Investors brace for another crucial earnings cycle from Big Tech giants as their share prices near record highs and valuations reach stretched levels. Despite projected profit growth at its slowest pace in nearly two years, optimism remains high due to the companies' significant investments in AI. However, analysts warn that the group faces pressure to meet sky-high expectations and that valuations may not be sustainable.
Investors are heading into yet another pivotal Big Tech earnings cycle with the companies’ shares near record highs and valuations stretched. A key distinction this time: The group’s profit growth is projected to come in at the slowest pace in almost two years.
“This should be a fairly good earnings season, but the bar has been raised and they may not be able to live up to high expectations,” said Dan Taylor, chief investment officer at Man Numeric. “It will be very difficult for the group to perform the way it did last year, especially as valuations have increased.”
Bloomberg Intelligence’s Michael Casper sees cause for concern. With the tech sector’s share of the S&P 500’s market value eclipsing its share of profits by about 10 percentage points, the equity strategist worries that either earnings growth has to improve or valuations need to drop. When looking at prices relative to anticipated sales, valuations look even more precarious.
Microsoft, Alphabet, Amazon and Meta are projected to have spent more than $200 billion combined on capital expenditures in their last fiscal year, and they’ve all pledged to spend more in the current year. In addition to growth in AI-related revenue, investors will be monitoring spending forecasts.
BIG TECH EARNINGS MARKET VALUATION AI INVESTMENTS PROFIT GROWTH
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