Technology stocks, including Apple stock, have had a terrible earnings season, but according to Société Générale analyst Albert Edwards, the suffering may only be just beginning.
This year’s increased inflation, rising interest rates, and a strong currency have all hurt technology equities. If the Federal Reserve is unable to contain the price increase without stifling growth, a recession may be on the horizon.
A recession reveals cyclical tech equities that are hiding behind “Growth”-like values, according to a lesson learned from the 2001 Nasdaq crash, according to a research note published on Wednesday by Edwards.
Will the FAANGs and US tech pay back their full outperformance since the Powell Pivot at the end of 2018? he asked in his essay. If so, they have a means of falling.
Poorly received earnings results from Alphabet GOOGL -1.46% (GOOGL), Meta Platforms META -2.29% (META), and Amazon.com AMZN -2.61% (ticker: AMZN) have reduced their market capitalizations by hundreds of billions. While Apple’s AAPL -1.40% results (AAPL) more or less met expectations, Netflix NFLX -2.61% (NFLX) was the only FAANG company to receive positive market feedback, causing its undervalued shares to increase.
According to Edwards, although forward price-to-earnings ratios for U.S. technology firms have decreased from around 30 times to just under 20 times at this time, valuations in the industry have only decreased at the same rate as the general stock market. That might not be the maximum with a possible recession on the horizon, this time without the increase in tech expenditure that occurred when the pandemic prompted people to stay at home.
According to Edwards, “the sector probably has farther to fall” if you share his opinion that this recession will result in a surpassingly steep cyclical downturn in IT earnings, similar to what happened in the recession of 2001. If so, this might still be the most important decision a stock investor can make.
The majority of technology equities were trading down early on Wednesday. Amazon stock, Apple stock, and Alphabet stocks were all down more than 1%, while Meta and Netflix were down more than 2%.
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