The stock price has plummeted: because tech companies are weakening

Status: 31/10/2022 16:22

Alphabet, Amazon, Meta and Microsoft: Several tech giants have reported weak numbers over the past week and collectively burned hundreds of billions of stock market values. Because?

By Till Bücker,

US tech companies – once stock market stars and soaring – have plummeted rapidly over the past week. Facebook’s parent company Meta, which also owns WhatsApp and Instagram, lost around 28% of its market value in just three days. Shares of Amazon fell more than 14% against the US technology exchange Nasdaq.

Newspapers from Google’s mother, Alphabet and Microsoft, slipped nearly eight and nearly six percent, respectively. According to the Bloomberg financial service, the big four companies burned a total of nearly $ 700 billion in market value Tuesday through Friday. Why are the tech giants so weak?

Investors’ expectations were not met

“In some cases, the companies have not met the expectations of the investors”, explains the strategist of the capital market Stefan Risse of Acatis asset management in an interview with The third quarter results were not even as bad as one might expect given the fall in prices. All four companies reported black figures in the months of June to September.

Alphabet made a profit of $ 13.9 billion and Microsoft as much as $ 17.7 billion. Amazon ($ 2.9 billion) and Meta ($ 4.4 billion) also earned. Yet: “This week will go down in history as one of the worst for Big Tech,” said Dan Ives, an analyst at Wedbush investment firm, Handelsblatt. Because it’s business development that makes investors nervous.

“The stock market always has an expectation and there is speculation about a certain event. If this turns out to be worse than expected, there is a beat and prices go down,” explains Risse. Analysts had expected better quarterly results for both Alphabet and Amazon and Meta. In addition, profits were far lower than in the Corona peak phase, when the tech giants generated record sums thanks to their cloud and streaming offerings, online trading and home office hardware.

High costs, less advertising and decreasing consumption

In addition, the market outlook plays an important role. Some of the tech companies were pessimistic. The world’s largest online retailer Amazon warns of a surprisingly weak Christmas business given high inflation and fears of a recession and expects a drop in profits due to rising costs. Alphabet and Microsoft have also disappointed their prospects.

However, that shouldn’t come as a surprise to anyone, says Risse. “We are heading towards a recession in the United States and Europe. We have a lot of uncertainties.” One of the first steps companies take in such situations is to cut marketing spending. In other words, place fewer ads. Online platforms like Google, Amazon or Facebook notice this.

Added to this is high inflation and the related decline in purchasing power. “Consumers are also currently unstable. They have to spend a lot more on everyday things,” says Risse. Food prices have risen by 20%, leaving less money for online purchases, for example on Amazon.

Do developments now have a price?

In addition, the expert refers to the interest rates currently rising: “In the case of growing companies, which also include technology groups, future profits are mainly valued on the financial market, which must be discounted.” This automatically reduces the company’s so-called intrinsic value.

At the same time, the strong dollar is reducing overseas gains in US currency, with Amazon and Microsoft notably suffering. With these issues in mind, UBS Global Wealth Management analysts advise investors to remain cautious when buying technology stocks. “Even though tech stocks have significantly underperformed the market so far, we don’t think the ongoing headwinds are completely discounted.”

Acatis Riiße’s strategist sees it differently: “The companies mentioned have all been hit hard by the stock market. Most of the worst results and outlook are already included in the prices.” In the long run, the companies are still “extremely well positioned”. Microsoft, the parent company of Google, Alphabet and Amazon have now become a sort of “provider in everyday life”: “Who believes that in ten years we will no longer use Google Maps or YouTube, that there will no longer be Microsoft software or will we no longer have anything to order on the Internet? “asks Risse.

Tech companies still well positioned – apart from Meta?

“The companies have an incredibly good market position,” continued the expert. Plus, they would have no skyrocketing bills, no net debt, and high capital requirements to run their business. The war in Ukraine also had little effect, as they were traveling in the virtual world and their corporate headquarters were geographically distant. “You have to realize that these companies continue to earn billions,” emphasizes the capital market strategist. Although the tech industry is also affected by some current problems, they are still doing well compared to steel mills or chemical companies.

Rise is only more skeptical of Meta: “I would also consider WhatsApp as a basic service provider. Facebook and Instagram, on the other hand, contain a certain zeitgeist that can pass.” The group came under particular pressure last week. At less than nearly 25 percent, the stock posted the second largest daily loss in the company’s history. As a result, Facebook’s mother’s stock market value shrank by nearly $ 86 billion.

On Thursday, at $ 96.38, the meta paper was temporarily lower than it had been in nearly seven years. Analysts pointed out that Meta continues to pour money into capital-intensive projects as the advertising market runs out. CEO Mark Zuckerberg relies on the “metaverse” – a kind of digital world – and invests ten billion dollars a year, but expects to earn only ten years.

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