Big Tech Companies Like Tesla Are Not Celebrating

During January, investors are waiting for the S&P 500 to rebound, but the largest companies that make up a fifth of the index could fall further.

During 2022, the technology sector was one of the most affected and least loved. The highly exposed technology Nasdaq Composite fell 33%, while the S&P 500 fell 19%.

Investors placed less value on high-priced growth stocks caused by rapidly rising interest rates, but the woes for tech stocks now go beyond that. According to Nicholas Colas, co-founder of DataTrek Research, reduced earnings expectations also play a role.

“The power of short-term earnings is also in question, and that is not a good setup for these still very valuable stocks,” wrote Nicholas Colas. This adds another problem to this sector apart from interest rates or possible recession.

For the S&P 500, this becomes a short-term problem. Amazon.com (ticker: AMZN), Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), Meta Platforms (META), Tesla (TSLA), and Nvidia (NVDA) are technology companies comprising 20% of the index, making the sector a major driver of index movements.

Meta aside, tech stocks are valued well above the S&P 500’s price-to-earnings ratio of 16.9 times. Tesla lost nearly two-thirds of its market capitalization last year, and all publicly traded shares fell more than 25%.

Cuts in analyst earnings predict would further boost valuations.

Tesla and Apple Have Always Outperformed

Dan Ives agrees with Nicholas Colas, Ives detailed near-term problems for Tesla and Apple even though he maintained his outperform ratings on both stocks.

Ives on Apple mentions that despite the fact that the technology giant has shown that demand for its flagship products, iPhone and Mac, is very resilient, he pointed out that the economic uncertainty could put pressure on the shares, as reported in WSJ Print Edition.

After news about Tesla’s EV deliveries came in weaker than expected in the fourth quarter, the stock plunged 12%. Ives noted that Tesla has two other problems with its stock: Twitter and China. China accounts for 40% of Tesla’s growth prospects. NIO, BYD, and XPeng, local manufacturers, are increasing their production. All four players may fight over their share of a shrinking pie.

As for Twitter, it was a major distraction for the Tesla CEO, who bought the social network late last year, raising concerns about his ability to be effective at Tesla.

Ives wrote, “Now is the time for the Musk leadership to guide Tesla through this period of lower demand in a darker macro and NOT the time to stand by, which is the perception of the Street.”

Other big tech companies face similar challenges.

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