In January, we had a considerable rise in technology companies in the United States, and all of this has helped not only the S&P 500 , but also other stock indices , including those outside the American stock exchange . But can we expect these companies to deliver good numbers in the fourth quarter of 2023?  

Everything indicates that we are about to witness strong increases in profit rates for at least 5 companies considered Big Techs in the American market . Of these, scheduled to release results for the fourth quarter this week, on January 30 or February 1: Alphabet , Amazon.com , Apple , Meta Platforms and Microsoft .

I expect Alphabet, Amazon, Apple, Microsoft, and Meta to collectively achieve earnings growth of over 37% YoY in Q4. If these companies are excluded from the stock index profit growth calculation , we could anticipate a contraction in earnings of around -5%. This shows that, even when excluding some of the main Big Techs from the index's profit calculation, the remarkable resilience of the economy and companies in the American market remains evident, even in the face of the increase in interest rates by the FED .

It is important to highlight that among these companies, projected as the main contributors to the S&P 500's earnings growth in fiscal year 2024: Microsoft, Amazon.com, Meta Platforms and Alphabet . Collectively, these companies are expected to post a year-over-year increase in earnings of 47% for the first quarter of 2024 . Excluding these four companies, the other 497 in the S&P 500 would be projected to have zero growth for the current year.

Has the acinar market already priced in this possible profit growth?

Image 1: Valuation Multiples for Big Tech companies.

Yes, the market has already understood that the " The Winner takes all " effect in these cutting-edge companies justifies higher Valuation multiples than their competitors. If we consider especially the increase in market prices in recent weeks, we see that the market has priced in the effect of interest rate growth and a possible interest rate drop by the FED in upcoming meetings.

Is there room for investment in Big Techs?

There are always investment opportunities , however, viability depends significantly on the investment time horizon, associated with the expansion capacity of these companies. From my perspective, although they have presented solid results, they face challenges in maintaining this level of growth over several years. This is due to the fact that these companies have already achieved revenue volumes in the hundreds of billions of dollars, making it progressively more challenging to sustain the increase in sales and profits as this amount increases.

However, in some of them, we can find interesting potential. Want to know which one? Contact Wagner Geremia.

This blog is informational only. The information in it does not constitute legal, tax or investment advice. The company Wagner Geremia does not endorse investments and does not assume responsibility for actions based on the information contained herein.

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