Tech stocks see sharpest three-week decline in two years, led by Amazon and Intel

Tech stocks see sharpest three-week decline in two years, led by Amazon and Intel

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Now that the latest quarterly earnings reports from major technology companies are mostly behind us, one thing is clear: Wall Street is restless.

The Nasdaq Composite fell 3.4% this week, extending a three-week slide to 8.8%. That marks the steepest decline for the tech-focused index in such a period since September 2022, when the market collapsed on skyrocketing inflation and rising interest rates, according to FactSet.

Since late 2022, the technology sector has seen a general boom, buoyed by the U.S. economy’s recovery from the pandemic and growing enthusiasm for the potential of artificial intelligence.

The Nasdaq is up 43% last year and 12% year-to-date, hitting a record high last month.

However, the latest earnings season was disappointing, with some companies reporting weaker-than-expected growth and others expressing concerns about potential challenges in developing AI infrastructure.

Broader economic concerns are also weighing on the sector. The Labor Department reported Friday that job growth slowed significantly in July, with unemployment rising. That followed data that showed an unexpected increase in jobless claims and weakening manufacturing activity.

Josh Koren, founder of Musketeer Capital Partners, noted that tech giants valued at more than $1 trillion are increasingly seen as macro investments. Their size means any economic weakness will inevitably be reflected in their results.

Both Amazon and Apple reported earnings on Thursday, with Amazon missing expectations and issuing a disappointing forecast, while Apple reported modest revenue growth of just 5%.

“As the economy slows, companies like Amazon and Apple will also slow down,” Koren told CNBC’s “Squawk Box Europe” on Friday. “You can see that in their earnings reports.”

Amazon shares fell 8.8% on Friday, extending a three-week decline to 14%. Executives attributed part of the revenue decline to consumers opting for cheaper household goods over expensive items like computers and TVs.

“We’re seeing consumer trends similar to what we’ve seen over the past year, with consumers cautious about spending and opting for lower-priced items,” Amazon CFO Brian Olsavsky said on the earnings call. “These trends continue into the third quarter.”

Apple’s results were less troubling: The company beat earnings and revenue estimates, with its shares rising slightly on Friday and later in the week, despite having fallen more than 5% in the previous two weeks.

Microsoft has fallen 4% this week and has fallen 10% over the past three weeks. The company issued weaker-than-expected guidance for the current quarter and missed growth targets for its Azure cloud segment. Mizuho analysts noted that Azure core consumption was impacted by capacity constraints and weakness in some European markets.

Alphabet shares fell slightly this week after a 10% decline the previous two weeks. In its earnings report, YouTube’s ad revenue fell short of estimates and overall ad growth was just 11%, lagging competitors like Meta, which grew 22%.

Meta stands out

Meta has been the standout performer, with its shares up nearly 5% this week after the company beat Wall Street estimates and gave a positive outlook for the current quarter. CEO Mark Zuckerberg noted that the company’s significant investments in artificial intelligence are paying dividends by improving ad relevance and making it easier for marketers to create campaigns.

“Improvements in recommendations and helping people find better content, along with more effective advertising experiences, have already happened at scale,” Zuckerberg said on last month’s earnings call. “Our AI efforts are set to improve all of those areas.”

Despite this, Meta has seen a decline in the last three weeks.

Nvidia, the biggest beneficiary of the AI ​​boom, is the only major tech company yet to report results. Despite a 17% decline during the Nasdaq’s three-week slump, Nvidia shares remain up more than 110% year to date. The company relies on significant spending from its tech peers to build out its AI infrastructure. Any signs of potential trouble could have a disproportionate impact on Nvidia’s stock. The company is scheduled to report results on Aug. 28.

Intel faces challenges

Intel, once the world’s largest chipmaker, has lagged behind its peers in recent years and is struggling to catch up in the race to artificial intelligence. On Friday, Intel shares had their worst day in 50 years, plunging 26% to a level not seen since 2013.

Intel’s earnings report revealed a significant error, and the company announced a major restructuring, including a 15 percent reduction in its workforce. CEO Pat Gelsinger described it as Intel’s “most fundamental restructuring since the transition from memory to microprocessors four decades ago.” Investors remain skeptical of its success.

Analysts at KeyBanc Capital Markets lowered their estimates and maintained their hold rating on Intel shares, citing challenges ahead.

“Given the numerous hurdles Intel faces, such a substantial reduction in staffing will likely complicate its efforts to achieve its goals,” they wrote in a note Friday.

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By AGAUTAFD

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