Big Tech stocks have undoubtedly been the juggernauts driving the market in recent years, shaping major indices’ trajectories and overshadowing various market challenges, including a hawkish Federal Reserve stance and escalating Treasury bond yields. This trend persisted into the first quarter of the year, with the US Technology Index surging by an impressive 13.1%, contributing significantly to the S&P 500’s overall gain of approximately 10.2%. Notably, Nvidia emerged as a frontrunner, witnessing a staggering 58.2% surge, which added over $1 trillion to its market capitalization.
The fervor surrounding AI technologies played a pivotal role in fueling this year’s gains, particularly in sectors like chip manufacturing and technology giants such as Nvidia, Google’s parent company Alphabet, Meta Platforms (formerly Facebook), and Microsoft. These companies unveiled ambitious AI-driven visions, igniting investor enthusiasm and driving their stock prices higher. Conversely, Apple, once hailed as the epitome of tech success, faced headwinds due to concerns over its lagging AI strategy and diminishing iPhone demand forecasts, leading to a decline of approximately 11% in its stock price year-to-date.
However, the onset of the second quarter brought about challenges for the tech behemoths, epitomized by Nvidia’s substantial 14% decline – its most significant five-day fall in over a year and a half. This decline, coupled with the broader Magnificent 7 tech stocks collectively shedding a staggering $1 trillion in market value, coincided with the S&P 500’s largest drawdown since October and an 8.3% decline in Morningstar’s US Technology Index.
Against this backdrop, investor attention has turned to the imminent earnings reports from Meta Platforms, Microsoft, and Google, anticipated to provide insights into the trajectory of the tech sell-off. UBS Global Research analyst Jonathan Golub sounded a cautionary note, warning that the pace of AI-driven earnings growth is poised to slow significantly in the coming quarters, with a potential collapse by year-end. This warning prompted Golub to downgrade the collective Big Six tech basket to ‘neutral’ from ‘overweight,’ citing challenging year-on-year comparisons and cyclical pressures.
Despite these concerns, expectations remain relatively optimistic for companies such as Microsoft, Meta Platforms, and Alphabet, albeit with slower growth rates compared to previous quarters. However, muted outlooks from cloud computing rivals like Salesforce and Snowflake have raised concerns about corporate spending capacity in the latter half of the year.
Looking ahead, investors are closely monitoring earnings updates from tech giants like Amazon and Apple, scheduled for later in the quarter. While the bar is higher for tech firms to meet earnings expectations amid market pressure and fading rate cut hopes, BlackRock sees further potential upside in the AI and digital disruption mega force, suggesting that growth opportunities may extend beyond the Big Six tech companies to include early AI winners and enablers across the technology stack.