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AI And Costs Review Boosted Big Tech Stocks: Still Room To Go?

Last Updated February 5, 2024 10:07 AM
Giuseppe Ciccomascolo
Last Updated February 5, 2024 10:07 AM

Key Takeaways

  • Big tech companies are delivering strong financial results, topping expectations despite cost-cutting measures.
  • The “Magnificent Seven” significantly contributed to the US stock market’s rally in 2023.
  • The prospect of artificial intelligence (AI) as a major growth driver further contributes to positive investor sentiment.

Big tech companies never fail to surprise the market. They did so in the latest round of quarterly results, beating expectations in terms of revenues and profits while continuing with their cost-cutting policy, which since the beginning of the year has resulted in new announcements of heavy staff reductions.

Microsoft Tops $3 Trillion But Cuts Staff

This is the case of Microsoft, which on last January 26, after having exceeded $3 trillion in capitalization on Wall Street, announced that it wanted to eliminate 9%  of the video game division’s workforce, amounting to 1,900 potential job cuts.

Google and Amazon will also implement layoffs in the coming months. For the e-commerce giant, they will concern a few hundred employees of Prime Video and MGM Studios, while the Mountain View company will cut around 1,000 positions in the engineering staff.

If we then include technology companies from all over the world, according to the ranking drawn up by Layoffs.fyi , since January the total number of exemptions has amounted to 30,375 units, a clear increase compared to the same period last year.

Potential Of AI

But cost-cutting and artificial intelligence (AI) are two highly appreciated themes on Wall Street, as demonstrated by the performance of tech stocks, supported by the mostly positive opinions of analysts. Moreover, the contribution of the so-called ‘magnificent seven’ (Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla and Meta) to the performance of the US stock market is overwhelming, after the 73% rally achieved in 2023. While the prospect of a rate cut by the Federal Reserve this year becomes more concrete, investors continue to bet on further increases by the technology titans, in light of the latest budget results.

Among the seven, Facebook and Instagram parent company Meta stood out. On Friday 2 February the business gained 20% in the middle of the Wall Street session, after having announced the previous evening that it had tripled its profits in the last quarter of 2024. The company’s profits went up to $14 billion, against revenues growing by 25% ($40.1 billion).

However, what made the stock soar was the unexpected news  that, for the first time, it will distribute a dividend. The social media giant announced a quarterly cash dividend of 50 cents for its Class A and B common shares, starting in March.

For founder Mark Zuckerberg, who holds 350 million shares, the proceeds will be approximately $175 million per quarter before taxes, according to Bloomberg , for an annual amount of 700 million. But according to Bernstein analyst Mark Shmulik  the Meta stock  will not disappoint even small investors, given that it can continue to run towards a target price of $535 per share. And, for Raymond James specialist Josh Beck , it can go even higher, up to $550.

Amazon Sets Sights On $220

Amazon is also catalyzing positive opinions, after concluding the fourth quarter with a net profit of $10.6 billion, equal to $1 per share, while turnover reached $170 billion, also thanks to the strong growth in online spending by consumers during the Christmas holidays. Jeff Bezos’ business is an excellent investment idea for Scott Devitt , Wedbush analyst, who raised the target price to $220.

Among the last big tech companies to report their accounts, Apple exceeded expectations on turnover and profits, but disappointed with sales in China and raised doubts due to the weak outlook.

For Andrew Uerkwitz , a specialist at Jefferies, these circumstances will not prevent the Cupertino giant from beating the market, up to a target of $205. This is a bet that many have made in the past, and won.

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