The trajectory for tech remains worrisome, but Wall Street is still betting on a second-half rebound despite little concrete evidence that it will happen.
Big Tech didn’t offer strong holiday returns, but Wall Street still responded to fourth-quarter results by throwing $2 trillion in valuation at the biggest tech companies.
Growth in cloud computing has hit the biggest stall in its short history, putting Microsoft Corp.’s MSFT and Amazon.com Inc.’s AMZN trajectory into sharp question, as analysts contend that the cloud slowdown appears to be getting worse. Internet advertising has been hitting growth concerns for a year now, and that also does not appear to be turning around, creating huge question marks for Google parent Alphabet Inc. GOOGL GOOG and Facebook parent Meta Platforms Inc.
“[The first quarter] should be fine,” Lopez told MarketWatch. “When we hit the end of [the second quarter], that’s when we will see if the wheels are falling off the bus.” She added that she is “really worried about the summer.” “Tech, I think, is going to be really interesting,” Brendan Connaughton, the founder and managing partner of Catalyst Private Wealth, said in an email. “Layoffs are continuing and I’m going to be listing to managements’ comments on that, capital expenditures and how margins are doing.”
A flurry of companies that were trying to finish up IT projects before more severe belt tightening kicks in will help first-quarter results, Lopez said. Indeed, software companies are poised for the best growth rates in IT in the quarter, with the software segment forecast to see revenue growth of 7.4%. Software is also expected to be the most profitable amid a troubled IT sector, with FactSet estimates indicating earnings growth of 5.56%.
“Our checks point to continued elevated headwinds for Azure & Windows, and while we think this was appropriately modeled for [the March quarter], it could drive some modest risk to [June quarter] estimates,” TD Cowen analysts wrote.
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