- Hopes dashed for the return of a rally in all big tech stocks as joy around Meta and Microsoft numbers fails to extend to Amazon and Apple
- Amazon shares down 6.6% in pre-market trading as forward earnings guidance falls short of expectation
- Apple beats third quarter earnings forecast and reports positive news from China but its shares only rise 2.4% in pre-market trading
- Investors have concerns about how tariffs will hurt Apple and demand for its products in the US
Dan Coatsworth, investment analyst at AJ Bell, comments:
“Just as it looked as if investors were ready to go all-in to big tech again, Amazon has come along and spoiled the party. A negative reaction to its results and a lacklustre response to Apple’s numbers would suggest the market has become more discerning.
“We’d already seen divergent fortunes for big tech ahead of the latest results season, with Apple and Tesla shares in negative territory year-to-date, and Alphabet and Amazon lagging the broader US market. The gap is now widening further as Meta, Microsoft and Nvidia soar ahead and the others are left for dust.
“It’s not a straight winners and losers’ situation. Instead, it’s the emergence of a tiered ranking system.
“You only have to look at the top holdings in global equity funds, where professional stock pickers are no longer loading up on all the big tech names. Instead, they’re giving prominence to fewer players as they recognise that certain names have strategic advantages. Early indications suggest Meta and Microsoft are fund manager favourites, with Nvidia close behind.”
Amazon
“After a positive reaction to Meta and Microsoft’s results, the celebration did not extend to Amazon. Its shares fell 6.6% in pre-market trading as investors found several things to worry about.
“It is spending big on AI infrastructure, leading to more subdued profit guidance than expected.
“The retail side of its business is caught up in Trump’s spiderweb of tariffs, which creates ongoing uncertainty.
“Competition remains fierce for cloud computing services and Amazon’s sales growth rate is struggling to match rivals Microsoft and Alphabet.
“The retail business looked resilient in the past quarter, yet there is a fear among investors that sales might have benefited from Amazon encouraging suppliers to stock up on goods in the US before new tariffs came into power, which should have kept a lid on prices. Once stocks are run down, the next wave of goods could become more expensive if tariffs are passed onto the customer.
“There’s already some nervousness in the market around US consumer spending – while activity increased in June, inflation also picked up. Investors are concerned that consumer spending growth rates may now start to slow.”
Apple
“Tariffs fears haunted Apple, although its shares still made some progress post-results with a 2.4% rise in pre-market trading.
“Overall, earnings were better than expected, meaning Apple has now beaten forecasts in nine out of the past 10 quarters. Importantly, iPhone sales have started to improve in China following a long period in the doldrums amid fierce competition from local players. Showing it can fight back in China could have been the catalyst for a share price rally, but investors were unable to shake off uncertainty around tariffs.
“Most iPhones sold in the US originate from India, which means Apple is in the firing line for tariffs. These phones are not cheap in the first place, but they could become even pricier if the tariffs are passed on to the end user. That puts a big question mark over future demand rates and gives investors something to keep worrying about.
“Apple is already having to contend with a structural shift in the market where fewer people upgrade mobile phone handsets on a regular basis. That means it is having to rely more on bells and whistles to convince people they need the latest technology.
“The latest iPhones have more sophisticated camera features and longer battery life, and Apple is playing catch-up with AI features. Unfortunately for Apple, there are plenty of other companies going down the same path, including Alphabet-owned Google, whose Pixel phones are growing in popularity.”
