are rising due to economic uncertainty and high interest rates.
The U.S. economy has shown resilience so far, with a 4.9% annualized GDP growth in the third quarter. Nevertheless, the ongoing conflict in Ukraine and the Middle East pose risks to the global economy.
Meta’s conservative tone in addressing the potential business impact of the Middle East conflict has tempered enthusiasm among shareholders. Analysts from Guggenheim noted this cautionary approach but still recommend buying the stock.
Investor skittishness is evident in the reaction to these earnings reports. Mark Avallone, president of Potomac Wealth Advisors, believes that people are overreacting and finding problems where they may not exist.
Despite the overreactions, some analysts argue that the earnings reports are not as bad as perceived. The negative response to the cloud division’s numbers may indicate an overemphasis on potential issues.
WATCH: There may be an overreaction to Amazon’s earnings if any doubt