By Maxim Manturov, Head of Investment Advisory at Freedom Finance Europe
Tribune. Google, Amazon, Facebook, Apple and Microsoft ( GAFAM ) are the most publicly traded technology stocks by market capitalization and are collectively worth several trillion dollars. Still, tech giants suffer from high interest rates because their shares are traded on the expectation of higher returns in the future, posing risks that investors are generally unwilling to take in a turbulent economic environment. How are these tech giants behaving in the face of runaway inflation and macroeconomic instability? Is it still interesting to invest in these shares?
Meta: a bet on Mark Zuckerberg
In difficult macroeconomic times and a highly competitive market, Mark Zuckerberg’s bet on Metaverse is not yet fully understood by the market, driving the stock’s fastest decline among major tech companies. Rising operating costs and currency market fluctuations resulted in a significant drop in net earnings. While the outlook for the fourth quarter fell short of expectations, the cost outlook for 2023 shocked the market. Despite the drop in revenue, Meta expects spending in 2023 to be at least €91 billion, up 15% year-on-year. While rising costs are scary, aggressive investment during the recession could yield strong returns for Meta in 2024 and beyond if the Metaverse business proves viable.
A disappointing quarter for Amazon
Amazon’s revenue fell short of expectations and the cloud business gradually declined, although it continues to grow at an annual rate of 28%. At the same time, growth in the advertising sector accelerated to 30% in the quarter, which is impressive in a context where the YouTube divisions of Meta and Alphabet both recorded negative growth in advertising revenue. . Amazon continues to lead the cloud industry with steady growth and is gaining share in the fast-growing digital advertising industry. Despite the weak outlook for the next quarter, there is reason to remain optimistic about the company’s long-term prospects. As Amazon’s e-commerce margins could be boosted by continued revenue growth from its cloud computing and advertising businesses, the company will benefit from increased market share and lower costs in the future.
Apple remains the king of cash flow
Apple’s report was the brightest and strengthened the market given its large capitalization, once again proving the company’s solidity in a difficult macroeconomic environment with record revenue last quarter. The company delivered strong financial results for the third quarter of 2022 with revenue of 85 billion euros, beating analysts’ forecasts of 1.29 billion euros. Product revenue was €67.7 billion, up 9% year-on-year and a third-quarter record; an increase supported by the steady increase in revenue from iPhones, Macs and services. Despite difficult economic conditions, the company continues to show strong sales, which means that Apple can still be considered a solid long-term investment.
Microsoft’s modest predictions caused its downfall
Investors were frustrated by the giant’s modest financial outlook, which sent the share price down. Nevertheless, the future for Microsoft is positive. Its outlook is not particularly worrying in light of short-term headwinds. While average estimates now call for revenue growth of around 7% for FY 2023, the market average calls for a 14% increase over the next three years. On the revenue side, average estimates assume only 5% growth this year followed by 17% growth and recovery in FY2024. This is because Microsoft creates barriers to entry and its competitive advantage in PC software, business software, social media (LinkedIn), gaming and cloud.
Signs of recovery in the ad market will drive Alphabet stock higher
Profit for Alphabet, the parent company of Google and YouTube, was well below expectations in the third quarter. However, Alphabet remains one of the leaders in the advertising market, even if the economy weakens. Turnover appears to be declining in the main activities. Alphabet is primarily an advertising company, and weak overall results could provide headwinds for the stock as ad spending is expected to worsen along with the economy.
However, businesses are more likely to advertise on the search engine network than in other media, giving Alphabet a strong competitive advantage. Markets are looking ahead, third-quarter earnings are already in the past, and any sign of recovery in the ad market has the potential to trigger a rally in Alphabet shares. In times of increased volatility, there are still solid opportunities for long-term investors as these companies continue to dominate the market with prospects for steady growth.