Source: Wall Street News
With cash reserves of up to $275 billion, investors expect technology companies to spend their money to drive long-term growth and innovation.
Recently, in the “Seven American Stock Sisters”$Microsoft (MSFT.US)$,$Alphabet-A (GOOGL.US)$/$Alphabet-C (GOOG.US)$,$Meta Platforms (META.US)$und$Tesla (TSLA.US)$Results for the first quarter were announced one after another. Among them, three companies reported profits and sales that exceeded Wall Street's expectations, while the fourth company's performance fell far short of expectations.
Investors, however, have had little reaction to these immediate financial results; they are more concerned about the four companies' future investment and spending plans, rather than just their current profitability. According to the data, these four companies have total cash reserves of 275 billion US dollars, and this part of the capital can be freely used for various investments and development of new technologies.
Overall, demand for AI infrastructure is very strong, and these companies have generally raised AI capital expenses:
• META: Annual capital expenditure increased from 300-370 to 350-400 to build data centers to support AI business;
• Google Google: The capital expenditure for each quarter of 2024 is expected to be more than 12 billion US dollars, an increase of at least 49% year-on-year for the whole year to maintain its leading position in AI infrastructure;
• Microsoft: said that demand for computing power cards exceeds supply, and decided to expand the scale of AI investment. The capital expenditure for the quarter was 14 billion yuan (expected to be 13.14 billion yuan), and capital expenditure is expected to increase sharply from month to month next quarter;
The companies' statements about future spending plans directly triggered large swings in stock prices. Meta, in particular, announced that it will increase investment in AI infrastructure by up to $10 billion this year. The news caused its stock price to drop 11%, the biggest one-day decline since October 2022. Although Microsoft has also invested heavily in the AI field, and its stock price has also been affected, it quickly rebounded after announcing its financial results.
Dan Morgan, portfolio manager and analyst at Synovus Trust, said:
“Together, Meta, Microsoft, Tesla, and Google had cash balances of $275 billion at the end of the first quarter. Investors are putting pressure on these companies' use of cash. They are concerned about how the companies can use their huge cash to make strategic acquisitions and whether they can get good returns from their investments. Investors don't want these companies to spend a lot of money on projects that ultimately can't be realized.”
Some analysts point out that investors are paying close attention to the spending plans of giants, partly because the investment decisions of these companies can directly affect the direction of the stock market. According to S&P Dow Jones Indices, the “Seven Sisters of US Stocks” account for nearly 30% of the market value of the S&P 500 Index, and they contribute more than 40% to the index's year-to-date return. As a result, investors pay close attention to every one of their financial actions and plans.
Another reason is that investors are gradually losing patience in the face of weakening expectations of the Federal Reserve's interest rate cuts and excessive valuations of technology stocks. At the beginning of the year, the market was optimistic that the Federal Reserve might cut interest rates soon, but in recent weeks, as inflation data showed that the situation was more difficult than many investors expected, this optimism waned. At the same time, against the backdrop of continued high valuations of technology stocks, investors' patience is being tested. Bob Doll, chief investment officer of Crossmark Global Investments, said:
“Investors have limited patience with overvalued tech stocks, and they expect quick returns. Although the tech stock bull market remains solid, investors have made it clear that they are raising the bar.”
Over the next few days, investors will turn their attention to the performance of the other members of the “Seven Sisters.”$Amazon (AMZN.US)$The financial report is scheduled to be released next Tuesday.$Apple (AAPL.US)$It will be announced on Thursday, and$NVIDIA (NVDA.US)$It will be announced on May 22nd. In addition, they will also pay attention to the Federal Reserve's policy decisions and Chairman Powell's press conference next Wednesday to assess the possibility of cutting interest rates in the short term.
Editor/jayden