The investment landscape has undergone a notable shift as the excitement around profit growth expectations begins to waneFor many investors, the rationale for heavily investing in high-priced shares of major technology firms is becoming increasingly tenuousDespite recent financial reports showing that performance has generally exceeded initial predictions, corresponding stock prices have failed to mirror the larger market movements, prompting widespread scrutiny and contemplation.

Currently, all major tech companies, aside from Nvidia, have released their earnings reportsHowever, even with solid financial results, their stock performance remains lacklusterA significant factor contributing to this stagnation is the substantial investment in artificial intelligence (AI) by tech giants such as Amazon and Google, coupled with the dual pressures of tariffs and U.S. policies impacting companies like Apple and TeslaAs a result, the profit outlook for these corporations appears increasingly bleak.

Ivana Delevska, the Chief Investment Officer at SPEAR Invest, has pointed out that major corporations are facing a plethora of challenges, often outnumbering their solutionsOne of the key concerns for investors revolves around the unpredictability of growth opportunities stemming from extensive expenditures.

In fact, over the past month, analysts on Wall Street have revised their profit forecasts downward for most companies among the so-called "magnificent seven." According to data compiled by Bloomberg, Tesla's anticipated net profit for the current quarter has decreased by 25%, while Apple's forecast has dipped approximately 4%, and Amazon's has fallen by 3%. This downward trend undoubtedly amplifies investors' anxieties over the profitability of large tech companies.

Looking back over the previous two years, major technology stocks had driven the S&P 500 index upward thanks to a robust surge in profitsHowever, as the expansion of earnings slows and other industry valuations appear more attractive, investors have begun pivoting toward more affordable market segments, leading to a decline in the impressive performance of large tech stocks.

Nevertheless, data from Bloomberg Industry Research indicates that fourth-quarter earnings growth is still expected to reach 30%, an increase from the 22% anticipated at the onset of the reporting season

Advertisements

Yet this forecast has not provided substantial reassurance to investorsSince the earnings season commenced, six companies have reported their results, with only Meta seeing a significant stock price leap—a positive response from investors buoyed by prospects of revenue growth through increased AI capital expenditures.

The remaining companies, in contrast, saw their stock prices dip due to a failure to exceed investor expectationsAmazon and Microsoft faced selling pressure due to underperformance in their cloud data services; however, both attributed this shortcoming to capacity constraints rather than lack of demandApple lost the post-earnings boost due to concerns about tariffs and the state of the Chinese economy, while Tesla's stock suffered from disappointing sales figures and threats posed by U.S. policy shifts.

It is becoming increasingly evident that even early beneficiaries in the burgeoning AI space may struggle to achieve meaningful revenue growth in the short termAdam Parker from Trivariate Research noted in a report that given the disruptive nature of AI and the rapid transformations occurring in software development, the current outlook seems increasingly fragileConsequently, he has advised investors to decrease their exposure to this segment.

Interestingly, among these tech giants, only Nvidia has yet to publish its financial results, with its report scheduled for release on February 26. Meanwhile, Nvidia's stock has already experienced significant declines, falling approximately 10% from its peak last month due to concerns that a Chinese startup has developed an advanced AI chatbot at a lower price pointThis apprehension persists, leading investors to believe that there are minimal factors that could substantially uplift Nvidia's stock prior to its quarterly earnings announcement.

Given that the shares of these seven technology companies represent about a third of the S&P 500 index, their lackluster performance is undoubtedly constraining broader market movement

Advertisements

Advertisements

Advertisements

Advertisements