Proactive Investors - Tech stocks are in for another worrying session on Friday, though Cupertino appears to be bucking the trend.
Apple Inc (NASDAQ:AAPL, ETR:APC). was projected to lose $57 billion from its valuation according to pre-market trades, despite a third-quarter earnings beat. However, the world’s most valuable company has instead risen by more than 2.5% in early trading.
Apple reported stronger-than-expected earnings, although sales in China were disappointing at $14.72 billion, falling short of the estimated $15.2 billion.
Global iPhone sales were better than expected too, even though they declined sequentially from the second quarter.
On the flipside, Apple’s Magnificent Seven peers have all declined, with Nvidia (NASDAQ:NVDA) Corp down 3.3%, Microsoft Corp (NASDAQ:MSFT) off 2%, and Amazon.com Inc (NASDAQ:AMZN) falling a worrying 10.7%.
This comes at the tail end of a tech earnings season that has failed to impress investors as artificial intelligence-powered exponential growth expectations have been tempered by reality.
“Investors are increasingly nervous about the tech sector, and it only takes one small piece of bad news from a major player to heighten anxiety levels across the market,” said Dan Coatsworth, investment analyst at AJ Bell, earlier this week.
“Another sell-off involving the stocks that have contributed to much of the US market’s gains in recent years was compounded by Microsoft’s cloud computing business failing to meet growth expectations.
“It’s no longer enough for the big tech companies to beat earnings or sales expectations. Every part of a business has to be moving with strength and stamina, otherwise the market will start finding fault.
Tech expectations are too high
“Expectations have arguably become too high for the so-called Magnificent Seven group of companies. Their success has made them untouchable in the eyes of investors, and when they fall short of greatness, the knives come out,” said Coatsworth.
Apple, specifically, has languished in the AI revolution for failing to deliver a killer AI app, although Wedbush analyst Daniel Ives has warned against writing off Apple’s AI capabilities.
“Our view is that betting against Cook and Cupertino in an AI-driven supercycle led by iPhone 16 and Apple Intelligence is the wrong move for investors, as the renaissance of growth returns to the Apple story,” wrote Ives.
Apple Intelligence is a nebulous term referring to Apple’s integration of AI technologies across its software and hardware stack.
“Apple remains one of our top tech picks for the year as this quarter/outlook reinforces our thesis that the worst is now behind Apple in the key China region. Now, the company is on a yellow brick road for positive growth next quarter on the heels of the iPhone 16 launch.”
For Matt Britzman, senior equity analyst at Hargreaves Lansdown (LON:HRGV), “this was another case of a good quarter being punished by high expectations”.
Apple’s results were good, remarked Britzman, “but this was always going to be a transition quarter for Apple: get the basics done and move on. What investors are really looking at is the latter part of the year and into 2025/2026, when Apple Intelligence should spark a major upgrade cycle”.
Amazon battered
Amazon.com Inc. bore the brunt of a widespread sell-off of technology stocks today, with the e-commerce and cloud-computing giant falling 10.7% in early trading.
This amounts to nearly $200 billion being cut from Amazon’s valuation after its revenues fell short of expectations in the second quarter.
Amazon posted a 10% year-over-year increase in revenue to $148 billion, falling short of Street estimates of $148.6 billion.
On the upside, Amazon Web Services (AWS) sales were up 19% at $26.3 billion, whereas analysts had expected 18% growth.