Technology meltdown and mixed Alphabet earnings

Technology meltdown and mixed Alphabet earnings

Equities 8 minutes to read
Picture of Peter Garnry
Peter Garnry

Chief Investment Strategist

Summary:  Risk-off was intense in US technology stocks yesterday with severe carnage outside the Nasdaq 100 index as investors are reevaluating portfolio amid inflation and lockdowns in China. This week is all about whether technology companies can defy inflation and preliminary data suggest that technology companies are doing better than the average company. We also take a look at last night's earnings releases from Microsoft, Alphabet, and Visa.


It is getting serious in equities

We have flagged for over a week on our daily podcast that things were crumbling underneath equities with massive moves in currencies across USD, JPY, and CNY responding to the worsening situation out of China with its Covid lockdowns. DSV’s CEO said this morning in relation to Q1 earnings that the logistics company had never seen anything like what they are seeing in China with around 500 container ships waiting for docking in Shanghai ports. The war in Ukraine and Russia cutting gas to Poland and Bulgaria are raising the stakes in Europe which is already under pressure from an unprecedented cost of living crisis which is increasing the risks of recession in Europe. At the same time the market is pricing in a more aggressive Fed as more and more signs are suggesting that inflation is not transitory but stickier at a higher level than imagined.

The full effect of all of the above was channeled into US equities in yesterday’s session with Nasdaq 100 futures declining as much as 5.5% dropping below the 13,000 level before bouncing back and close above 13,000 and the rebound trade is extending in early European trading hours. Some of the broader equity indices are masking the carnage that is happening below the tier 1 companies (high quality and high margin businesses) with 37 stocks with a market value above $5bn being down more than 50% this year. Many of the names are recognized as the winners during the pandemic but frothy expectations are being prices out completely in these stocks reminding us of the collapse after the dot-com bubble. Our theme basket performance this year is also showing the long tail of losses in growth segments of the equity market. It is a good opportunity to remind investors what works during inflation which are real estate, commodities, gold, defence, cyber security etc.

27_PG_1
Source: Saxo Group
27_PG_2
Source: Bloomberg
27_PG_3

Technology earnings a mixed bag with Alphabet disappointing

On Monday we wrote that US technology earnings this week would be a major test of the equity market and basically decide whether US large cap technology stocks would get the label inflation hedge. In order to get this label they must demonstrate minimal impact from inflation on margins and growth. It is too early to conclude anything but the preliminary earnings data suggest that technology stocks are doing better than the general company (see below). In Q4 technology companies grew earnings faster than the MSCI World and S&P 500 and the pattern seems to be repeating in Q1 with MSCI World actually down 5% q/q based on current Q1 figures as rising input costs are eating the profitability of companies.

27_PG_4

The three most important earnings yesterday were from and below are our takes on those earnings releases.

Microsoft: Solid results across all business segments while growing revenue by 18% y/y and all segments hit earnings and revenue consensus estimates. Xbox was a little better than feared due to more supply but the lockdowns in China is a key risk going forward for PC sales and Xbox supply.

Alphabet: The first reaction was that it was a very bad earnings release due to a big miss on YouTube relative to expectations (8% miss) indicating advertising weakness and more competition from TikTok and something also observed last week in Snap’s earnings. But the rest of the Alphabet business looks solid on revenue vs expectations although it is disappointing to see the operating loss widen in the cloud segment. Despite talk of a weak earnings release revenue was up 23% y/y.

Visa: Significant beat on revenue and EPS as cross-border volumes in constant currency were up 38% suggesting travelling is coming back fast from pandemic lows and the company is guiding revenue growth of 15-20%.

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.