Investors on Wall Street have been reassessing their perception of large technology corporations and their long-term prospects, according to reports from Beijing Time on April 10th. In 2022, many investors believed that the long-term surge in technology stocks had ended, but this year they have come to realize that tech behemoths are more robust than initially believed.
Despite the recent rebound in stock prices, the short-term prospects for the top five consumer technology and cloud computing companies, which include Alphabet, Amazon, Apple, Meta, and Microsoft, have not significantly changed. It remains challenging for these companies to attain substantial growth this year.
Analyzing the Reasons for the Rally of Tech Stocks
The recent rebound in stock prices is due to investors feeling that last year’s stock price decline went too far. Large tech companies have stronger financial strength than most companies in dealing with economic downturns. At the same time, some long-term trends that support the development of these companies have not changed.
After the market capitalization of the top five tech companies fell by 37% last year, the size of this round of rebound is noteworthy. Since the beginning of 2023, their total market value has risen sharply by 35%, while the S&P 500 index has only risen by 7% over the same period. This is equivalent to an increase in the market value of the stock market by $1.5 trillion. After the total market value fell by $3.6 trillion last year, this brought a stable recovery.
The macro-level economic situation is also improving, which further bolsters the recovery of tech stocks. Despite lingering challenges, the economy is gradually stabilizing, and investors are eagerly awaiting the upcoming earnings season to gain insight into whether enterprise IT demand will weaken further. However, worries about a greater deceleration in economic growth have eased.
These positive factors benefit not only large tech corporations but also the semiconductor industry, which has experienced a robust rebound in stock prices. Currently, inventory clearance in the chip industry is gradually coming to an end, and investors anticipate an improvement in the second half of this year. The Philadelphia Semiconductor Index has surged by 43% from its nadir six months ago. Nevertheless, as the chip sector is still struggling at the bottom and earnings expectations remain unchanged, this recovery may be challenging to sustain.
Post-pandemic syndrome” is gradually fading, boosting investors’ confidence
The “post-pandemic aftermath” on the tech industry is gradually dissipating. Previously, investors were worried that certain types of digital spending would revert to pre-pandemic levels. It is expected that by later this year, the pandemic-induced prosperity will slowly fade away, and year-on-year data of relevant companies will appear to be stable.
This will reinforce investors’ confidence that some of the most vital long-term trends will remain unchanged, particularly in the cloud computing industry. As customers seek more efficient ways to use cloud computing services, the growth of cloud computing revenue has slowed down. However, Microsoft CEO Satya Nadella believes that this is merely a temporary phenomenon, as customers are exploring better ways to manage cloud computing projects initiated during the pandemic. He anticipates that the digestion of the last round of cloud computing spending will conclude by the end of this year, and stronger growth will resume.
The buzz around generative AI is generating fresh momentum for growth expectations in the cloud computing industry. Customers aspire to use more of their own data to train large language models to achieve their business objectives, which also necessitates corresponding cloud computing power.
Big tech companies enter a new growth stage
Wall Street analysts have indicated that revenue growth for large technology companies was 28% in 2021, will decrease to 4% this year, and rebound to double digits at 11% in 2024, returning to the pre-pandemic era of long-term stable growth.
Investors are anticipating an improvement in the profitability of major technology companies. Towards the end of last year, these companies underwent a round of layoffs, initially perceived as a management failure. As they entered the third quarter, some of these companies began to engage in heavy recruitment, seemingly slow to respond to earlier signals of an economic downturn.
Nevertheless, investors have now adopted a more positive outlook toward cost-cutting measures, especially Meta’s strategic adjustments since the end of last year, which involves reducing excessive expenditures in the metaverse sector and focusing on profitability, leading to a more than twofold increase in its stock price.
Historically, it has been observed that when the next significant growth opportunity arises, large technology companies will once again disregard cost discipline. However, for the time being, the steady profitability prospects of technology companies in an uncertain environment provide grounds for optimism.
