eToro: Spectacular numbers BigTech companies give investors courage

Written by eToro market analyst Jean-Paul van Oudheusden

The shutdowns in China, supply chain delays, departures from Russia and economic uncertainty in all parts of the world seem unlikely to affect the top five tech companies. Alphabet, Microsoft, Meta Platforms, Amazon and Apple had a combined revenue of $325 billion in the second quarter. The surprisingly good numbers from BigTech, which together account for 20% of the leading S&P 500 index, gave investors the courage to move back into stocks cautiously. The AEX index also joined the slipstream and yesterday reached the highest closing price in the past three months.

Apple, Microsoft, Amazon and Alphabet

Earnings growth certainly fell in all five companies. But lower growth still means there is growth. Not all companies make it through the difficult second quarter. The overhead numbers caught the eye.

Apple coincidentally posted a record quarter in revenue: $83 billion. Perhaps most notably, CEO Tim Cook said he wanted to attract new iPhone users who were previously on Android. Apple’s unique software environment is rock solid.

Microsoft recorded a 40% (!) increase in revenue in its cloud division. As CEO Satya Nadella puts it: “No company is better positioned than Microsoft to help businesses with their digital transformation and get more done with fewer resources.” The digital transformation is too important to slow down.

And what about Amazon? Earnings growth has now slowed to 7 per cent. But is that allowed if you add $121 billion in revenue in one quarter? The higher costs of transport obviously also affect this dealer. But CEO Andy Jassy could also report that they had an excellent Prime Day in July, so he expects third-quarter results to improve. Amazon stock gained momentum, rising 13% in after-hours trading.

Of these four, Alphabet had the most difficult history. Turnover fell here in absolute terms, but not by much. Advertising revenue fell, but less than peers. Investors at Alphabet were excited about the price-to-earnings ratio: At 20x, it hasn’t been this low in a long time. The idea is that once the macroeconomic worries are over, Alphabet can also resume its upward trend.

Meta Platforms are out of step

Of course, with nearly $29 billion in revenue in the second quarter, Meta Platforms is doing better than many other companies. But the tone of the statement from embattled CEO Mark Zuckerberg was clearly different from the other BigTechs. For him, the second decline in revenue in a row caused him to lower his expectations for the third quarter significantly. Zuckerberg is betting heavily on Metaverse and investing large sums of money there, full of confidence. However, not all investors are convinced that this will yield much. Meta’s business case is generally described as “potentially high return, but high risk”. It is really different from the other four BigTechs. Meta stock fell 5% after the numbers. As a result, Meta is no longer in the top 10 of the largest US publicly traded companies.

Consideration for investors

The uncertain economic environment at a time of high inflation gives investors a trade-off. If it turns out that less consumption space will reduce consumer demand in the future, then the aforementioned BigTech companies will ultimately prove not to be immune. On the other hand, however, the fear of further interest rate increases is quickly disappearing. Interest rate hikes have been a major factor in the decline of tech companies in the first half of 2022. If interest rates do not rise further and the slowdown in growth moderates, there is room for a technical upgrade in high-quality tech stocks.

The vision for eToro is and will therefore be: Keep spreading. As an investor, in this time of stock market uncertainty, don’t play the hero by taking unnecessary risks, but stay invested so you don’t miss out on a possible quick recovery.

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