We have gone through about a week of earnings season but many important companies have already reported. Notably, big tech reports from Google, Microsoft, and Meta (Facebook) were all impressive. Microsoft and Meta were especially impressive, with beats on the top and bottom line. Google's was less amazing but still decent. Amazon's report was decent which caused a 10% pop after-hours after reporting, but it swiftly gave up its gains after expressing worries about decelerating growth in AWS (Amazon's cloud business) on the conference call.
I think we've reached the point where negativity in tech stocks in general is already priced in and good earnings reports will be rewarded. Also, as of yet, we don't see any meaningful decline in ad spending (in Meta or Goog's earnings) that signal an impending recession, or a meaningful decline in enterprise software spend (in Msft's earnings). So far, earning reports from Q1 2023 from these tech behemoths have shown why they were investor favorites for over a decade, and perhaps why some of the fears around tech stocks might be overstated. From a valuation perspective, Google and Meta are back around 20 PE which is a more reasonable and fair number than the low to mid teens multiples they were at a few months ago. Microsoft is significantly more expensive at roughly 30 PE, which I think is a bit too high to pay for a single-digit growth at peak earnings heading into a probable economic slowdown.
As far as why this matters for investors and practical next steps, these solid tech reports should serve as a reminder to take advantage of extreme pessimism and sell-offs to add to companies that perform well in good times and bad, which, up to this point, include big tech. Also, stock price movements after earnings do not necessarily mean that a report was "good" or "bad," but can also be caused by the good or bad news already baked into the stock price going into the earnings report.
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