91探花

There have been conversations surrounding the question of what would possibly cause a profit decline in big tech. The possibility of a profit decline in 2024 for the biggest tech companies鈥擜pple, Amazon, Google鈥檚 Alphabet, Meta, Microsoft, and Nvidia鈥攂rings many questions up. Different contributors such as market cycles, economic conditions, and competitive pressures play very important parts in this:

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Market Cycles & Economic Conditions

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Jonathan Golub, Chief U.S. Equity Strategist at UBS, focuses on the cyclical nature of the tech industry. 鈥淥ur downgrade of the Big 6鈥攆rom Overweight to Neutral鈥攊s not predicated on extended valuations or doubts about AI,鈥� he explains. Instead, it acknowledges difficult comparisons and cyclical forces affecting these stocks.

The pandemic disrupted earning cycles, with lockdowns boosting demand for PCs, online shopping, and gaming, followed by declines as economies reopened. Earnings growth surged during the pandemic but is now expected to normalie, leading to potential profit declines.

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AI & Cloud Computing

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Although concerns about profit decline exist, AI and cloud computing continue to drive revenue growth. UBS Editorial Team reports that capital expenditure among top tech companies like Microsoft, Alphabet, Meta, and Amazon is projected to reach USD 205 billion this year, largely driven by AI infrastructure. This spending supports a positive outlook for the semiconductor industry, with expected revenues increasing by over 50% to USD 164 billion next year.

Cloud platforms from Microsoft, Alphabet, and Amazon report accelerated revenue growth, nearing 24% year over year, compared to below 20% in the previous quarter. This shows strong monetsation of AI, contributing positively to software earnings growth.

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Investor Expectations

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Investor expectations play an important part in tech stock performance. Geo-political and economic uncertainties, and changes in Federal Reserve policies, can bring more volatility into the market. Nasdaq experienced a 7% decline over 6 trading days in April due to these very kinds of uncertainties.

The more earnings normalise and economic conditions fluctuate, investor sentiment may see a shift. Structured strategies can help investors position for potential upside while protecting against market downturns.

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What Are Tech Companies Planning?

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Tech companies are likely to adjust their plans to face possible profit declines. Increasing cash-flow generation and defensive financial actions, such as Apple鈥檚 share buy-back programme and dividend increases, show strength. UBS expects big tech鈥檚 combined free cash flows to grow by 22% to USD 560 billion in 2025, providing a sense of security against economic difficulties.

So, What Are The Experts Saying?

We asked experts in the industry what they think would happen if we saw a profit decline this year as well. Interesting commentary with different angles have been shared, and we have noted them below:

Our Experts:

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• James Leaver, CEO, Multilocal
• Kate Leaman, Chief Market Analyst,听AvaTrade
• Phillip Burr, Head of Product, Lumai.
• Carl Uminski, Partner, CI&T
• Avinav Nigam, Founder, TERN Group & Member, Forbes Technology Council

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James Leaver, CEO, Multilocal

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鈥淭oday, there is a tendency to rely on tech giants because they are omnipresent in our lives 鈥� not just at work, but everywhere. This, of course, is why their walled gardens are so appealing to advertisers.

鈥淎s a self-funded startup in adtech we have always been very focused on ensuring that we de-risk our business at every turn, which means not relying on any one source for our growth. We therefore believe that regardless of what happens with the Big 6, we know what long-term success looks like for our business and remain focused on driving towards that.鈥�

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Kate Leaman, Chief Market Analyst,听 AvaTrade

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鈥淚f the profits of the 鈥楤ig 6鈥� tech companies start to falter in 2024, the impact could be significant and wide-reaching. These tech giants have been major drivers of stock market growth, so a slowdown could lead to a decrease in overall market confidence and investment values. Investors might start looking for stability elsewhere, which could boost sectors like utilities or consumer goods that typically offer steady returns.

鈥淎dditionally, a profit decline in these major companies may prompt a re-evaluation of tech sector valuations. These companies have commanded high price-to-earnings ratios based on their growth potential; if that growth is in question, their stock prices might adjust downward to reflect new realities.

鈥淥n the innovation front, reduced profits could lead to scaled-back investments in research and development. This might slow the pace of technological advances and could give smaller tech firms a chance to close the gap in market share.

鈥淔inally, job markets in tech-heavy regions could feel the effects if these companies tighten budgets and slow hiring, affecting local economies and possibly leading to a broader economic slowdown if the trend is widespread.

鈥淭his scenario underlines the importance of diversification in investment portfolios and may prompt investors to seek out new opportunities beyond the traditional tech giants.鈥�

Phillip Burr, Head of Product, Lumai.

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鈥淓ven if there was a drop in profit margin from the big six tech companies it is likely to be only in the short term. With their focus and continued investments in AI, these companies are absolutely in the right market 鈥� AI is set to revolutionise the way that we live and work and will reap rewards for AI companies across the value chain. It is critical that we think long term when thinking about the value of AI in tech companies.鈥�

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Carl Uminski, Partner, CI&T

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鈥淒espite an uncertain start to the year, the tide is turning for Big Tech, with Microsoft and Google both reporting higher revenues. Healthier profit margins against a backdrop of cost-cutting, together with the introduction of Generative AI, are welcome news for the markets and tech sector.

鈥淐ash reserves and free cash flow are increasing, which indicates growth through acquisitions and investments is likely on the horizon.

鈥淲e鈥檙e now starting to see Generative AI鈥檚 real impact, with the race very much on between Microsoft and Google. Next, they must consider how to monetise this following such massive hype, being careful not to cannibalise existing revenue streams but rather build new, complementary ones.

鈥淔or Google especially, it will be interesting to see if its experimentation with Generative AI on its US search engine page complements the company鈥檚 main revenue stream from paid search, potentially giving it an edge.

鈥淣o small company will be able to catch up with these big players right now. Despite this, AI鈥檚 widespread impact across a range of sectors still provides plenty of choice for investors, keeping the major players on their toes.鈥�

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Avinav Nigam, Founder, TERN Group & Member, Forbes Technology Council

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鈥淭he current market shift, particularly among the six major technology companies, represents more of a minor correction than a complete collapse. Notably, this adjustment includes substantial tech firms like Apple, Amazon, Alphabet, Meta, Microsoft, and Nvidia. These companies are anticipated to experience a decline of around 15% in the coming quarters.

鈥淕oldman Sachs has subtly indicated that this adjustment is expected and has revised its outlook from 鈥榦verweight鈥� to 鈥榥eutral鈥�. It鈥檚 important to note that this forecast isn鈥檛 a reflection of the companies鈥� fundamental health, which remains robust.

鈥淥utside of these six tech giants, the broader market is expected to see a significant increase, with earnings per share projected to grow by almost 26%鈥攁 notable rise from the previous figure of 11%. This indicates a healthy state for the tech sector overall.

鈥淭he AI boom has played a significant role in this scenario, particularly benefiting companies like Nvidia and Apple. This has allowed them to maintain high valuations without reaching an unhealthy point.

鈥淭he price-to-earnings ratios of these firms are generally high, ranging between 22 and 40, compared to the S&P average of around 25 to 26, suggesting a slight overvaluation but not critically so.

鈥淟ooking forward, the market does not seem to be gearing up for a major correction. Positive developments include increased AI regulation in the US and a healthy outlook for IPOs in the next 12 months.

鈥淕eographically, while the Indian market has seen a positive correction, the US continues to show strong momentum, and Europe is slightly behind but expected to recover by the end of the year.

鈥淚n conclusion, the technology sector remains a strong investment area, with no significant downturn expected in the near term. The ongoing shift towards more AI integration and the continuous flow of innovative companies towards public listings suggest a vibrant, evolving market landscape. Over the next year, my perspective on investing in this sector remains optimistic.鈥�