How tech companies will fare during inflation and recession: analysts

  • Tech stocks took a hit this week after earnings reports pointed to choppy waters.
  • While Apple is a “bright spot,” Meta, Alphabet, and others are in for a tough few months, analysts say.
  • Still, these firms are better equipped to weather this than Meta, which analysts say needs to refocus on its core business.

Famed investor Warren Buffett has a saying he likes to use: “You don’t find out who’s been swimming naked until the tide recedes.”

Well, the tide is receding.

All signs point to choppy waters for tech giants, the people they employ and the users they serve. Job cuts appear imminent at several companies, persistent inflation means people and businesses are reining in spending, and the specter of a recession still looms.

The pandemic may have made some tech companies amazingly wealthy, but the environment they’re now trying to make money in is just… harder, New York Stock Exchange senior market strategist Michael Reinking told Insider on Thursday.

“It is clear that there are headwinds for the industry after a period of unsustainable growth as a result of the pandemic, iOS privacy changes, growing competition and macro headwinds,” said Reinking.

So if things get worse, how are the big tech companies likely to fare? And which companies urgently need a swimsuit?

Apple

Apple is in great shape, a “bright spot” amid otherwise dismal big-tech earnings, Wedbush analyst Dan Ives wrote in a note. Barclays analyst Tim Long called the iPhone maker “a relatively safe haven in the macro storm,” according to Market Watch.

The privacy changes it’s enacted — by allowing people to tweak their settings to opt out of ad tracking — have put a damper on its competitors, but only helped strengthen Apple’s operating system moat.

And slightly worse-than-expected iPhone sales didn’t dampen the company’s otherwise strong quarter. Overall customer resilience seemed to surprise even CEO Tim Cook, who said during a conference call with investors that “demand has been strong and better than we anticipated.”

alphabet

Google parent company Alphabet’s quarterly results didn’t come as a pleasant surprise to Wall Street. The company experienced a slowdown in its search advertising business. This is a worrying sign for the broader economy, as advertising budgets are often the first to go in times of belt-tightening.

“Alphabet’s weaker-than-expected search ad sales show how deep recession fears are gripping consumers,” Nikhil Lai, a senior analyst at Forrester, told Insider via email.

Still, Alphabet’s “leading market share and irreplaceable scale” means it will be “largely protected from the worst of the economic storms,” ​​Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown, wrote in a note.

Amazon

Amazon’s mixed third-quarter earnings sent shares tumbling, wiping out a $120 billion market value on Friday. The company issued a weak holiday forecast and estimates fourth-quarter sales are likely to come in below analysts’ expectations.

But Wall Street is still bullish on the e-commerce giant, with JPMorgan writing in a note that “the pressure on AMZN’s business is largely macro-driven and not fundamental.” That means they’re worried about the economy, but the company as a whole is in decent shape.

Microsoft

Microsoft posted its slowest quarterly revenue growth in half a decade, but analysts are bullish on the software giant’s fortunes, despite its lackluster guidance for the coming quarter. Analysts at Goldman Sachs wrote in a note Tuesday that there is potential for a recovery next year.

“Beyond the short-term momentum, we remain constructive as we see the company well-positioned to continue winning deals and grow its share of the wallet within its existing customer base even in a slower growth environment,” analysts wrote, according to CNBC.

Meta

Meta’s second straight quarter of revenue declines and weak guidance sent shares tumbling after the company’s earnings on Wednesday. Investors are particularly concerned about the money poured into the metaverse: Reality Labs, Meta’s virtual reality and metaverse division, reported $9.4 billion in operating losses so far this year, and Zuckerberg said the company is planning to spend even more on the metaverse next year.

Meanwhile, Insider Intelligence chief analyst Debra Aho Williamson wrote that Meta needs to focus on fixing its core businesses — like Facebook and Instagram — and that the company, whose shares have fallen more than 70% so far this year, “stands on shaky legs. ”

“Meta is under incredible pressure from weakening global economic conditions, challenges with Apple’s app tracking transparency policy, and competition from other companies, including TikTok, for users and revenue,” she wrote.

Morgan Stanley downgraded the company’s stock, writing that Meta’s guidance and quarterly results are “changing propositions” and “will likely weigh on the stocks for some time … until the market has confidence in the execution and return on invested capital from these.” outsized stocks may have investments,” analysts wrote in a statement published on Thursday.

source

Leave a Reply

Your email address will not be published. Required fields are marked *