Don't expect tech stocks to post a repeat performance
Shares of the largest, most well-known technology stocks exploded higher on Friday, pushing the Nasdaq to a new record high. Sparking the surge were better-than-expected quarterly results posted on Thursday by some of the sector's biggest names.
Plus, Apple (AAPL) played along, thanks to rousing iPhone X preorders overnight for the Nov. 3 launch date: That first shipment sold out in just 20 minutes, instantly eliminating concerns over iPhone 8 demand and the Apple Watch's cellular connectivity issues.
The result on Friday was the largest outperformance for the tech-heavy Nasdaq vs. the S&P 500 since early 2009.
Here's a look at the action. But first, why there could be some giveback soon.
SentimenTrader notes that "knockout earnings" and "enthusiastic" stock price reactions have often been a contrary indicator for the major indexes. A study of market history -- using Amazon (AMZN) and Alphabet (GOOG) as the triggers -- shows that chasing the enthusiasm (and buying the Nasdaq the day after earnings) has been a losing idea. Those stocks dropped on average 0.4 percent one week later (vs. a 0.2 percent gain for any random week).
Now for the particulars of Friday's blowout in tech stocks.
Amazon's shares gained more than 13 percent (chart above), pushing up and over their late July low and breaking cleanly up and out of a multimonth consolidation range near the $1,000-a-share level. That's enough to make Jeff Bezos the world's richest man again after Amazon's stock surge, overtaking Microsoft (MSFT) co-founder Bill Gates.
Amazon reported quarterly earnings of 52 cents per share vs. the penny that was expected. Operating income was a little soft, at $347 million vs. the $575 million expected. The Whole Foods Market integration points to a profit margin of just 1.5 percent for the grocer. And operating free cash flow is slowing as companywide operating margins fell to just 0.8 percent, the lowest in three years.
But investors remained focused on the ability of the high-profit Amazon Web Services division (which posted 42 percent year-over-year sales growth) to subsidize other areas. Also fueling the bulls were reports the company has acquired a wholesale license to acquire and transport pharmaceuticals in a number of states, stoking the hype that Amazon is about to take on high drug prices.
Intel (INTC) shares gained more than 7 percent, extending a 35 percent rally off of its early July lows (chart above). That jump came after the chipmaker reported earnings of 94 cents per share (vs. the 80 cents expected) on revenues of $16.2 billion (vs. $15.7 billion expected). Forward revenue guidance came in hotter than expected as well.
While legacy client computing posted flattish results, new areas like the "internet of things" took the spotlight, with top-line growth of 23 percent. The data center segment was also strong, up 15 percent. It now contributes 45 percent of the company's overall sales.
Shares of Google parent Alphabet (GOOG) ended with a gain of nearly 5 percent after trading much higher on Friday, pushing above the $1,000-a-share level for the first time after the search giant reported earnings of $9.57 per share vs. $8.43 expected. Paid clicks were up 47 percent, while cost-per-click declined amid a shift to mobile and competitive pressure. Overall ad revenue grew on volume.
Facebook (FB) gained 4.3 percent, pushing to new record highs and breaking out of a trading range going back to July. The company will next report results on Nov. 1, but it's getting a lift here in sympathy with the other big-tech stocks on enthusiasm for the online advertising reported by Alphabet.
Analysts at Monness Crespi & Hardt upgraded the stock to "buy" Friday morning on the belief that Facebook and Alphabet are an unequivocal duopoly in the industry, while further growth will hinge on success in emerging market countries and a transition to video content.
Microsoft added more than 6 percent to hit all-new highs (chart above) in enthusiasm over the company's efforts in cloud services. Quarterly earnings came in at 84 cents per share (vs. the 72 cents expected), thanks to better-than-expected revenues of $24.5 billion, up 11.7 percent from last year, of which $6.9 billion came from cloud revenues. Management guidance was strong as well.
Analysts at Oppenheimer viewed the results as a clear affirmative verdict that the company can execute on its unique mobile hybrid cloud strategy.