With Q1 earnings season in the offing, big troubles are brewing for Big Tech
Some of the external pressures, such as inflation, the supply chain crisis and regulatory scrutiny, are certainly not new, and Big Tech managed to do just fine amid those challenges last year. But geopolitical risk and a higher interest rate environment add a new layer of complications for the group and could threaten the record profits and growth Big Tech enjoyed over recent years.
And the Fed said it plans to raise rates six more times this year. The impact of the rate hikes won’t be felt immediately, but the rapid tightening of the economy usually is a tougher environment for high growth. There is still a lot of uncertainty in the air, and investors tend to flock to safer value stocks such as utilities and consumer staples over speculative growth stocks like tech during uncertain times.
Though Big Tech stocks aren’t as volatile as smaller growth stocks, the recent pullback from the group proves that no one is invincible. That’s not to say companies like Apple, Microsoft, Amazon, Alphabet and Meta aren’t good investments. Their influence will likely grow long term thanks to all the ancillary products and services being developed.
But in the near term, there is immense pressure on Big Tech. Earnings season kicks off next month, and the group’s first-quarter results will serve as a barometer for the overall health of the sector. Investors don’t respond well to slowing growth, and given most of the Big Tech giants posted record figures in Q4, it’s going to be a higher bar than usual.
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