Premarket Stocks: Tech Earnings Could Ruin Wall Street Party

Premarket Stocks: Tech Earnings Could Ruin Wall Street Party

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Big tech earnings are here, and investors are hoping they don’t ruin the good mood on Wall Street.

Markets are having one of their worst years on record but have been positive for the first few weeks of 2023. Three huge tech earnings reports this week — Microsoft (MSFT), Tesla (TSLA), and Intel (INTC) — could change that.

What to expect: Microsoft lost $737 billion in market value last year, the third largest decline of all companies in the S&P 500. Last week, the company said it would lay off 10,000 employees and charge $1.2 billion in the second quarter related to those job cuts, impacting earnings by 12 cents per share.

Microsoft CEO Satya Nadella delivers a keynote speech at a hotel in Seoul, South Korea on November 15, 2022.

But investors cheered Microsoft on Monday after it confirmed it was making a “multibillion dollar” investment in OpenAI, the company behind viral new AI chatbot tool ChatGPT. Wall Street sent the stock up about 1%. But that doesn’t mean the company’s fourth-quarter earnings report will be pretty later Tuesday.

Wall Street expects Microsoft to have made $2.30 per share on revenue of $52.99 billion. In the prior-year quarter, earnings were $2.48 per share on sales of $51.73 billion.

On Wednesday Tesla report the result after the bell.

Shares in the company fell to a 52-week low of around $101 last month, but the stock has since risen more than 40% to $144, even as Tesla released less-than-expected numbers for production and Deliveries published in the fourth quarter. Investors have worried that CEO Elon Musk may be overwhelmed by his takeover of Twitter and may have to fund the $44 billion purchase by selling more Tesla stock.

Still, Wall Street expects Tesla’s earnings to grow, albeit not at the explosive pace of recent years. Tesla is forecast to earn $1.14 per share on revenue of $24.22 billion. Last year, the company reported 85 cents a share on revenue of $17.72 billion.

Intel will follow with gains Thursday afternoon.

The chipmaker’s stock has fallen 50% over the past 12 months, struggling with continued supply shortages, recession risks and weaker demand.

Intel is expected to make 20 cents a share on revenue of $14.48 billion. In the same quarter last year, earnings were $1.09 per share on sales of $19.53 billion.

The big picture: The biggest tech companies learned an important lesson last year — the only thing harder than getting to the top is staying there.

The sector was a popular safe haven for traders during the peak of the pandemic. In 2021, the combined annual sales of Amazon, Apple, Alphabet, Microsoft and Facebook (now Meta) were $1.2 trillion – up 25% from pre-Covid levels.

As companies closed and people – cut off from the physical world – retreated deeper and deeper into their digital lives, tech stocks soared. Apple had so much cash on hand that it ended up repurchasing $90 billion of its own stock. Eight of the ten richest people in the world made their money from technology.

Now fate has turned. High inflation and high interest rates have hit tech companies, which expected the pandemic-era growth to continue into the future. As a result, technology’s share of the overall S&P 500 value is shrinking: Apple (AAPL) and Amazon (AMZN) each lost more than $830 billion in market cap in 2022.

Heading into 2022, just four names — Microsoft, Apple, Amazon, and Google — made up about 22% of the entire S&P 500. Today that number is closer to 17%.

This downward trend is likely to continue, analysts say.

Revenue growth for these mega-cap tech stocks averaged an 18% annualized rate between 2010 and 2021, compared to just 5% overall growth for the S&P 500. Analysts at Goldman Sachs predict tech growth will slow to 9% between 2021 and 2024, while revenue growth for the entire S&P 500 hits 7%.

It’s pretty clear that the past year hasn’t been good for most investors. But some on Wall Street (and in Florida) managed to weather the odds.

Citadel is now the highest-performing hedge fund of all time, having raised $16 billion last year – the biggest annual windfall on record, reports my colleague Anna Cooban.

The Miami-based fund, founded and operated by Ken Griffin, topped the 2022 ranking of the world’s top-performing hedge funds based on estimates by LCH Investments NV.

Citadel’s record-breaking performance over the past year has taken total returns for the fund to nearly $66 billion since inception. That ousted Ray Dalio’s Bridgewater — with earnings of $58.4 billion — from the top spot for the first time in seven years.

Dalio’s fund earned $6.2 billion last year, bringing total assets under management to $81 billion. Citadel has $62 billion in assets under management.

How did you do that? The answer is pretty vague.

Rick Sopher, chairman of LCH Investments, said in a press release on Monday that Citadel does not rely on an investment strategy tied to rising asset prices and has “multiple sources of profit,” two factors that may explain its record profit despite the volatility that has driven markets over the past Year.

It’s not about a single trade, Citadel trades everything from stocks to commodities and also made money on its fixed income and macro, quant and credit strategies.

Citadel told CNN it would not comment on any story related to its performance.

The future looks pretty bleak for the American workforce: most business economists expect their companies to cut payrolls in the coming months, according to a new survey released Monday.

Only 12% of economists surveyed by the National Association for Business Administration (NABE) expect employment to increase in their companies over the next three months, compared with 22% in the autumn.

According to my colleague Matt Egan, the proportion of economists who expect wages in their companies to fall rose to 19% according to the survey.

NABE said this is the first time since 2020 that more respondents expect employment at their companies to fall rather than grow.

The findings indicate “widespread concern about entering a recession this year,” Julia Coronado, president of NABE and president of MacroPolicy Perspectives, said in the report.

In recent weeks, the economy has been hit by a series of layoffs, including those announced by Spotify on Monday. This follows even deeper job cuts last week by Alphabet and Microsoft.

The bottom line: Despite the layoffs, government statistics paint a picture of a historically strong job market. The unemployment rate is at its lowest since 1969 and initial jobless claims unexpectedly fell to 15-week lows.

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