The earnings season for giants begins, the "life and death moment" for American tech stocks
Wall Street expects that the "Seven Sisters" of the U.S. stock market will see a year-on-year profit growth rate of about 22% in the fourth quarter. Although this is higher than the expected growth rate of 8% for the S&P 500 index, it represents the lowest growth rate for the "Seven Sisters" since the first quarter of 2023 and marks the fourth consecutive quarter of slowdown
American tech giants are about to announce their earnings reports one after another, and the market expects a slowdown in profit growth, highlighting valuation pressures.
According to Bloomberg data, Wall Street expects the "Seven Sisters" of U.S. stocks to have a year-on-year profit growth rate of about 22% in the fourth quarter, which, although higher than the S&P 500's expected growth rate of 8%, is the lowest growth rate for the "Seven Sisters" since the first quarter of 2023 and marks the fourth consecutive quarter of slowdown.
This indicates that the market's expectations for future profit growth are becoming cautious. Analyst Michael Casper believes that the tech sector's market capitalization share in the S&P has exceeded its profit share by about 10 percentage points, which means either profit growth needs to accelerate, or valuations need to adjust.
Looking at the expected revenue for the next 12 months, the price-to-sales ratio of the S&P 500 Information Technology Index is currently close to its highest level in nearly a decade, also indicating high valuations.
In addition to overall profit growth, the massive investments by tech giants in the AI field remain a focal point for the market.
Statistics show that Microsoft, Alphabet, Amazon, and Meta's capital expenditures in the last fiscal year exceeded $200 billion, and they have committed to increasing investments this year.
Solita Marcelli, Chief Investment Officer for UBS Global Wealth Management in the Americas, believes that AI investments are expected to generate more revenue in the coming year, making the high valuations of tech stocks "justified":
"While the 'easy earnings era' for AI stocks may be over, we believe this rally appears far from finished."
Despite the slowdown in profit growth, market confidence in tech stocks has not significantly wavered.
Market data shows that demand for put options on the "Seven Giants" has decreased after a surge in December, indicating that traders do not anticipate a large-scale sell-off.
Netflix's recent earnings report showed record growth in its subscription users, further boosting market sentiment. Dan Taylor, Chief Investment Officer at Man Numeric, commented:
"Although valuations may be high and the commercialization of AI may be disappointing, the tech giants remain 'high-quality companies with strong cash flow.'"