It’s a big week for technology stocks, as a rally fuelled by optimism around artificial intelligence technology comes under scrutiny.
Software giant Microsoft kicks off the week’s earnings season with results after the close on Tuesday, followed by Meta Platforms Inc., Amazon.com Inc. and Apple Inc. later in the week. Investors will be closely watching how much companies spend on AI and how much they’ve reaped from those investments.
These large tech stocks have led the market for the past two years but have been overtaken by smaller stocks in recent days. Disappointing earnings from Google-parent Alphabet and other big tech companies last week have prompted many investors to turn away from big tech companies.
“Investors are increasingly concerned about the pace and timing of artificial intelligence (AI) revenues and how that will affect continued investment in AI infrastructure,” UBS analyst Mark Haefele wrote in a Monday note.
Tech stocks have struggled with high expectations, and the reaction to Alphabet’s recent earnings beat has heightened those concerns. But it could also create opportunity.
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“While the tech sector looks expensive after this year’s rally, price-to-earnings multiples remain much lower than in the dot-com era, when the quality of earnings for many tech stocks was much lower…We remain constructive on companies that benefit from AI in the semiconductor, software and internet sectors,” Haefel said.
Microsoft rose 0.3% on Tuesday morning. Tech-heavy stocks
Nasdaq Composite Index
Shares were little changed, down less than 0.1%, ahead of one of the busiest days of the earnings season.
E-commerce giant Amazon.com Inc rose 0.6 percent, while iPhone maker Apple Inc and Facebook parent Meta Platforms Inc rose 0.4 percent and 0.5 percent, respectively. All three companies are due to report earnings later this week.
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Meta is stepping up its AI efforts: Late Monday, the company released a new tool called AI Studio that lets users create personalized AI chatbots and share them with others. The tool is based on the latest version of the Llama 3 AI model released last week.
Nvidia fell 3.1%, while Alphabet rose 0.5%. Google’s parent company Alphabet may be under investigation in the UK after the Competition and Markets Authority asked officials to comment on whether its partnership with AI company Anthropik could lessen competition.
This week’s results could determine whether the market pulls back from Big Tech. On the one hand, investors may find tech valuations more attractive after last week’s selloff, especially if companies show signs of revenue growth on the back of AI investments. On the other hand, the enthusiasm for AI of the past few years could fizzle out if companies can’t show how they can eventually make money with it.
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Which one will you bet on?
Contact Elsa Ohlen at elsa.ohlen@barrons.com.
