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Trillion-dollar tech companies to report results amid January slump

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The largest U.S. corporations are about to report their earnings. Investors have two choices when considering the technology sector.

MicrosoftThe bell will ring on Tuesday at 5:00 PM. TeslaOn Wednesday, AppleThe day that follows. Amazon, Meta AlphabetEach report next week. Stocks are down between 9% to 15% this year.

The bull thesis remains the same despite the current slump.

The digital revolution in the world has just begun. It still faces decades of growth, be it from the shift to electric cars, the increase in demand for connected devices, or even the advent of the crypto-economy. In the next few years, cloud computing and artificial intelligence are expected to transform all industries. This will require unprecedented investments in cybersecurity. Tech’s top performers are set to take huge chunks of business and consumer spending.

In the meantime, high-growth tech stocks have been impacted by the bears, especially those that rose during the pandemic. As the economy opens, investors are seeing inflationary pressures. awaiting interest rate hikes from the Federal Reserve. With the increasing number of people staying at home, stocks of these are falling. Peloton, Zoom NetflixEach taking incredible hits in recent months.

Tech has a rough start

Investors have abandoned tech stocks in the first three weeks after the start of the year. This was the largest one-week fall in Nasdaq since 2020, which dropped 7.6%. This is the worst index start in 2022. It has fallen 12%. through the first 15 trading days since 2008.

It expectation of rising interest ratesInvestors are fleeing to less-risky places and away from growth. said Lo Toney, managing partner for investment firm Plexo Capital.

“We have the multi-sector investors who are moving out of tech, because with a rising interest rate environment, they typically move over to other sectors that benefit from rising interest rates — financials, insurance,” Toney said on CNBC.We see that tech stocks and growth stocks are particularly affected by high interest rates.

Satya Nadella, Microsoft’s CEO, listens to a question from an audience member during its annual shareholder meeting held in Bellevue (Wash.) on November 30, 2016.

Getty Images| Getty Images News | Getty Images

Toney stated that tech companies are most at-risk if they focus on increasing revenue rather than profit.

Apple and Microsoft have had strong earnings results, which supports the theory that tech’s top companies can perform regardless of economic circumstances. They are not only more resilient to recessionary, or inflationary, pressures but their stock multiples also remain reasonable on an historical basis.

Toney explained that companies who have been manipulated by hype or the promise of future profit are not in the best position.

Toney said, “When you think about investors valuing growth stocks they look outward and then discount back.” A rising interest rate environment means that capital costs are higher, which can reduce the value of some margins.

Dan Ives from Wedbush who is an analyst covering a large number of stocks in tech, said in a report that investors have become more focused than ever on the future earnings results. The selloff in the sector has been broad, setting up a potential buying opportunity for investors who can use the drop to scoop up quality companies — but only if their earnings give them reason for hope.

Ives wrote that “the underlying growth drivers in the tech sector today are unmatched by anything we’ve seen since the mid-90s” and were not priced into stock prices at these high levels.

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