The tech giants of Silicon Valley, including Amazon (AMZN), Alphabet (GOOGL), and Microsoft (MSFT), saw their month-long rally halted today as their most recent quarterly earnings left a sour taste in investors’ mouths. All the stocks were down in morning trading. The only one that evantually changed its course after last night’s results was Apple stock, which is up today. That is despite the company’s first miss in 6 years.
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While e-commerce giant Amazon delivered mixed Q4 results, it warned that it may not deliver a profit in Q1 and expects operating profit to break even or be approximately $4 billion versus $3.7 billion in the same period last year. More importantly, the growth rate for its cloud services (AWS) slowed down to 20% year-over-year in Q4 versus a growth rate of 28% in the prior quarter. This equated to AWS revenue of $21.4 billion.
The company’s management warned on its earnings call that it expected cloud growth to slow down over the coming quarters as its customers tightened their spending when it comes to cloud infrastructure.
Amazon is looking at streamlining its operations through cost-cutting measures resulting in the layoffs of 18,000 of its employees. The company’s CEO, Andy Jassy commented, “In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon.”
Morgan Stanley analyst Brian Nowak, however, remained bullish on the stock in the face of these uncertainties with a Buy rating, while also raising the price target to $150 from a prior $140. The analyst’s price target implies an upside potential of 38.5% at current levels. The analyst commented on the results, “While we are reducing our ‘23/’24 AWS revenue by ~6%… we believe the long-term business opportunity remains intact.”
Apple Delivers First Profit Miss Since 2016
AAPL’s fiscal Q1 sales were a big disappointment as they dropped in every category except in the category of services and iPads. The company had weak iPhone sales in the first quarter (a seasonally strong quarter) as stringent lockdowns in China disrupted production. However, Apple’s CEO Tim Cook told Reuters that these disruptions seem to be behind it and “production is now back where we want it to be.”
Another headwind for the company in Q1 proved to be a strong U.S. dollar that dragged down its sales by 8%. AAPL derives more than 50% of its revenues from international markets. CEO Cook termed this 8% currency exchange fluctuation as a “very severe headwind.” The company expects these currency headwinds to continue into the March quarter with a negative impact of 5%.
Interestingly, when it comes to AAPL’s different revenue categories, it expects all its categories except for Mac and iPad to register a rise in revenues in fiscal Q2. The company’s management stated on its earnings call, “For Mac and iPad, we expect revenue for both product categories to decline double digits year-over-year because of challenging compares and macroeconomic headwinds.”
The company has projected its gross margin to be between 43.5% and 44.5% in the March quarter. The earnings miss aside, Wall Street analysts remain bullish about AAPL’s growth story.
Evercore ISI top-rated analyst Amit Daryanani reiterated a Buy rating and a $190 price target on the stock, implying an upside potential of 21.2% at current levels. The analyst commented, “This print and guide continues to validate not just the diversity of AAPL’s revenue stream but also highlights the ‘consumer staple’ nature of iPhones vs. investor perception of iPhones as a discretionary technology product.”
Even the other tech biggies, including GOOGL and MSFT, have delivered dismal calendar Q4 results and have forecast a gloomy outlook.
The Invesco QQQ ETF fund (QQQ), which gives investors access to the tech biggies listed on the Nasdaq 100 (NDX) index, has dropped by more than 14% in the past year.
