Anyone who was distracted this month by the circus that fueled shares in Reddit may have missed an important fundamental story: a stellar earnings season for technology companies that once again outperformed the group’s shares.
With more than half of the S&P 500 earnings reports in the books, technology companies like it Skyworks Solutions Inc. and According to data compiled by Bloomberg, Paypal Holdings Inc. leads. all the other main sectors in the benchmark index with more than 95% better profit estimates. In terms of revenue, 88% reached the estimate.
The strong performance has helped to make a profit again for technology stocks after months in which the group lagged behind in cyclical sectors such as industries that benefit most from a recovering economy. Since the earnings season began on January 15, the S&P 500 sector index for information technology has risen by 6.2%, ranking second in the communications services group that includes tech giants such as Alphabet Inc. and Facebook Inc. include.
“They had good earnings that you just can not ignore,” said Gary Bradshaw, a portfolio manager at Hodges Capital Management, about technology companies. “This earnings season shows that they are going to grow at a steady pace.”
In 2021, technology stocks were which is expected by many people to underperform compared to other industries, which is ready for faster growth in earnings. A major pillar of their strength last year – the digital services and hardware so much in demand during the Covid-19 pandemic – would fall by the wayside because vaccines normally bring back the economy, or so the thinking went.
For now, the strong demand has shown few signs of declining. Wall Street took note of the performance and increased the revenue estimate after being flattened for months. Analysts now forecast 11% profit growth in the fourth quarter, a fourfold increase from two weeks ago. Revenue estimates for the first three months of 2021 have risen by 40% since the beginning of January, which was the largest advance among the eleven major operating groups, according to information compiled by Bloomberg Intelligence.
A concern for bulls is sluggish stock responses to good earnings reports from major U.S. tech companies. Among the top five stocks in the market is Alphabet Inc. and Microsoft Corp. are the only companies whose shares are higher after their earnings reports. The Google parent has since risen 8.8% earnings and earnings per share on February 2, which achieved the highest analysis estimates, while Microsoft has advanced 4.3% since January 26.
Despite hitting estimates on almost every benchmark, Apple is 3.7% lower than its report. Amazon.com Inc., who is revenue forecasts far exceeded the analysis estimate, having fallen by 0.8% since the results on 2 February.
Sky values
According to Jason Benowitz, a senior portfolio manager at Roosevelt Investment Group, the muted investor’s enthusiasm is related to high valuations relative to bargains in cyclical sectors and lurking antitrust risks.
“These are tremendous companies that are very profitable and can adapt to the environment and to deliver for shareholders,” he said. “The things that are holding them back relatively are still there and I am not convinced that it will perform better in 2021.”
Some of the biggest surprises came from chipmakers like Skyworks Solutions and software companies such as ServiceNow Inc. Both stocks have risen at least 12% since announcing their results.
Businesses that generate revenue in the coming week are a network giant Cisco Systems Inc., a social media company Twitter Inc. and online travel company Expedia Group Inc.
S&P 500 technology stocks are trading at 36 times the reported profit, compared to less than 32 for the broader index. Concerns about potential regulation should make it more difficult for tech companies to outperform, given the premium they achieve with the group trading near the most expensive valuation multiples in nearly two decades, according to Matt Maley, chief market strategist at Miller Tobacco + Co.
“With the new administration, more careful efforts will be made to enforce real regulations against some of these technological mega-cards,” Maley said. “It’s not going to kill them and land the bubble, but it could create a headwind, and many investors are very worried. This is one of the few things against which dual support exists. ‘