Big Tech, the stock market’s most reliable engine during the COVID-19 pandemic, faltered on Friday after a flurry of quarterly financial results from the likes of Apple Inc., Facebook Inc., Amazon.com Inc. and Twitter Inc. raised concerns about lofty share prices and pandemic-fuelled uncertainty ahead.
The tech-heavy Nasdaq Composite Index fell 2.5 per cent. The broader S&P 500 slipped 1.2 per cent, with technology stocks driving some of the biggest losses at a time when investors are also fretting over the coming U.S. election and the global spike of COVID-19 infections.
“There is a big selloff in those big tech names because they didn’t live up to the hype and people are really worried about next week’s election,” said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh.
Big Tech firms are hardly struggling financially. Amazon, Apple, Alphabet Inc. (Google’s parent company) and Facebook collectively generated total quarterly profits of US$38-billion for the three months ended Sept. 30.
But some details within their results suggested an unclear path toward future growth at a time when tech sector share prices have vaulted ahead of the rest of the market, leaving little appetite for disappointment.
Apple reported its quarterly results after markets closed on Thursday, showing sales and profits above analysts' expectations.
Yet its shares slid 5.6 per cent on Friday, erasing about US$120-billion from Apple’s stock market value, after it reported that quarterly sales in China slipped 29 per cent and iPhone revenue fell 21 per cent. Also, executives declined to provide insight into the final stretch of 2020 – raising alarms over the possible reasons for the lack of guidance that has persisted for three quarters in a row.
“We fully understand the prior two quarters when society was largely locked down due to COVID-19. However, our view is society is gradually getting back to a new normalcy with retail stores, schools, and onsite work locations gradually reopening. So we are a bit surprised Apple did not give an outlook,” Jim Suva, an analyst at Citigroup, said in a note.
Twitter shares plunged 21.1 per cent after the social-media firm – much smaller than Apple, though highly influential – reported that the number of daily users on its site increased by only 1 million, to 187 million, marking its slowest quarterly user growth in about three years. The company also warned that the U.S. election could hamper ad spending in the current quarter.
Amazon saw its share price fall 5.5 per cent on Friday, despite surpassing analysts' expectations with a 37.4-per-cent gain in quarterly sales, year-over-year.
At Facebook, profit surged 29 per cent but warned of a “significant amount of uncertainty” next year. its shares sank 6.3 per cent.
The share price reversals follow a strong period of outperformance for Big Tech companies that benefit from people working and shopping from home, leaving the stocks exposed to potential disappointment from investors.
Prior to Friday’s decline, for example, Twitter shares were up 65 per cent this year and Apple shares were up 55 per cent.
Alphabet kept its momentum going with a 10-per-cent gain in quarterly digital advertising revenue, year over year. The stock, which had been lagging many of its technology peers this year, increased 3.4 per cent on Friday.
Some analysts expect other technology companies to regain their winning ways. Mr. Suva has a “buy” recommendation on Apple, for example, arguing that slow iPhone sales in the near term is a relatively small concern next to the company’s diversification across products and services.
Maria Ripps, an analyst at Canaccord Genuity, raised her price target on Facebook (or where she believes the shares will trade within a year) to US$330 from US$315.
“While the company sees heightened uncertainty in  due to a mixture of economic and regulatory factors, the ongoing shift to digital advertising globally and impressive execution on strategic initiatives should support strong growth going forward,” Ms. Ripps said in a note.
With reports from Reuters
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