US tech woes



It has been a difficult week for equity markets across the board, especially for the US growth tech giants, which have experienced large drawdowns this year. Many international companies are being hit due to an aggregate of negative news: US gasoline prices seeing new highs, supply constraints, fears over a recession and in particular a strong dollar.

The earnings season for Q1 2022 in the US finished at the end of April, but results don’t reflect the negative moves we have seen in markets to date, with largely positive reports being made. Below is a roundup of the big tech names that have fallen in the past few months.

Apple (YTD -19.7%)

Apple’s Q1 results exceeded expectations across the board. The company generated a total revenue of $97.3 billion in the period (+8.6% year-on-year (YoY)), beating a consensus expectation of $94 billion. One of the rare large US tech stocks that is still outperforming the S&P 500 year-to-date.

Supply constraints caused by COVID-related disruptions are impacting their ability to meet consumer demand for products and this is particularly true for iPads. The Covid-related disruptions in China are also having an impact on demand.

Microsoft (YTD -24.1%)

Despite losing nearly a quarter of its value this year, Microsoft’s consolidated revenues grew by 18% YoY, beating the consensus estimates. This is the fourth year of consecutive double-digit quarterly revenue growth. Reassuring results drove a solid rally for the stock (+4%) the following day.

Amazon (YTD -35.9%)

Amazon was a clear winner during the pandemic when everyone was forced to shop online. Comparing earnings today with those seen during the heights of the pandemic was always going to be a tough ask. Nevertheless, Amazon’s earnings release for Q1 2022 did not justify the fall seen in the markets.

Revenue rose 7% YoY, compared to a 44% rise seen in Q1 2021. However, the revenue from Amazon’s online store fell 3%. This was only the second decline of revenue for Amazon, the first being in Q4 2021.

Amazon Web Services continued to grow (making up 30% of Amazon’s revenues) and is now becoming a large part of the overall income mix. This rise is slowly reducing Amazon’s exposure to online shopping.

Alphabet (YTD -22.1%)

Growth for Google has slowed quarter on quarter but is still in line with its pre-pandemic growth rate. Nine business segments for Google have now surpassed the one billion user mark (Android, Gmail, Google Drive, Google Maps, Search, Google Photos, etc.), and revenue is still growing at 20%+ per annum, which is remarkable at this level.

Bowmore Portfolios

These tech names have seen robust growth over recent years, especially during the Covid pandemic, which brought earnings forward for a lot of these companies. Markets have been re-rating these stocks year to date and they, along with the wider market, now trade at much more appealing valuations.

Within our diversified portfolios we do hold exposure to these sorts of tech names, as they represent a quality growth bias that remains attractive to our active managers, who will see opportunities in these volatile periods. As the macro backdrop shifts and some of the current challenges become clearer, investors will have time to take a breath and fundamentals will be allowed to drive sentiment further.

Source: Refinitiv – Market returns as at 12/05/2022

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