Big Tech must remain the locomotive of Wall Street

Microsoft’s cautious forecasts dashed hopes for a rebound in US tech stocks. What if it was just postponed?

It will be the technology sector the engine of the next stock market rally on Wall Street? As the recovery in US stocks has lagged behind their European counterparts S&P500 up 4.5% since the beginning of the year against 6% for Stoxx Europe 600investors wonder if the annual results of the Silicon Valley giants – dubbed “Big Tech” – will provide Fuel needed to increase risk appetite across the Atlantic.



“I think we’re going to go through a phase where there’s some normalization in demand.”

Satya Nadella

CEO of Microsoft

It is clear that the first news is not so encouraging. Surely, Microsoft

announced Tuesday evening produces results more or less consistent with expectations. This was reported by the group created by Bill Gates2% increase in revenue $52.74 billion for the second quarter of fiscal year 2022-2023. Analysts on average were expecting quarterly revenue of $52.93 billion, according to data compiled by Bloomberg. the result operates in its part fell to 20.4 billion (-8%) against the expected 21 billion.

But predictions for the next few months or even the next few years are shoehorned. Microsoft is waiting slower income growth about 3 percentage points for the third trimester. The IT giant is also waiting 2 point decline in operating margin over the year for the entire current financial year.

Its CEO Satya Nadella already warned earlier this month the tech industry is going through a slowdown and will have to adapt. “During the pandemic, there was a rapid acceleration. I think we’re going to go through a phase today where some normalization of demand“, he said at the World Economic Forum in Davos. “We will have to do more with less – we will have to show our productivity with our own technology.”

Head winds

The prudence shown by Microsoft has slightly dampened investors’ hopes. Some see warning signal. “Microsoft is the world’s biggest barometer of enterprise and cloud spending. Nadella’s comments (…) confirm this.a darker macroeconomic backdrop looms on the horizon“, Wedbush analyst Dan Ives believes.

-9%

Analysts expect tech sector revenues to decline by an average of 9% for the fourth quarter of 2022.

It should be noted that analysts expect this Tech sector profits down 9% on average for Q4 2022. Which represents The biggest drop since 2016. And they still should A decrease of about 7% for the first three months of 2023.

Like Microsoft, other tech giants have announced plans to prepare for tougher times wave of layoffs these last months. Amazon

plans to implement the largest workforce reduction in its history, cutting 18,000 positions worldwide. Meta

Facebook’s parent company will cut 11,000 jobs.

Besides, regulators still aim to break up what they see as an oligopoly. On Tuesday, the US Department of Justice filed a lawsuit against GoogleAlphabet

accusing it of abusing its dominant position in the digital advertising sector.

In favor again in 2023?

8% rebound in the face of these headwinds Nasdaq Composite Is there a threat since the beginning of January? For Michel Ernst, Chief Equity Strategist at CBC Banque, 2023 will mark the resurgence of America’s technology sector. “There won’t be waves like we saw in previous years, or rather, there will be progress spread throughout the year, with the risk of mini corrections and increased volatility.”



“There won’t be a techno tidal wave like we’ve seen in previous years. Rather, it will continue throughout the year with the risk of mini-corrections and increased volatility.”

Michael Ernst

Chief Equity Strategist at CBC Banque

He knows it other sectors may perform better in the stock market this yearbut given that Overweight of technology on Wall Street (over 25% of S&P 500)“Big Tech must remain a de facto locomotive,” the New York Stock Exchange said.

“And let’s not forget evolution interest rate“, adds Michel Ernst. If peak inflation is confirmed and central banks effectively reduce the scale of their rate hikes, that will be the case in the strategist’s view. “positive signal” for technology. “What played negative in 2022 could be a supportive factor in the coming months..”

Summary

  • Microsoft’s caution dampened hopes for a new boom in technology.
  • Technology sector profits could fall by an average of 9% Fourth quarter of 2022.
  • For Michel Ernst, Strategist at CBC Banque, 2023 will still mark a return to good graces for the American tech sector.
  • This will happen if peak inflation is confirmed and central banks limit interest rate hikes is a positive signal for technology.

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