Bloomberg News reports that technology stocks over the last month are on a tear; however, on a bigger picture, the sector’s profits have become gloomier. Estimates of the analysts for the profit growth of 2022 during the second quarter earnings have dropped, as per data compiled by Bloomberg Intelligence. For the projections related to 2023, the decline has been bigger as Wall Street gets ready for revenue growth that will be slower and a potential recession.
Profit View Darkening
During a period when there is aggressive hiking of rates by the Federal Reserve and inflation continues to be at an all-time high, the decelerating profit outlook is making investors very skeptical that the Nasdaq 100 index’s furious rally is sustainable.
There has been a gain in the Nasdaq 100 index by 19% since the nearly two-year low closed on June 16th, as of the last week. The better than feared results have fueled the rally from Microsoft Corp’s mega caps, a drop in the yields of the US Treasury, and amidst speculation that the economy might be able to avoid recession. Technology stocks dropped even more than the fundamentals could have justified, as stated by the bulls.
Apple Inc. has gained 27% from the low figures recorded in June and was found to be 10% lower than the January stock record. Amazon.com Inc. has been rallying back by 36% and is a threat to surpassing Alphabet Inc in market value.
Bloomberg News reports that with the stocks dropping and rising of the stocks, the S&P 500 technology sector’s price-to-projected earnings ratio is sitting more than 20% more than the average for the index, as per Michael Casper and Gina Martin Adams, who are strategists associated with Bloomberg Intelligence.
As per the research note, even if the premium is average, it is difficult to justify with the rising rates and negative estimate revisions, and the earnings are anticipated to lag until the latter part of 2023.
Tech News
The Philadelphia Stock Exchange Semiconductor Index has earned a profit for five weeks, which is this year’s longest streak. A series of reports that indicate positive earnings and recovery in tech stocks by the chip companies have helped the index recover from the low phase in July.
The index was plunging by 1% on Monday, following Nvidia Corp issues a revenue forecast for the second fiscal quarter that dropped far below a previous estimate owing to a weaker outlook in the gaming industry.
