Tech Earnings Were Strong. Why Stocks Slipped Into a Correction Anyway

16 November 2023

Oct 28, 2023:Technology stocks slumped into correction territory after a wave of poorly received earnings reports from some of the world’s largest companies. On Wednesday and Thursday, the Nasdaq Composite fell 4.1%, the tech-heavy index’s worst two-day stretch of the year. The index has fallen 12% since July.

Tech players Alphabet and Meta exceeded expectations but raised concerns regarding cloud and ad spending. Alphabet’s Google Cloud underperformed, with a revenue increase of 22% to $8.4 billion, missing estimates by around $200 million. Regardless of this, Google Search and YouTube showed impressive performance. 

Conversely, Microsoft’s Azure surpassed expectations with 28% growth, attributed partly to AI-related workloads. After its stock outperformed, Microsoft may usurp Apple as the world’s most valuable company, dropping the gap between the two companies to about $115 billion. 

Amazon Web Services (AWS) has shown slower growth than its rivals, but large orders expected in the fourth quarter provided a positive outlook. 

“Companies have moved more slowly in an uncertain economy in 2023 to complete deals,” said Amazon CEO Andy Jassy, “but we’re seeing the pace and volume of closed deals pick up and we’re encouraged by the strong last couple of months of new deals signed.”

Advertising revenue showed strength, particularly for Alphabet, Meta, and Amazon, with significant growth in online ad sales. However, Meta CFO Susan Li noted a softening in ad spending at the start of the fourth quarter, correlating with October’s unfolding events in the Middle East. She noted that a similar pattern developed at the beginning of the Ukraine war.

Meta plans to increase capital spending and hiring in 2024 despite a reduction in headcount as part of a cost-efficiency initiative. Among other news, IBM reported promising results from its AI-related projects, suggesting a potential annual revenue of around $1 billion.

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