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Big Tech profits are here, and investors hope they don’t ruin the good vibes on Wall Street.
Markets are coming off one of the worst years in their history, but have been positive in the first few weeks of 2023. Three mammoth tech earnings reports this week: Microsoft (MSFT), Tesla (TSLA) and Intel (INTC), they could change. that.
What to expect: Microsoft lost $737 billion in market value last year, the third-biggest drop of any company in the S&P 500. Last week, it announced it would lay off 10,000 employees and take a $1.2 billion charge related to those job cuts in its second quarter, hurting earnings by 12 cents a share.
But investors cheered Microsoft on Monday after it confirmed it is making a “multi-billion dollar” investment in OpenAI, the company behind the new viral AI chatbot tool, ChatGPT. Wall Street pushed stocks up 1%. But that doesn’t mean the company’s fourth-quarter earnings report later Tuesday is pretty.
Wall Street expects Microsoft to earn $2.30 per share on revenue of $52.99 billion. In the prior-year quarter, earnings were $2.48 per share on $51.73 billion in revenue.
On Wednesday, Tesla report earnings after the bell.
Shares of the company fell to a 52-week low of around $101 last month, but shares have since soared more than 40% to $144, even as Tesla posted lighter-than-expected figures for production. and fourth quarter deliveries. Investors have been concerned that CEO Elon Musk may be under too much pressure from Twitter’s acquisition of him, and may have to finance the $44 billion purchase by selling more Tesla stock.
Still, Wall Street expects Tesla’s profits to grow, if not at the explosive rate of recent years. He is forecasting Tesla 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 continue with earnings on Thursday afternoon.
The chipmaker’s shares have fallen 50% in the past 12 months and it faces continued supply shortages, recession risks and weakening demand.
Intel is expected to earn 20 cents per share on revenue of $14.48 billion. In the prior-year quarter, earnings were $1.09 per share on revenue of $19.53 billion.
The panorama: 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 height of the pandemic. In 2021, the combined annual revenue of Amazon, Apple, Alphabet, Microsoft, and Facebook (now Meta) was $1.2 trillion, up 25% from pre-COVID-19.
As companies shuttered and people, cut off from the physical world, withdrew deeper into their digital lives, tech stocks soared. Apple had so much cash on hand that it ended up buying $90 billion of its own stock. Eight of the 10 richest people in the world made their money from technology.
Now, there has been a change of fortune. High inflation and interest rates hit hard for tech companies that expected pandemic-era growth to continue into the future. As a result, technology’s share of the total value of the S&P 500 is shrinking: Apple (AAPL) and Amazon (AMZN) each lost more than $830 billion in market capitalization in 2022.
Going into 2022, just four names — Microsoft, Apple, Amazon, and Google — accounted for about 22% of the entire S&P 500. Today, that number is closer to 17%.
That downward trend is likely to continue, analysts say.
Sales growth for those large-cap tech stocks between 2010 and 2021 averaged an annualized rate of 18%, while overall growth for the S&P 500 was just 5%. Goldman Sachs analysts predict tech growth will slow to 9% between 2021 and 2024, while overall S&P 500 sales growth hits 7%.
It’s pretty clear that last year wasn’t very good for most investors. But some on Wall Street (and in Florida) managed to defy the odds.
Citadel is now the most successful hedge fund after it made $16 billion last year, the biggest annual windfall on record, my colleague Anna Cooban reports.
The Miami-based fund, founded and led by Ken Griffin, topped the 2022 ranking of the world’s best performing hedge funds as estimated by LCH Investments NV.
Citadel’s record performance last year brought the fund’s total earnings since its inception to nearly $66 billion. That knocked Ray Dalio’s Bridgewater, with earnings of $58.4 billion, out of 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 manages $62 billion in assets.
How they did it? The answer is quite vague.
Rick Sopher, president 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 earnings,” two factors that may explain its record profit despite a volatile ride through the markets last year.
Not just one trade, Citadel deals in 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 a 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 Economics (NABE) anticipate that employment will increase at their companies over the next three months, up from 22% this fall.
The proportion of economists who expected payrolls to decline at their companies rose to 19%, according to the survey, reports my colleague Matt Egan.
NABE said this is the first time since 2020 that more respondents anticipate a decline, rather than an increase, in employment at their companies.
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.
A wave of layoffs has hit the economy in recent weeks, including those announced Monday by Spotify. That 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 tied for the lowest level since 1969 and initial jobless claims unexpectedly fell to 15-week lows.