|Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:|
“The tech earnings season is turning out to be a game of two very different halves. After the run of pretty solid numbers from Apple, Microsoft and Alphabet, play has seriously deteriorated with Meta significantly undershooting on expectations.
There had been hopes that the poor form the tech sector had shown in terms of valuations may prove to be a temporary upset, but now investors are bracing for another round of pummelling as fears rise again about the prospects of tech stocks which have been the darlings of Wall Street.
The plunge in the Facebook owner’s share price after-hours was a red warning light of a big jolt of volatility to come when the session begins with confidence knocked yet again for the NASDAQ and the S&P 500 in particular. Meta is such a big player on the indices’ tech team and has set its sights on the next generation of revenue potential – now betting on the Metaverse as part of its strategy. But crucially it doesn’t have the back up support that Alphabet and Microsoft enjoy through the expansion of cloud services which are so vital right now to power the virtual global world. It’s also suffered from the headwinds of dwindling revenue for ads and increased competition, and while its videos are getting more eyes on screen, they aren’t as lucrative in terms of advertising.
Meta’s massive size and impressive reach coupled with a solid balance sheet means there’s potential further ahead, but the investors who don’t have long term horizons look likely to be tempted to get off what’s set to be a bumpy ride. Investors are losing patience with tech firms who are promising potential but who won’t be able to deliver it until some distant point in the future. Facebook has big pockets to fund that investment, but those companies reliant on debt for future growth are set to see confidence seep away further. Hopes and big plans were easy to fund in an era of cheap money, but with the cost of borrowing set to rise as central banks tighten monetary policy, it’s going to get a lot harder to sustain high valuations.’’