Big Tech Tanks the Market

By Alex Eule  |  Wednesday, October 26

Blame Big Tech. Investors' recent optimism turned out to be no match for Big Tech's bad earnings. After reporting results last night, Google-parent Alphabet and Microsoft had their worst days since the Covid selloff in mid-March, with their shares down 9.1% and 7.7%, respectively.

Alphabet's third-quarter numbers showed that even the search giant isn't immune to a slowdown in ad spending. In Microsoft's case the third-quarter numbers weren't even that bad. The bigger issue is that the company's public cloud business called Azure seems to be slowing down. The cloud was supposed to be the one resilient part of the tech ecosystem. But the Azure numbers poked a hole in that theory. 

We'll learn more about the cloud when Amazon.com reports tomorrow, but investors weren't willing to wait. Amazon shares finished today down 4.1%. 

For investors accustomed to Big Tech driving the market, the new dynamic remains an adjustment.

The tech-heavy Nasdaq Composite closed down 2%, while the broader Dow Jones Industrial Average was actually up two points, or 0.01%. Over the last 10 years, there have been just six trading days in which the Nasdaq has fallen at least 2% while the Dow has been positive. 

And it could get worse for tech tomorrow. After the market closed today, Facebook-parent Meta Platforms reported its own terrible results. The company's third-quarter revenue was roughly in line with estimates, down 4% from a year ago, to $27.7 billion. But earnings of $1.64 a share weren't even close to analysts' forecast of $1.90. Meta's huge spending on its vision for the metaverse continues to weigh on the company's bottom line.

On a call with analysts this evening, founder and CEO Mark Zuckerberg emphasized that the spending would continue. "We expect Reality Labs expenses will increase meaningfully again in 2023," Zuckerberg said, referring to Meta's unit that builds hardware for virtual reality experiences. The company said it now expects total expenses this year to range from $85 billion to$ 87 billion. In 2023, it sees those expenses growing to somewhere between $96 billion and $101 billion. Meta stock fell on the earnings report and then continued to tumble through the earnings call. By tonight, the stock was down 19% in late trading. And that's after the stock lost 5.6% in the regular session. 

In a report titled "Holy expenses Batman," RBC analyst Brad Erickson called the spending forecast a "meaningful disappointment." Meta's core social networking business continues to slow down. And investors just aren't in the mood for profligate spending in the still untested category of the metaverse. 

There's now a lot riding on results tomorrow afternoon from Apple and Amazon, the last two of the Big 5 tech companies to report. First, though, tech investors have to get through another day of trading. 

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