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Apple and Amazon shares are set to shed nearly $170 billion (€146bn) in combined market value after the technology giants served notice of a difficult holiday season and reported disappointing earnings. Apple’s drop in premarket trading puts Microsoft on pace to become the world’s largest listed company by market capitalization.
Apple was down 3.6 per cent in US premarket trading after chief executive officer Tim Cook said supply constraints were affecting most of its products. Amazon dropped as much as 5 per cent after warning that high costs could wipe out any profit in its most important quarter of the year.
Debate on whether to buy or not to buy tech stocks following their record run during the pandemic began before the ongoing earnings season, as rising bond yields put the spotlight on the sector’s frothy valuations. A number of hedge funds have turned negative on the sector, which is seeing the biggest increase in short selling among major industries this year, according to Morgan Stanley.
‘Transitory issues’
Still, most analysts backed their buy calls on the stocks, saying the issues are transitory. “Even Goliath feels the pain,” Evercore ISI’s Amit Daryanani said of Apple’s warning on chip shortages, while maintaining his outperform rating.
The news from the technology heavyweights overshadowed what had been a strong earnings period for the sector. Earlier this week, Alphabet Inc and Microsoft Corp. both rose more than 4 per cent after results beat expectations.
And the sell-side remained bullish. For Amazon, the impact of cost inflation and supply shortages on smaller competitors could present an opportunity to grab even more market share, according to Morgan Stanley’s Brian Nowak, who has an overweight rating. All the analysts covering the stock have buy ratings on stock.
“Amazon sounds very confident around its capacity and supply chain advantages heading into the holidays,” said Barclays Plc analyst Ross Sandler, who also rates the stock overweight. –Bloomberg