When you are a valued stock greatness but only deliver one Super good earnings report, investors sometimes get upset.
This is the case for the first revenue harvest of technology giants Microsoft (MSFT), Advanced micro-systems (AMD) and the alphabet (GOOG, GOOGLE). The three stocks (with a combined market cap of $5.2 trillion) have been instrumental in propelling the broader market to record highs over the past year, but are weakened after income statement late Tuesday.
The moves “signal some overextension of the recent strong recovery,” Deutsche Bank strategist Jim Reid said in a client note seen by Yahoo Finance.
At first glance, negative stock price movements seem counterintuitive to the average investor who has driven these tech giants to massive gains on paper.
But here’s the deal, as President Biden would say.
This average investor probably read the earnings releases of these flagship companies last night. I will say that a good percentage of them listened to the earnings calls (which you should do!).
As of 7 p.m. last night, with a full page of notes, many investors still can’t understand why these stocks are being dragged into downdrafts.
All three companies posted impressive growth numbers (especially AMD, with data center sales up 38% year-over-year and up 75% over chip sales estimates). ‘AI for 2024), once again highlighted the AI bandwagon (a surefire ticket to stock gains last year), and didn’t really sound the alarm on the economy.
So what happens ?
The reality is that none of these neighborhoods have been Perfect compared to investors’ expectations perfection. And believe me, investors have valued these stocks perfectly: according to data from Yahoo Finance, these three stocks trade on an average forward P/E multiple of 35 times. The S&P 500 trades at 22 times, to give perspective.
According to some sources, the mood coming from these earnings is that growth is good due to the expansion of new AI tools and other businesses, but not incredibly good.
Microsoft’s results revealed a certain caution regarding the economy, professionals say.
“Even though Microsoft’s early Q2 2024 results for the two largest businesses (Azure and Office 365 Commercial) were slightly above consensus expectations (and forecasts), they were a bit lower than our plausible scenario. predicted, indicating a slight moderation. business dynamics,” Guggenheim analyst John DiFucci wrote in a note to clients.
Google missed estimates for its ad revenue (from search and YouTube), and its cloud business was no match for its biggest rival Microsoft’s Azure.
Analyst Jefferies Brent Thill noted on Alphabet: “Strong advertising demand led to accelerated double-digit growth in search and YouTube, although tepid compared to some investor bogeys. Cloud growth has re-accelerated, but remains below Azure.
As for AMD, its gaming chip sales fell 17% from the previous year, and the forecasts failed to impress the masses of investors.
“This knee-jerk reaction (to technology outcomes) is noise, the AI revolution has begun,” Wedbush analyst Dan Ives told me by email.
Maybe.
But all things considered, Apple (AAPL), Meta (META), NVIDIA (NVDA), and other members of the “The Magnificent Seven” will have to do better than Microsoft, AMD and Alphabet to impress investors demanding excellence combined with a side of perfection.
If they don’t, 2024 could become the year of the UnMagnificent Seven.
Brian Sozzi is the editor-in-chief of Yahoo Finance. Follow Sozzi on Twitter/X @BrianSozzi and on LinkedIn. Any advice on deals, mergers, activist situations or anything else? Email brian.sozzi@yahoofinance.com.
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