Monday, December 05, 2022

Technology Is The Big Loser On Wall Street, But… What Will Happen Next Year?

Technology Is The Big Loser On Wall Street, But... What Will Happen Next Year?

Concern among portfolio managers about sales growth of large-cap technology companies. Report prepared by Goldman Sachs shows that companies like Apple, Microsoft, Amazon and Alphabet have lost their way in the game compared to the rest of Wall Street, a reason that would explain to a large extent their poor behavior on the stock market.

Tech giants Apple, Alphabet, Amazon and Microsoft are on track to underperform the benchmark S&P 500 index this quarter for the 11th time in a decade, Goldman Sachs said in a recent report.

Technology Is The Big Loser On Wall Street, But... What Will Happen Next Year?

One of the reasons for these declines? that large-cap tech stock or Are posting lower-than-average sales growth for ‘mega-caps’ The S&P 500, which brings together the 500 largest listed companies in the United States.

“Large-cap technology companies have reported 18% average annual sales growth over the past decade. Instead, the overall market posted an annual growth of only 5%. However, “the dynamic has reversed in 2022: Total sales growth for large-cap tech companies is forecast to accelerate to 8% this year, well below the 13% growth forecast for the overall index,” Goldman strategists write.

This could be a major reason why the four giants — Apple, Alphabet, Microsoft and Amazon — have underperformed the S&P 500 this year. This fourth quarter is on track to be the 11th quarter in the last ten years in which all four large-cap tech stocks underperformed the index.

And that’s not counting that Meta (Facebook) saw its shares take a huge tumble in light of yet another disappointing earnings report. As a result, the company is no longer among the top 20 components of the S&P 500 Index.

However, the market consensus expects it Things will turn around next year, with an expected 8% increase in sales for ‘mega-caps’ as well, but barely 3% for the S&P 500, amid fears of a new recession. By 2024 the gap will widen with growth of 11% and 5% respectively.

slow acquisition

Another reason for tech mega-caps’ slower-than-expected growth could be a slowdown in mergers and acquisitions (M&A) amid increased antitrust regulatory scrutiny. The four companies mentioned have announced a total of 22 mergers and acquisitions this year, less than half the number five years ago, according to a Goldman Sachs analysis.

Technology Is The Big Loser On Wall Street, But... What Will Happen Next Year?

In addition, strategists said valuations of large-cap tech stocks are “collectively expensive relative to bonds.” Apple trades at a historical EV/sales (enterprise value versus sales) premium to the market, while Microsoft trades at a historical valuation compared to the S&P 500. Alphabet and Amazon’s valuations are on the low tail of their valuations over the past decade. ,

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