Investors discover a ‘wrinkle or two’ in Alphabet and Meta results, causing a two-day selloff in technology companies.
After the markets closed on Tuesday, Alphabet’s results exceeded Wall Street expectations. On Wednesday, Meta followed suit, easily outperforming forecasts.
It didn’t make a difference.Following better-than-expected top and bottom-line earnings from two of the world’s most valuable tech companies, the Nasdaq fell approximately 3% in two days.
With Amazon’s third-quarter report due after the close of business on Thursday and Apple’s
poised to reveal next week, tech investors are less interested in what has transpired over the last three months and more anxious about what may happen as the year comes to a close.
Wall Street was concerned about the data from Alphabet’s Google Cloud subsidiary, which is investing significantly to compete with Amazon and Microsoft.
, especially when it comes to managing large amounts of artificial intelligence burden. According to LSEG, formerly known as Refinitiv, the cloud firm reported $8.41 billion in quarterly revenue, falling short of analysts’ expectations of $8.64 billion.
Alphabet’s finance director, Ruth Porat, told analysts that the figures reflect “the impact of customer optimization efforts,” a phrase that normally alludes to clients cutting back on their spending.
The anxiety from Facebook parent Meta was spurred by remarks made by CFO Susan Li on the earnings call about the fourth-quarter advertising environment. Because of the rising turmoil in the Middle East and concern about how it may effect ad spending, Meta issued a broader range of revenue projections than usual, according to Li.
“We have observed softer ads in the beginning of the fourth quarter, correlating with the start of the conflict, which is captured in our Q4 revenue outlook,” Li said during the conference call. “It’s hard for us to attribute demand softness directly to any specific geopolitical event.”
Alphabet shares are down nearly 12% in the last two days, while Meta is down approximately 7%. Amazon’s stock has lost more than 6% in that time, as it prepares to report after the close.
So far, 2023 has been a rebound year for mega-cap tech after a terrible 2022. Meta is the S&P 500’s second highest performing stock, trailing only AI chipmaker Nvidia.
, which is up about 140% year to far, compared to the Nasdaq’s 21% rise. Alphabet is up 39%, while Amazon is up 42%.
Starting late last year or early in 2023, all three internet giants implemented massive cost-cutting measures, laying off a record number of employees and canceling certain experimental projects. In February, Meta CEO Mark Zuckerberg declared his company’s “year of efficiency,” while Alphabet CEO Sundar Pichai said in January that Google “hired for a different economic reality than the one we face today.”
While investors applauded the greater emphasis on spending, worry is growing in tandem with broader economic uncertainties and the obstacles posed by rising interest rates.
So far, the US economy has shown to be robust. The Commerce Department said on Thursday that GDP increased at a seasonally adjusted 4.9% annualized rate in the third quarter, up from an unrevised 2.1% rate in the second quarter.
However, with the conflict in Ukraine still raging and President Joe Biden vowing that the US will help Israel in its fight against Hamas, the global economy is on uncertain ground.
Meta expressed similar worries to shareholders by underlining the possible business impact of conflict in the Middle East on its operations.
“Management’s conservative tone tempered enthusiasm for a strong result and guide,” Guggenheim analysts said late Wednesday in a note, while they still advocate purchasing the company.
On Thursday, Mark Avallone, head of Potomac Wealth Advisors, told CNBC’s “The Exchange” that the recent earnings reports demonstrate the amount of market apprehension. Alphabet’s results were good when looking at its main businesses, advertising and YouTube, he added, and the selloff connected to cloud figures shows that “people are looking for problems where they may or may not exist.”
“You’ve got earnings reports that really aren’t that bad,” he remarked. “We’re finding a wrinkle or two in what we don’t like about them and then we’re trashing America’s best companies and there really seems to be a bit of an overreaction.”