Weekly Brief: Big Tech Could Make Investors Think Twice

The Federal Reserve’s latest decision and Meta’s most recent results had investors floating on clouds – but the rest of Big Tech did their best to pull them back down to Earth.

🕰 Recap

• The Federal Reserve (the Fed) announced its rate decision on Wednesday, giving markets something to smile about
• Then Facebook-parent Meta revealed its decent fourth-quarter results, and CEO Mark Zuckerberg was back on form during the conference call
• But on Thursday, Meta’s Big Tech brethren announced some dreary results

✍️ Connecting The Dots

The Fed’s actual interest rate decision is just a warm-up one-sided affair, with the outcome – a 0.25 percentage point increase in this case – telegraphed in advance. The real showpiece is the press conference, where financial journalists pick apart the speech from the Fed’s chairman. And analyze, they did: one nameless commentator noted the chairman’s newly relaxed style while talking about inflation, explaining “it’s not what he said, it’s how he said it”. And the market seemed to agree that the chairman’s breezy tone implied confidence that inflation’s under control, which could signal the end of rate hikes – so stocks rallied, and hard.

Then Meta came along to add to the excitement: the tech heavyweight reported better-than-expected fourth-quarter results, which only compounded the market’s glee after the Fed conference. Meta’s advertising revenues were lower than the same time last year, sure, but the CEO’s constant references to artificial intelligence (AI) on the conference call – as well as some new-found cost discipline and a less dogmatic approach to the metaverse – sent Meta’s stock price flying by 23%.

And after that, all eyes turned to the triple-A header on Thursday night when Apple, Amazon, and Alphabet reported their results. In fairness, the numbers were always likely to be a bit of a letdown after the giddiness of the previous two days. So when Apple revealed its first revenue dip since 2019, Alphabet announced ongoing challenges with YouTube, and Amazon admitted worse-than-expected cloud revenues, investors initially sent all those firms’ stocks down. And if nothing else, that’s a reminder that 2023’s unlikely to be a smooth ride.

🥡 Takeaways

1. Ready, tech, go.

Something’s brewing in the tech world. Sure, most of the old pandemic flyers are still way down on their highs from then, but some – like Nvidia – have been roaring back. And that isn’t down to any short-term boom: most tech firms are grappling with the same economic slowdown as everyone else. Instead, the momentum could be a result of growing excitement around AI – after all, the CEOs of Alphabet, Meta, and Microsoft all rattled on about the technology on their earnings conference calls. Now, it’s too early to tell whether AI-themed stocks are set for instant success, so investors should be on the lookout for some volatility.

2. Time to play a game.

Let’s say the Fed steers the US economy to a soft landing, and company profit barely drops this year – that’s what the market’s currently expecting. Then let’s imagine that the AI theme really picks up, and Big Tech firms scramble to rehire the workers they’ve just laid off. That could result in the start of a new economic upcycle when unemployment’s at record lows. With that unusual combo, we might see upward pressure on wage growth as firms pump salaries to attract staff – right around the time the market thinks inflation’s been slayed, too. All that would probably mean much higher rates. And sure, that might seem too far in the future to think about, but every good chess player’s at least several moves ahead.

🎯 Also On Our Radar

It looks like ChatGPT’s ready to steal everyone’s jobs – including at Alphabet: the bot has the potential to rival Google Search, so its sudden popularity has given the tech titan a kick up the proverbial backside. So if Alphabet has any super-smart tricks up its sleeve, this might be the time to bring them out.