A sign outside the Nasdaq MarketSite in New York on March 23, 2023.
Stephanie Keith | Bloomberg | Getty Images
With quarterly earnings at large-cap tech companies falling sharply, one thing is clear: Wall Street is nervous.
The Nasdaq Composite Index fell 3.4% this week, bringing its three-week decline to 8.8%. That’s the technology-heavy index’s worst performance over that period since September 2022, when the market was in free fall on rising inflation and higher interest rates, according to FactSet.
Since the end of 2022, the narrative has been mostly positive for the tech sector, with the US economy recovering in the wake of the pandemic and excitement building around the growth opportunities sparked by artificial intelligence.
The Nasdaq has jumped 43% in the past year and remains up 12% so far this year, after hitting a record high last month.
But last year's earnings season was disappointing, with some companies reporting weaker-than-expected growth and others raising concerns that building AI infrastructure could face some hurdles.
Concerns about the broader U.S. economy are hovering over the manufacturing sector. The Labor Department said Friday that job growth slowed more than expected in July, while the unemployment rate rose, a day after economic data showed an unexpected rise in jobless claims and weakness in the manufacturing sector.
Tech giants with market caps of more than $1 trillion are increasingly becoming macroeconomic playthings because they are so big that weaknesses in aggregate data will naturally show up in their results, said Josh Korin, founder of Musketeer Capital Partners.
Amazon And apple Both companies reported earnings on Thursday, with Amazon missing revenue and issuing disappointing forecasts, while Apple showed revenue growth of just 5%.
“As the economy slows, companies like Amazon and Apple will slow down as well. And that’s what you see in earnings,” Coren told CNBC’s “Squawk Box Europe” on Friday.
Amazon shares fell 8.8% on Friday, bringing their three-week decline to 14%. Executives on the earnings call attributed some of the revenue shortfall to consumers buying cheaper household goods and fewer bulky items like computers and televisions.
“We’re seeing a lot of the same consumer trends that we’ve talked about over the past year, where consumers are being more careful with their spending, they’re cutting prices,” Brian Olsavsky, Amazon’s chief financial officer, said on the call. “And we see signs of that continuing in the third quarter.”
Apple’s results were less worrisome — the company beat estimates on earnings and revenue — and the stock ended slightly higher on Friday and for the week. But that came after falling more than 5% in the previous two weeks.
Microsoft Microsoft shares fell 4% this week and are down 10% over the past three weeks. The tech giant issued a weaker-than-expected outlook for the current quarter and failed to deliver on growth in its Azure cloud business. “Azure’s core consumption was impacted by capacity constraints and weakness in some European geographies,” analysts at Mizuho wrote in a note after the report.
Shares from the alphabet The company’s earnings fell slightly this week after falling 10% in the previous two weeks. In its earnings report, the company’s YouTube ad revenue fell short of expectations and saw total ad growth of just 11%. That was significantly lower than its competitors. Metawhich expanded by 22%.
Meta is the exception.
Meta was the standout among the group, with its stock up nearly 5% this week after the company beat Wall Street estimates and issued an upbeat forecast for the current quarter. Chief Executive Mark Zuckerberg said the company’s massive investments in artificial intelligence were paying off by creating more relevant ads and making it easier for marketers to build campaigns.
“I think there’s a lot of value in the ways that we’re improving recommendations and helping people find better content, as well as making ad experiences more effective,” Zuckerberg said on an earnings call last month. “Those are products that are already being applied at scale. The AI work that we’re doing is going to improve that.”
But even after this rise, Meta stock has remained down over the past three weeks.
The only tech giant yet to report results is Nvidia, the biggest winner of the AI boom. Its stock has fallen 17% during the three-week Nasdaq slump, though it is still up more than 110% so far this year.
Nvidia relies on spending from its leading tech peers to build AI infrastructure. Given the massive rally in Nvidia’s stock over the past few years, any sign of a potential slide could have a significant impact on its shares. The company is scheduled to report its results on Aug. 28.
On the other side of the semiconductor market is Intel Corporation.
Intel was once the world’s largest chipmaker, but it has been crushed by rivals in recent years and is lagging far behind in the race for artificial intelligence. The stock had its worst day in 50 years on Friday, falling 26% to a level not seen since 2013.
Intel reported a major earnings miss and announced a sweeping restructuring that includes cutting 15% of its workforce. CEO Pat Gelsinger told CNBC on Friday that it was “the most significant restructuring for Intel since the memory transition four decades ago.” Investors are unsure whether it will succeed.
In a note issued Friday, analysts at KeyBanc Capital Markets cut their estimates and maintained their hold recommendation on the stock, pointing to a difficult road ahead.
“With all the challenges INTC faces, such a significant reduction in staffing will likely make achieving its goals more difficult,” they wrote.
