Meta (NASDAQ:META) revealed better-than-expected earnings, a more-than-doubled profit from last year, and a 27% rise in sales. Oh, and the revenue growth was up for the fifth quarter. But the share price tumbled 15% in the after-hours trading as investors didn’t like the weaker-than-expected revenue forecast for the current quarter and even less the news that the company will be spending more money to improve its AI capabilities. Meta is now expected to spend around $35 to 40 billion, versus $30-37 billion they said they would spend earlier. In fine, these investments will help the company keep more people longer on their platform and increase their ad revenue with a more intelligent and customized advertisement strategy, but additional spending news comes at a time investors were expecting Meta to start throwing magnificent results into the mix. And all we got is a lower revenue outlook and more spending. Price-wise, Meta will likely slip below its uptrending range building since the end of 2022; it’s certainly not the end of the AI hype for Meta, but it’s sure a short-term disappointment.
Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), and Intel (NASDAQ:INTC) are due to report today.
So far, we observe that the high expectations have played tricks on stock valuations and the first set of earnings reactions warn that even strong results from Big Tech may not suffice to send their stock prices higher – if we start seeing growth expectations level out. (I am looking at you Microsoft and Nvidia (NASDAQ:NVDA).)
Zooming out, the stumbling giant Meta is weighing on the mood this morning. US futures are down and the technology-heavy Nasdaq is leading losses with more than 1% fall at the time of writing.
The macroeconomic landscape is complex, with investors balancing between robust GDP growth and high earnings expectations for the Big Tech companies, all while considering the fading expectations for a Federal Reserve's (Fed) rate cut. A strong GDP reading would suggest that the US economy is sufficiently strong to support corporate earnings, but it could also delay expectations for a Fed rate cut. Conversely, a softer-than-expected GDP figure would likely increase expectations for a rate cut, especially if earnings disappoint due to inflated expectations. Overall, I believe that a softer-than-expected GDP would elicit a more positive market reaction, but the risks surrounding GDP lean towards a better-than-expected reading. According to a consensus of analyst estimates on Bloomberg, Q1 growth is expected to be around 2.5%, while the Atlanta Fed’s GDPNow projection stands at approximately 2.7%.
The US Dollar Index rebounded yesterday after trading near a two-week low. The EUR/USD remained bid into the 1.0680 support, fueled by better-than-expected German sentiment data – which showed that business sentiment rose to the highest level in a year. But a set of rating assessments are expected to challenge the rising debt risks in France and Italy and could limit the upside potential along with a potentially stronger US dollar dependent on today’s first glimpse at the Q1 growth.
The dollar appreciation is a problem for many economies, but it has become a major headache for the Bank of Japan (BoJ). The USD/JPY spiked and extended gains above the 155 mark. The BoJ will lean on to the USD strength at this week’s policy meeting and will – potentially – intervene to slow the yen selloff. What’s interesting is that we know that the next hours will likely bring an announcement to tackle the yen depreciation, but the yen shorts are not afraid. They know that an FX intervention alone won’t reverse the yen’s falling course unless accompanied by a hawkish BoJ policy outlook. Therefore, even an intervention could backfire and fail to prevent a further rise in USD/JPY to the 160 level.