Tech’s big day tarnished as Microsoft and Google disappoint

 ·26 Oct 2022

US tech stocks tumbled in after-hours trading after some of the industry’s biggest companies reported disappointing results, undermining wagers that this year’s $5.5 trillion selloff had reached bottom.

The quarterly updates from Microsoft Corp, Alphabet Inc and Texas Instruments Inc underscored growing pressure on everything from corporate IT budgets to digital ad spending and chips for industrial machinery.

Nasdaq 100 Index futures lost as much as 2.4%, reversing an earlier rally on Tuesday, as the results refocused investor attention on the damage to earnings and the economy from the Federal Reserve’s rapid interest-rate hikes.

“The global economy is at a tipping point,” said Jessica Amir, strategist at Saxo Capital Markets. “The stronger USD will continue to hurt businesses’ forward earnings, at a time when consumer demand is likely to fall with the reverse wealth effect expected to grip markets. Pressure remains on riskier asset classes, such as tech.”

Signs of weakness were widespread in the financial results. Microsoft posted its weakest quarterly sales growth in five years, throttled by the surging dollar, slumping PC demand and faltering advertising revenue.

At Alphabet’s most important financial engine, the search and related businesses, sales fell shy of analyst estimates as spiraling inflation crimped growth in digital advertising.

The selloff in extended trading was broad-based. Inc. fell 4.9%. Those that derive sales from online advertising followed Alphabet lower, with Meta Platforms Inc and Pinterest Inc. dropping more than 4% each.

Among software companies moving in the wake of Microsoft, Datadog Inc tumbled 7%, Snowflake Inc fell 5% and Salesforce Inc dropped 3%. In the chip space, Analog Devices Inc, ON Semiconductor Corp, and Marvell Technology Inc also dipped.

The Nasdaq 100 Index has plunged more than 28% this year, on course for its worst annual performance since 2008.

Pessimism is growing in the semiconductor industry, which had been one of the hottest sectors during the pandemic.

Texas Instruments, whose chips go into everything from home appliances to missiles, saw shares tumble after its weak forecast signaled that the chip slump is spreading beyond computing and phones into other businesses.

South Korean chipmaker SK Hynix Inc. reported a 60% decline in profit and said it would cut capital expenditures by more than half. It warned of “an unprecedented deterioration in market conditions.”

Hynix is joining fellow memory makers Micron Technology Inc. and Kioxia Holdings Corp. in slashing production plans as chip prices tumble. That pullback may ultimately prove beneficial for profits – and stock prices, analysts said. Hynix shares, which have lost 28% this year, were up as much as 2.1%.

Other Asian chipmakers also rose. Samsung Electronics Co. climbed 3%, while Taiwan Semiconductor Manufacturing Co added 1.4%.

Chip shares are rising in response to actions from memory makers to cut output, said Greg Roh, head of technology research at HMC Investment & Securities. “Inventory will decrease accordingly and demand will rise again,” he said, adding that the stock moves are already reflecting expectation of a market recovery.

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