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Tech giants have the potential to beat Wall Street expectations

Tech stocks have shown excellent growth over time. Yet, the Covid-19 pandemic has sent tech shares into territory that few would have imagined a year ago. The big five represented by Apple, Alphabet, Google’s parent company, Amazon, Microsoft and Facebook recently published their second quarter results. The revenue growth and after-tax earnings exceeded expectations especially given the high earnings reported in the first quarter.

The gains prove that technology and the internet have become an integral part of everyday life and there is no reversing the trends.  Let’s face it, tech stocks were set to grow with or without the global pandemic. Yet, the need to go online for shopping, meetings, work, entertainment and education has driven growth beyond what we may have expected a little over a year ago.

According to a Financial Times report, this growth is unlikely to slow. People have now adopted a changed way of life and their dependence on digital is unlikely to wane. Indeed, the most recent results show that as people emerge from isolation, they are spending even more on technology. This bodes well for the direction of stock prices in the foreseeable future. So, if you’re planning to invest in stocks, big tech looks like a winner.

Second-quarter results

Apple, Alphabet, and Microsoft were the first to publish their second-quarter results. They didn’t disappoint. They reported combined profits of over $50 billion. The three tech giants have more than doubled their market value over the sixteen months since Covid-19 raised its ugly head.

Apple, the world’s most valuable company, smashed previous records. It surpassed market expectations by a considerable margin. The market had predicted revenue of $73 billion. The actual revenue came in at $81 billion. This is on the back of a 53% increase in the sale of iPhones over the quarter. Despite a world shortage of chips which has hobbled production of a range of products with computing abilities. Apple’s digital services which include online payments, music, gaming and streaming television have also grown. Bloomberg data reports that Apple stocks have upside potential of 8%.

Alphabet’s online advertising, cloud computing and YouTube videos helped it to 34% growth year on year. Alphabet doubled its profit over the quarter. Businesses owners are buying increasingly more advertising to target online customers. Cloud computing is another growth industry. Most of these companies have benefited from the move by business to using lower cost, dependable cloud assets.

Though theMicrosoft results beat market estimates, the shares dropped following the report. Put in perspective Microsoft shares have been trading at close to an all-time record.

In the run-up to the results, expectations on Wall Street had run high. Big techgained between 5% and 7% in July alone. By comparison, the average gain on the S&P was 1.6%.

Facebook reported that profit had doubled over the quarter on the back of increased demand for digital advertising. Advertising revenue increased by a whopping 56% year on year. The company warned that growth would slow in the coming months, sending their shares south.

Amazon was the last to report, reporting record breaking results again. Though earnings were better than expected,  sales fell short of Wall Street forecasts. The CFO guidelines for Q3 also failed to excite the market causing share prices to fall.

Future prospects

The biggest risk these online giants face is the possibility of government intervention and growing scrutiny from antitrust regulators. Despite this the big five continue to invest in improved product offerings. Covid-19 has changed the world, speeding up Internet adoption and the way that we transact. As we emerge from the pandemic it will be into a different world, one which is more switched on and connected. This will be a world of technological progress.

Mark Zuckerberg and others warn that this extraordinary growth is not sustainable over the long term. For now, it looks as though tech stocks still have a long way to go.




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