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The Zacks Analyst Blog Highlights Alphabet, Microsoft, Meta Platforms and Shopify
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For Immediate Release
Chicago, IL – May 8, 2023 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Alphabet Inc. (GOOGL - Free Report) , Microsoft Corp. (MSFT - Free Report) , Meta Platforms, Inc. (META - Free Report) and Shopify Inc. (SHOP - Free Report) .
Here are highlights from Friday’s Analyst Blog:
Why Are Tech Stocks Doing So Well This Year?
The tech sector is up more than 18% this year, more than double the S&P 500's roughly 7%.
But this is a huge sector, with many different kinds of companies offering very different kinds of products and services to often different markets. Therefore, it's difficult to come up with common factors that drive the sector.
Until you look at the market capitalization of some of these companies. Alphabet, for instance, with its market cap of over $1.3 trillion, has a much greater impact on the sector's performance when it rises around 19% year to date than, say, BigBear.ai Holdings, although this stock has soared 285%+. The same can be said of Microsoft, with its market cap of over $2.2 trillion (up nearly 27% year to date), or of Meta Platforms with its $614 billion market cap (up 94%) or Shopify with its $59 billion (up 65%).
The point is that this is a sector with some very large cap stocks that skew the average whenever they make big moves. Since they have been making big moves this year, it makes sense to see why.
The biggest reason perhaps is the stabilization in the interest rate. As inflation rates continue to moderate, the markets have been expecting the Fed to stop raising rates. After the latest hike, the Fed has indicated that there may not be further hikes this year. Rate hikes are a problem for most growth stocks because these are the riskiest assets. Investors put their money into these stocks in the hopes that they'll get outsized returns at some future date.
Technology companies may be younger or mature, but by their very nature, they invest huge capital in futuristic innovations that may or may not generate the anticipated returns. Therefore, when higher rates make less risky assets more attractive, some investors switch to those. Additionally, tech companies may also take a certain amount of debt to fund their R&D. Stabilization in the interest rate therefore makes these stocks more attractive.
Another reason for the big moves is the effect of the pandemic. In the initial phase of the pandemic, the rapid digitization generated huge business for some of these players. This pulled in five years of demand (by some estimates). As a result, demand dropped drastically in the following period, a situation that persists today, in some segments. Given the disappointing outlook, tech stocks plunged last year, making them more attractive from a valuation perspective.
The third reason, and this is specific to the larger cap tech stocks, is that although they invest humongous amounts of cash in their future innovations, they also have certain existing products that are pretty much like cash cows, generating year upon year of solid revenue and cash flows, as in the case of any good quality mature company.
Unlike mature players in certain other sectors, these stocks don't pay dividends. Or, just a handful of them – like Apple – do. They tend to pour the whole thing back into the business and maintain large cash balances for financial flexibility. This makes them attractive in times of uncertain demand, especially the mild recession/soft landing that most analysts are anticipating.
So, let's take a closer look at some of these big tech stocks:
Alphabet Inc.
Search giant Alphabet posted strong numbers last quarter, exceeding revenue estimates by 1.5% and earnings estimates by 10.4%. In the past month, the company's 2023 earnings estimate increased 3.9% while the 2024 estimate increased 2.0%. Revenue and earnings are expected to increase an estimated 6.1% and 18.2% this year and 10.6% and 16.1%, respectively in the next.
Microsoft Corp.
A provider of computer software, productivity solutions, search, cloud infrastructure services and more, Microsoft is easily one of the most attractive players right now. In the last quarter, Microsoft's earnings surprise of 10.4% came on top of a revenue surprise of 3.8%. Analyst estimates for the years ending June 2023 and 2024 have increased 2.9% and 2.4%, respectively. Its revenue is expected to increase 6.3% this year and 10.3% in the next. Earnings are expected to increase 4.3% and 12.1%, respectively.
Meta Platforms, Inc.
Social media provider Meta posted a sales surprise of 4.2% in the last quarter, which resulted in an earnings surprise of 34.7%. In the last 30 days, its 2023 earnings estimate has increased 12.6% and 2024 estimate 13.2%. Analysts currently expect revenue growth of 8.6% this year and 10.8% in 2024. Earnings are expected to grow 19.6% and 24.3%, respectively.
Shopify Inc.
Shopify provides an online commerce platform for small and medium-sized businesses (SMBs). The company's March quarter earnings surprise of 50% came on top of revenues that surprised by 4.9%. Analysts have merely fine-tuned their estimates on this company's revenue and earnings, which are expected to grow 18.1% and 25%, respectively in 2023 and 21.6% and 395.8%, respectively the following year.
Zacks #1 (Strong Buy) rating on Meta shares and a #2 (Buy) rating on the others.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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The Zacks Analyst Blog Highlights Alphabet, Microsoft, Meta Platforms and Shopify
For Immediate Release
Chicago, IL – May 8, 2023 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Alphabet Inc. (GOOGL - Free Report) , Microsoft Corp. (MSFT - Free Report) , Meta Platforms, Inc. (META - Free Report) and Shopify Inc. (SHOP - Free Report) .
Here are highlights from Friday’s Analyst Blog:
Why Are Tech Stocks Doing So Well This Year?
The tech sector is up more than 18% this year, more than double the S&P 500's roughly 7%.
But this is a huge sector, with many different kinds of companies offering very different kinds of products and services to often different markets. Therefore, it's difficult to come up with common factors that drive the sector.
Until you look at the market capitalization of some of these companies. Alphabet, for instance, with its market cap of over $1.3 trillion, has a much greater impact on the sector's performance when it rises around 19% year to date than, say, BigBear.ai Holdings, although this stock has soared 285%+. The same can be said of Microsoft, with its market cap of over $2.2 trillion (up nearly 27% year to date), or of Meta Platforms with its $614 billion market cap (up 94%) or Shopify with its $59 billion (up 65%).
The point is that this is a sector with some very large cap stocks that skew the average whenever they make big moves. Since they have been making big moves this year, it makes sense to see why.
The biggest reason perhaps is the stabilization in the interest rate. As inflation rates continue to moderate, the markets have been expecting the Fed to stop raising rates. After the latest hike, the Fed has indicated that there may not be further hikes this year. Rate hikes are a problem for most growth stocks because these are the riskiest assets. Investors put their money into these stocks in the hopes that they'll get outsized returns at some future date.
Technology companies may be younger or mature, but by their very nature, they invest huge capital in futuristic innovations that may or may not generate the anticipated returns. Therefore, when higher rates make less risky assets more attractive, some investors switch to those. Additionally, tech companies may also take a certain amount of debt to fund their R&D. Stabilization in the interest rate therefore makes these stocks more attractive.
Another reason for the big moves is the effect of the pandemic. In the initial phase of the pandemic, the rapid digitization generated huge business for some of these players. This pulled in five years of demand (by some estimates). As a result, demand dropped drastically in the following period, a situation that persists today, in some segments. Given the disappointing outlook, tech stocks plunged last year, making them more attractive from a valuation perspective.
The third reason, and this is specific to the larger cap tech stocks, is that although they invest humongous amounts of cash in their future innovations, they also have certain existing products that are pretty much like cash cows, generating year upon year of solid revenue and cash flows, as in the case of any good quality mature company.
Unlike mature players in certain other sectors, these stocks don't pay dividends. Or, just a handful of them – like Apple – do. They tend to pour the whole thing back into the business and maintain large cash balances for financial flexibility. This makes them attractive in times of uncertain demand, especially the mild recession/soft landing that most analysts are anticipating.
So, let's take a closer look at some of these big tech stocks:
Alphabet Inc.
Search giant Alphabet posted strong numbers last quarter, exceeding revenue estimates by 1.5% and earnings estimates by 10.4%. In the past month, the company's 2023 earnings estimate increased 3.9% while the 2024 estimate increased 2.0%. Revenue and earnings are expected to increase an estimated 6.1% and 18.2% this year and 10.6% and 16.1%, respectively in the next.
Microsoft Corp.
A provider of computer software, productivity solutions, search, cloud infrastructure services and more, Microsoft is easily one of the most attractive players right now. In the last quarter, Microsoft's earnings surprise of 10.4% came on top of a revenue surprise of 3.8%. Analyst estimates for the years ending June 2023 and 2024 have increased 2.9% and 2.4%, respectively. Its revenue is expected to increase 6.3% this year and 10.3% in the next. Earnings are expected to increase 4.3% and 12.1%, respectively.
Meta Platforms, Inc.
Social media provider Meta posted a sales surprise of 4.2% in the last quarter, which resulted in an earnings surprise of 34.7%. In the last 30 days, its 2023 earnings estimate has increased 12.6% and 2024 estimate 13.2%. Analysts currently expect revenue growth of 8.6% this year and 10.8% in 2024. Earnings are expected to grow 19.6% and 24.3%, respectively.
Shopify Inc.
Shopify provides an online commerce platform for small and medium-sized businesses (SMBs). The company's March quarter earnings surprise of 50% came on top of revenues that surprised by 4.9%. Analysts have merely fine-tuned their estimates on this company's revenue and earnings, which are expected to grow 18.1% and 25%, respectively in 2023 and 21.6% and 395.8%, respectively the following year.
Zacks #1 (Strong Buy) rating on Meta shares and a #2 (Buy) rating on the others.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.