“Big Tech” has easily outstripped investors’ expectations for third-quarter earnings, sending the shares of Alphabet, Amazon and Microsoft sharply higher on Friday and injecting fresh momentum into a sector that has driven US stocks to record highs.
Amazon was the biggest winner, with its shares surging 13.2 per cent after the online retailer late on Thursday easily beat analysts’ forecasts. The company reported a 34 per cent jump in sales to $43.7bn in the three months to the end of September. Net income ticked up slightly to $256m.
Shares in Alphabet rose 4.3 per cent to break through the $1,000 mark after the parent company of Google reported a 24 per cent rise in sales to $27.8bn, ahead of expectations. Microsoft stock jumped 6.4 per cent after the company also beat earnings estimates, giving it a market capitalisation of almost $630bn, surpassing the record touched at the peak of the dotcom bubble.
The batch of tech earnings results had been billed Super Thursday by Wall Street analysts both because of how big each of the companies are — the combined market capitalisation of Alphabet, Amazon, Twitter, Microsoft and Intel, whose results also beat forecasts, is more than $2tn — and because technology stocks have been the major driver of the stock market this year.
Investors have turned increasingly bullish on the prospects of US stocks, pumping more than $14bn into the asset class during the past three weeks, according to the latest data from EPFR. It is the longest string of inflows for US stock funds since the first quarter and has pulled cumulative flows for the asset class back into positive territory for the year.
“There has been some sensitivity over whether these stocks could continue to beat earnings and, if they could, then perhaps the market isn’t overvaluing them even at the current price levels,” said Paul Christopher, head global market strategist at Wells Fargo Investment Institute. “If you have these [tech] stocks beating earnings, then that is a good sign.”
The third-quarter results from Amazon and Google showed both seeing growth in their core retail and advertising markets accelerate.
Shares in chipmaker Intel also nudged higher, and earlier on Thursday Twitter released unexpectedly good results, lifting the social media site’s shares 18 per cent.
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The surge in tech shares has ushered in record highs by US stock indices, with the S&P 500 setting a new intraday high on Friday in addition to its 50th record close of the year. Indeed, the blue-chip US equity benchmark has now gone nearly a year without suffering at least a 5 per cent correction — the longest streak in the index’s history since 1928.
Money managers have been cheered in part by the prospect of tax cuts, which passed key hurdles in Congress this month. Every percentage-point drop in the corporate tax rate results in a $1 rise in earnings per share for the S&P 500, according to Vinay Pande, head of short-term investment opportunities at UBS Wealth Management.
“[Corporate] profit share of GDP is rising and if there is a tax cut it will rise more,” he said. “The thing about equities, you trade the profit share of GDP. If someone reduces regulation, cuts taxes, does not empower labour unions . . . the profit share will go up.”
Mr Pande added that sentiment among investors had also shifted because of the strong gains by the market this year, with the Nasdaq and Dow Jones Industrial Average both up more than 18 per cent in 2017.
The S&P 500 technology index has gained more than 34 per cent this year, compared with the broader benchmark’s 15.3 per cent rise, but the tech rally slowed in the third quarter while investors shifted their attention to less-loved sectors, industries and companies that would benefit from the Trump administration’s plans to cut taxes.