Earnings Remain Key Risk for Tech Stocks After Worst Year Since 2008
Relieved to have turned the page on the worst year for stocks in more than a decade, investors are finding that pricey share valuations and shrinking earnings still stand in the way of any swift bounceback for Big Tech.
While price-earnings multiples have come down from their peaks during the pandemic, many of the market’s biggest names continue to look expensive. At the same time, the profit outlook is weakening and the economy could be headed toward a recession as the Federal Reserve aggressively raises interest rates to combat inflation.
The Nasdaq 100 Index rose 1.1% on Monday.
There are also risks to key businesses, such as supply constraints for Apple Inc.’s iPhone or weakness in online advertising for Alphabet Inc. and Meta Platforms Inc. A slowdown in business spending could mean weaker trends for cloud computing, a key driver at Amazon.com Inc. and a risk UBS Group AG warned about in downgrading Microsoft Corp.
The confluence of a weak backdrop and shaky fundamentals suggests corporate earnings, the primary driver of stock prices, could disappoint. Last week, profits at tech bellwether Samsung Electronics Co. dropped by the most in more than a decade.