Above-Consensus Earnings from Mega-Cap Tech No Longer a Sure Thing

Quarterly earnings results today from mega-cap tech giants Alphabet (GOOGL) and Microsoft (MSFT) were worse than expected and signaled that the days of blowout earnings from mega-cap technology stocks are no longer a sure thing.

Technology stocks are moving lower today on the disappointing quarterly results from the mega-cap tech giants, suggesting that this year’s $5.5 trillion selloff in tech stocks has yet to reach a bottom.

The weakness in today’s quarterly earnings results underscores the growing pressure on everything from corporate IT budgets to digital ad spending and chips for industrial machinery.  In addition, Saxo Capital Markets said, “the stronger dollar will continue to hurt businesses’ forward earnings at a time when consumer demand is likely to fall, which will keep pressure on riskier asset classes such as tech.” 

Alphabet reported Q3 EPS of $1.06, weaker than the consensus of $1.25, as YouTube ads revenue was only $7.07 billion, well below the consensus of $7.46 billion.  Alphabet has now reported three straight quarters of disappointing earnings, the longest streak in seven years.  Before this year, Alphabet had beaten earnings estimates nine quarters in a row and had only missed once since the end of 2017, according to Bloomberg data.

Signs of weakness were widespread in today’s quarterly earnings results.  Microsoft posted its weakest quarterly sales growth in five years and said it expects weak PC and ad demand to continue this quarter.  Bloomberg Intelligence said Microsoft’s forecast points to a serious slowdown, and the guidance “is worse than we had anticipated and shows that enterprise IT spending is decelerating at a faster pace amid rising economic woes.”

The Nasdaq 100 Stock Index ($IUXX) (QQQ) has plunged -28% this year and is on course for its worst annual performance since 2008.  Analysts have been too optimistic this year about the earnings forecasts for mega-cap tech stocks.  Meta Platforms (META) and Amazon.com (AMZN) have both missed on revenue in three of the past four quarters.  Meta Platforms will release its quarterly earnings results later today, and Amazon.com will release its results on Thursday. 

• Mega-Cap Tech Stocks Drag Nasdaq Lower
• Markets Today: Stocks Mixed as Alphabet and Microsoft Earnings Disappoint
• Bear Call Spread Screener Results For October 26th
• Pre-market Brief: Stocks Mixed As Big Tech Earnings Disappoint