Technology stocks on the Nasdaq exchange.
Peter Kramer | CNBC
The Nasdaq just completed a fifth week of gains, jumping 3.3% over the past five days. It’s the longest weekly winning streak for the tech-laden index since the period ended in November 2021. Coming off its worst year since 2008, the Nasdaq is up 15% through early 2023.
The last time tech stocks soared this long, investors were gearing up for the electric car maker Rivianov blockbuster IPO, the U.S. economy was coming off its strongest year of growth since 1984 and the Nasdaq was trading at a record high.
This time there was much less champagne. Cost-cutting has replaced growth on Wall Street’s checklist, and tech executives are celebrated for efficiency rather than innovation. The IPO market is dead. Redundancies abound.
Earnings reports were the story of the week, with results coming from many of the world’s most valuable technology companies. But the numbers, for the most part, were not good.
an apple missed the estimates for the first time since 2016, parent Facebook Meta recorded the third consecutive quarter of revenue decline, Googlethe core advertising business has shrunk Amazon ended its weakest year for growth in its 25-year history as a public company.
While investors had mixed reactions to individual reports, all four stocks closed the week with solid gains Microsoftwhich reported earnings the previous week and issued lackluster guidance forecasting revenue growth of only about 3% this quarter.
Cost control is king
The Meta was the highest of the bunch this week, with the stock soaring 23%, its third best week ever. In Wednesday’s earnings report, revenue slightly beat estimates, even with year-over-year sales declines, and a first-quarter forecast roughly in line with expectations.
Key to the rally was CEO Mark Zuckerberg’s earnings call that 2023 would be the “Year of Efficiency” and his promise that “we are focused on becoming a stronger and more agile organization.”
“It’s really been a game changer,” Stephanie Link, chief investment strategist at Hightower Advisors, said in an interview with CNBC’s “Squawk Box” Friday.
“The quarter itself was OK, but they finally turned to religion thanks to cost cutting, and that’s why I think Meta really took off.”
Zuckerberg acknowledged that times are changing. From the time of its IPO in 2012 to 2021, the company grew from 22% to 58% per year. But revenue fell 1% in 2022, and analysts expect growth of just 5% in 2023, according to Refinitiv.
On the earnings call, Zuckerberg said he doesn’t expect the decline to continue, “but I also don’t think things will go back to the way they were before.” Meta announced in November that it would cut 11,000 jobs, or 13% of its workforce.
Link said the reason Meta’s stock bounced so big after earnings is because “expectations were so low and the valuation was so compelling.” The stock lost nearly two-thirds of its value last year, far more than its mega-cap peers.
Navigation in “very difficult conditions”
Apple, which fell 27% last year, is up 6.2% this week despite gug, it was the sharpest drop in revenue in seven years. CEO Tim Cook said the results were hurt by a strong dollar, manufacturing issues in China affecting the iPhone 14 Pro and iPhone 14 Pro Max, and the overall macroeconomic environment.
“Apple is doing pretty well in a very challenging environment overall,” Dan Flux, an analyst at Neuberger Berman, told Squawk Box on Friday. “As the months and quarters go by, we will see a return to growth and the market will begin to discount that. We continue to like the name despite these macro issues.”
Amazon CEO Andy Jassy, who will replace Jeff Bezos in mid-2021, took the unusual step of joining an earnings call with analysts on Thursday after his company posted a weaker-than-expected first-quarter forecast. In January, Amazon began layoffs that are expected to result in the loss of more than 18,000 jobs.
“Given that this last quarter was the end of my first full year in this role and given some unusual times in the economy and our business, I thought it might be a good time to join,” Jassi said on the call.
Cost management has become an important topic for Amazon, which expanded rapidly during the pandemic and later admitted it had hired too many people during the period.
“We are working very hard to optimize our costs,” Jassi said.
Alphabet is also in downsizing mode. Last month, the company announced 12,000 job cuts. The fourth-quarter revenue miss included disappointing YouTube sales due to lower ad spending and weakness in the cloud division as companies tighten their belts.
Ruth Porat, Alphabet’s chief financial officer, told CNBC’s Deirdre Bossa that the company is significantly slowing its hiring pace to ensure long-term profitable growth.
Alphabet shares ended the week up 5.4% even after giving up some gains during Friday’s selloff. The stock is now up 19% for the year.
Ruth Porat, CFO of Alphabet, at WEF in Davos, Switzerland, May 23, 2022.
Adam Galitsa | CNBC
If the Nasdaq continues its uptrend and achieves a sixth week of gains, it would match the longest rally since the period ending in January 2020, just before the Covid pandemic hit the US
Investors will now turn to the earnings reports of smaller companies. They will hear some names next week Pinterest, Robin Hood, Confirm and Cloudflare.
Another area in technology that flourished this week is the semiconductor space. Like consumer technology companies, Wall Street hasn’t seen much growth.
AMD beat sales and profit on Tuesday, but analysts forecast a 10% year-over-year drop in revenue for the current quarter. Intel, AMD’s main competitor, reported a disastrous quarter last week and predicted a 40% decline in sales in the March quarter.
However, AMD jumped 14% for the week, while Intel rose nearly 8%. Texas Instruments and Nvidia also achieved good results.
The semiconductor industry is dealing with a glut of extra parts from PC and server makers and falling prices for components such as memory and CPUs. But stocks are recovering from a dismal 2022 on signs that easing Federal Reserve rate hikes and lower inflation numbers will give companies a boost later this year.
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