The technological gains weren’t great. The shares are still going up.

Text size

Tech stocks started the year with a bang, staging the kind of brisk, broad-based rally last seen during the Covid-era market rally. There are nearly two dozen tech tickers on my screen with year-to-date gains over 50%, and a handful have already doubled. Investors have concluded that the Federal Reserve’s aggressive campaign to raise interest rates is almost over and the market’s pendulum has swung sharply back to greed out of fear. Just like the good old days.

C3.ai

(ticker: AI) shares have doubled in the last month, I suspect mostly because they have the AI ​​ticker symbol, and there’s nothing more exciting right now than all things AI.

Avaya Holdings

(AVYA), an old-school telecommunications hardware company on the verge of bankruptcy, has doubled meaninglessly since the end of the year. Triple-figure earnings include beat-up merchandise like the home improvement salesman

wayfair

(W), Financing Equipment Buy Now, Pay Later

To assert

(AFRM) and, above all,

Global coin base

(COIN), the cryptocurrency exchange house. You wonder if SPACs are about to make a comeback.

However, if Federal Reserve Chairman Jerome Powell’s job to slow the economy is almost done, market attention will shift to other issues, such as earnings. And this is where things get complicated.

The bullish view is that we will have some challenging quarters, but that conditions should improve later in the year once the Fed puts the finishing touches on its tightening campaign. But the latest flurry of large-cap tech earnings signals that the fundamental rebound investors crave may still take some time.

Here are my key takeaways from last week’s series of reports.

Growth is poor. While they’re at the heart of many growth portfolios, there’s not a lot of growth coming from megacap tech companies.

Apple
‘S

(AAPL) revenue fell 5% in a quarter with 14 weeks, rather than the usual 13, due to weak iPhone and Mac sales.

Meta platform
‘S

The top line (META) is down 4% and its guidance implies a 2% decline in the March quarter.

Alphabet

(GOOGL) had a 1% gain, but ad revenue was down 4%, including an 8% drop for YouTube.

Microsoft

(MSFT) saw a 2% increase in sales, but a 19% decline in the PC segment.

Amazon.com

(AMZN) led the pack with a 9% gain, but that includes a 2% decline in online stores. The combined revenues of the five giants increased by just 1% in the recent quarter. One. Gross. Percent.

The cloud is “optimizing”. Growth is slowing at large cloud payers. Microsoft and Amazon have long talked about helping customers “optimize” spending. Amazon CEO Andy Jassy first showed up on his company’s earnings call — founder Jeff Bezos ignored them for many years — and said customers are looking for ways to cut budgets and that Amazon it is there to help. “We’re going to help our customers find a way to spend less money,” said Jassy. The conversation raises some troubling questions about potential price wars for cloud services, but for now, the impact is simply slower growth.

The consumer is suffering. Apple’s quarter included some alarming consumer spending data. Most everyone knew iPhone sales would be weak, and they were even worse than feared given recent manufacturing woes in China. But Mac sales also fell short of expectations, as did the company’s wearables, home and accessories segment. On Apple’s earnings call, CEO Tim Cook sounded more subdued than usual and repeatedly emphasized the impact the soft economy is having on Apple’s business. Lynx Equity Strategies analyst KC Rajkumar, in a note written just ahead of the earnings, warned that Apple could be headed for year-over-year revenue declines not only in fiscal 2023 but also in 2024. Gulp.

Mr. Market is bullish on Mr. Efficiency. The biggest story of the tech earnings season is the wild rally in Meta stock. After reporting third-quarter results in October, Meta shares tumbled 25% in one day, largely due to investor concerns that CEO Mark Zuckerberg was ignoring the short-term financial implications of aggressive long-term ambitions. Meta term. Two weeks later, the company cut 11,000 jobs and narrowed its 2023 spending plans slightly, sparking a more than 50% rally in the stock.

Zuckerberg learned some lessons from that experience, most notably that if you want investors on your side, nothing works better than cutting costs. Sure enough, in announcing its fourth-quarter results, Meta unveiled a second and more aggressive round of spending cuts, including installing a new $40 billion share repurchase program. Indeed, money that was previously directed towards the black hole that is the metaverse now appears to be targeted by shareholder wallets. The stock jumped 24% on Thursday.

“Our management theme for 2023 is the year of efficiency,” Zuckerberg said. In fact, Meta executives have said the word “efficiency” 33 times during their earnings calls with Street. What came up much less was “the metaverse”, just seven mentions. I would argue that the less Wall Street hears from Zuckerberg on this matter, the better for shareholders.

Meta still lost a whopping $4.3 billion during the quarter at its Reality Labs unit, where it works on the metaverse, reducing Meta’s operating income by 40%.

Here’s some reality for you: If Meta stopped spending in the metaverse—perhaps by selling, closing, or spinning off Reality Labs—the company could be significantly more profitable, while also freeing up billions to pay back to investors or invest in the core business. . That would certainly be efficient.

Write to Eric J. Savitz at [email protected]