Apple, Alphabet Earnings Fuel Megacap Stock Recovery

(Bloomberg) -- Earnings reports from the biggest technology companies show that the group is navigating the tough economic environment better than smaller rivals, fueling a rebound in stock prices and encouraging investors about the outlook for the second half.  

Results from companies including Amazon.com Inc., Alphabet Inc. and Microsoft Corp. have lifted the Nasdaq 100 Index by 11% in July, adding about $1.5 trillion to its market value and putting it on a pace for its biggest monthly advance since November 2020. Facebook owner Meta Platforms Inc. has been the notable exception. 

“The leading companies have been putting up some of the better numbers this season, and their position as secular growth leaders still seems intact,” said Mitch Rubin, chief investment officer at RiverPark Funds. “It has been an incredibly painful road, in terms of sticking it out and owning these names, but I think this quarter marks an important inflection point.”

Here’s a look at the megacap results that came out this week:

Apple Inc.

The iPhone maker’s results beat expectations, in what was seen as a relief given concerns over supply chain issues and falling consumer spending. The stock gained 2.1% on Friday. It has risen 18% in July, its biggest monthly gain since August 2020.

Apple is showing signs of supply chain improvements in China, which bodes well for the coming period, which are seasonally its biggest quarters, Bloomberg Intelligence analyst Anurag Rana said. 

Microsoft

The initial reaction to Microsoft’s report was decidedly mixed, after both sales and earnings came in below expectations, hurt by foreign-exchange headwinds, an issue it had warned about in early June. However, the stock saw a dramatic turnaround after it gave a robust forecast for the fiscal year, with revenue and operating income seen increasing at a double-digit pace.

That Microsoft, which has a market value above $2 trillion, can steadily deliver such sizable growth is a key reason why investors continue to gravitate toward the stock.

“We’re still looking for growth, but the number of choices we have for that is rapidly narrowing,” said Patrick Burton, a portfolio manager at Winslow Capital Management, which oversees about $26 billion. “In this uncertain environment, we’re narrowing our focus to the names that can meet expectations or guide in line. That means names like Microsoft, Alphabet or Amazon.”

Shares rose 0.3% on Friday.

Alphabet

The Google parent reported revenue that was roughly in line with expectations, easing concerns about the market for online advertising. Those concerns had risen after a disastrous report from Snap Inc., although Alphabet’s Search business pointed to resilience even in a weaker backdrop.

“Search is doing much better than other forms of digital ads, so it didn’t see the weakness that Meta or Snap saw,” said Winslow’s Burton. The stock is attractive at about 17 times estimated earnings, he said. That’s below its 10-year average and the Nasdaq 100’s multiple of 21 times.

“I think you’ll see both growth and value investors moving into Alphabet,” he said.

Alphabet Rises With Search a Bright Spot of Results: Street Wrap

Shares fell 0.1% on Friday but are up 4.6% in July. It is on track for its first positive month since March, as well as its biggest monthly gain since October.

Amazon.com

The e-commerce company delivered a blowout report and gave a strong sales forecast, easing concerns about the impact that inflation is having on consumer spending. The stock gained 11%. For the month, it is up about 28%, putting it on track for its biggest one-month gain since 2007.

Meta Platforms Inc.

The Facebook parent has struggled throughout 2022, and this week’s results did little to change that narrative. The company reported its first drop in revenue ever and forecast a further fall in sales in the current period. 

Meta’s outlook did not look as dire as that of Snap, but it is also not proving to be as resilient as Alphabet’s Search business as the economic backdrop weakens.

Shares fell 1.8% on Friday. For the month, Meta is down 2% and on track for a fourth straight monthly decline. That would represent its longest such streak since 2018. 

Tech Chart of the Day

Meta’s losses have pushed the company out of the country’s list of the 10 largest companies by market value. Meta is down almost 60% from its peak in September; the market value lost by the company since then would represent the sixth-biggest company in the US, according to data compiled by Bloomberg. 

Top Tech Stories

• Apple’s fiscal third-quarter revenue and profit narrowly topped analysts’ estimates, with iPhone sales holding up better than expected. Though Chief Executive Officer Tim Cook decried a “cocktail of headwinds” hampering Apple’s business, he predicted that sales would begin to pick up in the coming months.
  • Apple will be “deliberate” with spending decisions as it confronts an economic slowdown, Cook said in an interview with Bloomberg Television.
• Global smartphone shipments fell to their lowest quarterly number in two years after consumer confidence was sapped by inflation and recession fears.
• Amazon showed its e-commerce and cloud-computing businesses can churn out revenue even as consumers worry about inflation and the company gets serious about curtailing expenses.
  • Amazon will continue to hire software engineers, particularly for its Amazon Web Services and advertising businesses, but will be cautious about hiring for other departments, Chief Financial Officer Brian Olsavsky said.
• Intel Corp. Chief Executive Officer Pat Gelsinger slashed sales and profit forecasts for the rest of the year, conceding that the struggling chipmaker needs more time to make its products competitive while assuring investors that the current quarter will be the nadir.
• Xiaomi Corp. is facing difficulties getting regulatory approval for its electric vehicle project in China, an unexpected hurdle for the smartphone giant’s $10 billion carmaking endeavor.
• Elon Musk said in Twitter posts that inflation might be trending down, noting that more Tesla Inc. commodity prices are trending down than up.
• Roku Inc. slumped 25% in late trading after saying advertisers are pulling back on spending due to economic concerns, adding to jitters about the slowing growth of marketing budgets.
• Hollywood movies will start playing in China again this year, with one of the most anticipated new films, “Avatar: The Way of Water,” among those likely to get released there, Imax Corp. Chief Executive Officer Rich Gelfond told investors Thursday.
• Hosiden Corp., a major assembler of Nintendo Co.’s Switch console, withdrew its fiscal year sales forecast, citing difficulties procuring electronic components.
• Krafton Inc. plunged its most in more than five months after India ordered Google to remove its blockbuster Battlegrounds Mobile game from app stores, spurring concerns about whether foreign firms can compete in the growing market.

(Updates to market open.)

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