Are tech stocks about to burn long traders?
By Paul Reid
15 February 2023
Big brand tech stock prices have been making a solid comeback in Q1 and traders are jumping on what they think is a digital money train heading for the hills.
But all this market-positive price action comes right after Meta recorded a third consecutive quarter of declining revenue. Google’s core advertising business shrank, and Amazon closed out its weakest year for growth in 25 years.
Assuming that a company's performance still holds sway over stock prices, with lag, a reversal correction would be an obvious forecast for tech stocks in 2023. But, tech sentiment is high, and every trader knows that when tech starts to rally, it often goes big. Will sentiment cancel a correction? Will tech stocks keep rising? Let’s break down the situation for four big tech names.
This week, the semiconductor space flourished. AMD rose 14%, surpassing Nvidia's gains. With a painful 2022 behind them, AMD stocks are rebounding on signs that the Federal Reserve will ease its rate hikes and inflation numbers will give the company a boost later this year.
With the much-awaited and cheaper AMD AM5 motherboard about to hit the shelves, sales are expected to rise. No cost-cutting announcements targeting the 15,000+ AMD workforce—yet.
So AMD looks like it could maintain the bullish trend in 2023 if sales rise, at least, for a while.
Apple's revenue dropped to a 7-year low last year, but AAPL gained 6.2% this week creating a new high for the year, despite production issues in China affecting all iPhone 14s. The gain is attributed to weakening inflation, but some believe the reactionary jump was a little too much too soon, and economy conspiracists smell something fishy in the markets.
A new MacBook was announced in January, and gamers are getting excited about the M2 chip, but with high prices and economic uncertainty, sales are down for now.
If the Fed’s claim is right, spending might increase, and new product releases will boost sales, but only if the Fed forecast rings true. Add AAPL to your daily watchlist and scan the news for product performance.
Amazon issued a weaker-than-expected forecast for 2023Q1. In January, Amazon began layoffs to the tune of 18,000 jobs—a sizable cost cut that will likely pump up net revenue for the next few reports and give shareholders a warm feeling.
After Prime Video’s disastrous performance and insane production costs, the salary reduction is much needed to keep Amazon agile. Expenses have become a primary target for Amazon’s “lean clean” phase, which will balance out the pandemic period’s excessive hiring.
Product sales are lower than expected in 2023, and the stock charts don’t show it yet. Whatever or whoever is fueling the AMZN rise won’t last long without support, but Amazon isn’t cooking anything that will give investors high hopes in the coming months, so don’t be surprised if AMZN has a reversal right after media channels are waving bullish flags.
Despite Friday's sell-off, Alphabet shares ended the week up 5.4%. The stock is now up 19% for the year. With ad revenue down on both Google and YouTube, cost-cutting is the obvious choice, but will cost-cutting be enough to maintain growth on the charts for GOOGL?
Right after Alphabet announced that it will shed 12,000 jobs, facing "a different economic reality”, they announce an investment of almost $400 million in artificial intelligence.
Named “Bard”, Google's response to ChatGPT will likely add to the positive sentiment around GOOGL and fuel growth in the coming quarter… assuming the AI will deliver on the performance promises.
The stock of Meta soared 23% this week to a 6-month high, its third-best week ever. In its earnings report Wednesday, revenue came in slightly above expectations, despite sales down year over year, and the first-quarter forecast was roughly in line with expectations.
The key to the rally was CEO Mark Zuckerberg's announcement in the earnings statement that 2023 would be the "Year of Efficiency" and his promise that "we're focused on becoming stronger and more nimble." Although the quarter was OK, it was the cost-cutting that finally got investors interested, which is why Meta took off.
The earnings call comes 3 months after Meta announced 11,000 job cuts, which represents 13% of its workforce.
Zuckerberg said he does not expect declines to continue, but acknowledges the business will not return to how it was before. Assuming he’s right, the massive sell-off last year was an overcorrecting overcorrection down to 88.91 USD, and investors may well be slipping back into Meta right now. If that’s true, the optimism will likely hold for the coming quarter.
Stocks on the Nasdaq
Nasdaq surged 3.3% over the last five days, marking the longest winning streak since November 2021. After a tough year in 2022, the Nasdaq has risen 15% so far in 2023 spreading optimism for tech investors.
Tech executives are being praised for efficiency rather than innovation, the IPO market is dead, and tech company layoffs are rampant. Nasdaq’s rise is attributed to the Fed’s actions, not from its portfolio of tech giants. If that’s true, then the rise shouldn’t continue for much longer.
When the big-name tech giants show signs of growth, the vast majority of tech companies tend to follow in the wake. No doubt caused by investors trying to catch the early bird buy order. When that cyclic pattern begins, the Nasdaq rises too and bullish tech sentiment leads to an overbought market.
Basically, the evidence of what is causing the rise is conflicting and not always making sense. It could be that 2022 laid the groundwork for a tech rally in 2023, but the optimism is based on nothing of significance, and since the economy is still not sunshine and rainbows, tread lightly when trading tech stocks.
Use every protection available and set your equity and leverage appropriately for the unexpected.
This is not investment advice. Past performance is not an indication of future results. Your capital is at risk, please trade responsibly.
Paul Reid is a financial journalist dedicated to uncovering hidden fundamental connections that can give traders an advantage. Focusing primarily on the stock market, Paul's instincts for identifying major company shifts is well established from following the financial markets for over a decade.
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