Tech stocks are listed on the Nasdaq.
Peter Kramer | CNBC
The Nasdaq just completed its fifth straight week of gains and is up 3.3% over the past five days. It’s the longest weekly winning streak for the tech-laden index since a streak that ended in November 2021. After its worst year since 2008, the Nasdaq is up 15% to start 2023.
The last time tech stocks rallied for this long, investors braced themselves for the electric-car maker Rivians Blockbuster IPO, US economy ended its fastest year of growth since 1984 and Nasdaq traded at record highs.
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There’s a lot less champagne this time. Cost cutting has replaced growth on Wall Street’s checklist, and technology executives are being celebrated for efficiency over innovation. The IPO market is dead. Layoffs abound.
Earnings reports were the story of the week, with results from many of the world’s most valuable technology companies. But the numbers weren’t good for the most part.
Apple Missed estimates for first time since 2016, Facebook mom Meta posted a third consecutive quarter of revenue declines, Google‘s core business advertising shrank, and Amazon completed the weakest year of growth in its 25-year history as a public company.
While investors had mixed reactions to each report, all four stocks also ended the week with solid gains Microsoftwhich released earnings last week and offered lackluster guidance when forecasting sales growth of just about 3% this quarter.
Cost control is king
Meta was the top performer in the group this week, with the stock soaring 23%, the third-best week ever. In its earnings report on Wednesday, revenue came in slightly ahead of estimates despite year-on-year sales declines, and its first-quarter guidance was roughly in line with expectations.
Key to the rally was CEO Mark Zuckerberg’s announcement in earnings that 2023 would be the “Year of Efficiency” and his pledge that “we are focused on becoming a stronger and more agile organization.”
“That was really the game changer,” Stephanie Link, chief investment strategist at Hightower Advisors, said in an interview with CNBC’s “Squawk Box” on Friday.
“The neighborhood itself was fine, but it was cost-cutting that finally got them into the religion, and I think that’s why Meta really took off,” she said.
Zuckerberg acknowledged that times are changing. From the year it went public in 2012 through 2021, the company grew between 22% and 58% per year. But in 2022, sales fell 1%, and analysts expect just 5% growth for 2023, according to Refinitiv.
On the conference call, Zuckerberg said he doesn’t expect any further declines, “but I don’t think it’ll go back to where it was before either.” Meta announced in November that it would cut 11,000 jobs, or 13% of its workforce.
Link said the reason Meta’s stock had such a big bounce after the gains was because “expectations were so low and the valuation was so compelling.” The stock has lost nearly two-thirds of its value over the past year, far more than its mega-cap peers.
Navigating in “very difficult environment”
Apple, which slumped 27% last year, gained 6.2% this week despite reporting its sharpest sales decline in seven years. CEO Tim Cook said the results were impacted by a strong dollar, manufacturing issues in China affecting the iPhone 14 Pro and iPhone 14 Pro Max, and the overall macroeconomic environment.
“Apple is navigating quite well overall in what is obviously a very difficult environment,” Neuberger Berman analyst Dan Flax told Squawk Box on Friday. “As we move through the coming months and quarters, we will see a return to growth and the market will start to price this in. We also like the name given these macroeconomic challenges.”
Amazon CEO Andy Jassy, who succeeded Jeff Bezos in mid-2021, took the unusual step of joining Thursday’s conference call with analysts after his company issued weaker-than-expected first-quarter guidance. In January, Amazon began layoffs that are expected to result in the loss of more than 18,000 jobs.
“Looking at this last quarter, it marked the end of my first full year in this role and given some of the unusual parts of the economy and our business, I thought this could be a good place to start,” Jassy said when bidding.
Managing spend has become a big issue for Amazon, which expanded rapidly during the pandemic and subsequently admitted it had hired too many employees during that time.
“We are working really hard to optimize our costs,” said Jassy.
Alphabet is also in downsizing mode. The company announced last month that it would cut 12,000 jobs. Fourth-quarter revenue detractors included disappointing sales at YouTube due to a decline in advertising spend and weakness in its cloud division as companies tightened their belts.
Alphabet CFO Ruth Porat told CNBC’s Deirdre Bosa that the company is significantly slowing the pace of hiring to deliver long-term profitable growth.
Alphabet shares ended the week up 5.4% even after giving back some of their gains during Friday’s sell-off. The stock is now up 19% for the year.
Alphabet CFO Ruth Porat at the WEF in Davos, Switzerland, on May 23
Adam Galika | CNBC
Should the Nasdaq continue its uptrend and post a sixth week of gains, it would post the longest rally on a stretch, which ended in January 2020 just before the Covid pandemic hit the US
Investors will now turn to earnings reports from smaller companies. Some of the names you will hear from next week are among others Pinterest, Robin Hood, Confirm And cloud flare.
Another area of technology that thrived this week was semiconductors. Much like consumer tech companies, there hasn’t been much growth to excite Wall Street.
AMD on Tuesday battered sales and earnings but led analysts to see sales decline 10% year over year for the current quarter. Intel, AMD’s main competitor, reported a disastrous quarter last week and forecast a 40% decline in revenue in the March quarter.
Still, AMD is up 14% this week and Intel is up nearly 8%. Texas Instruments And NVIDIA also notched nice gains.
The semiconductor industry is struggling with an oversupply of ancillary parts from PC and server manufacturers and falling prices for components such as memory and CPUs. But after a miserable 2022, stocks are rebounding on signs that an easing of Federal Reserve rate hikes and falling inflation numbers will buoy companies later this year.
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