After a rather brutal start to the year, Big Tech stocks are proving their resilience once again.
Companies like Alphabet, Meta, Amazon, Microsoft and Apple provide essential products and services for consumers. As a result, Big Tech stocks have been the strongest performers, able to withstand most macroeconomic challenges (ahem, COVID) thrown their way.
But just last week, things were looking daunting for Big Tech. Treasury yields rose, and investors began dumping growth stocks like tech in favor of safer value stocks. But that pressure was short-lived.
Though the stocks of Apple, Amazon, Alphabet and Meta are still down year-to-date, they have begun recovering. In the last five trading days, the five biggest tech stocks have outperformed both the S&P 500 and the Nasdaq as of market close Wednesday.
Big Tech's big reversal this week could be a bullish sign, but there are still some significant challenges ahead for the group. First and foremost, data released Wednesday showed that inflation in the U.S. is red hot. According to the Labor Department’s latest report for December, consumer prices rose 7% year-over-year, which marked the fastest pace since 1982. The data came after Federal Reserve Chairman Jerome Powell said Tuesday the central bank would step in as necessary to ease rising prices.
Investors have been growing nervous with the Fed’s more hawkish tone. The Fed's December meeting minutes signaled earlier and quicker short-term interest rate increases ahead, and Wall Street strategists are predicting as many as four rate hikes this year. If the Fed does in fact raise interest rates as aggressively as anticipated, it will drive up borrowing costs, and the tighter financial conditions could cause significant volatility for stocks including tech.
On top of that, Congress still wants to reign in Big Tech with antitrust bills. Dozens of bills are currently on the table, and government agencies like the Department of Justice (DOJ) and Federal Trade Commission (FTC) are still aggressively prosecuting the Big Tech giants.
However, with the midterm elections taking place later this year, some political analysts have said if the Republicans manage to take over the House of Representatives, Big Tech regulation could stall until at least 2025, which would buy the companies more time before potential volatility.
Nevertheless, despite all the macroeconomic and regulatory pressures, Alphabet, Apple and Meta remain the best long-term bets among the Big Tech giants.
Google and YouTube’s dominance in digital advertising continues to drive strong topline growth for parent company Alphabet. Digital advertising sales jumped 31%, to $105 billion, in 2021, and digital ads now represent 62% of total ad sales globally, according to Magna. The advertising data provider predicts global digital advertising revenue will expand 17% in 2022, and Alphabet stands to benefit from the increase in cash being spent on digital ads.
Meanwhile, Apple and Meta stocks are riding the metaverse wave. Meta, formerly known as Facebook, was one of the first major tech companies to announce it would be shifting its focus toward the future and the metaverse, and investors are hyped up about the prospects. Apple hasn’t announced any plans to get involved in the metaverse landscape, but analysts seem to believe the iPhone maker will join in and ultimately reap some benefits.
Though the stocks of Alphabet, Apple and Meta have been on an impressive long-term run, they are still down quite a bit from their recent highs. While Alphabet jumped 62% over the past 12 months, the stock is more than 6% from its highs. Meanwhile, Apple rose 34% over the last year but is about 4% from its all-time high, and Meta soared 32% in the last 12 months, though the stock sits 13% below its highs.
The challenges ahead are very real, and many of those obstacles can disrupt the steady uptrend we’ve seen with Big Tech stocks over the past several years. On the bright side, the recent volatility can also be seen as a buying opportunity for those looking for long-term bets in tech.