Gloomy Alphabet and Microsoft results fueled fears of a global economic downturn, derailing an earnings-led surge in stock markets on Wednesday, while setting the tone for results from other megacap technology behemoths.

The Nasdaq fell nearly 2 per cent as the results highlighted the impact of a strong dollar and weak demand on the technology sector in the face of high inflation and rising borrowing costs.

In early trading, shares of Google and Microsoft fell about 8 per cent. In the run-up to its results on Thursday, Meta Platforms Inc was down 4 per cent, while Amazon.com Inc was down 4 per cent and Apple Inc was down 1 per cent.

Heavyweights Netflix, Meta, Amazon, Microsoft, Alphabet, and Apple have already lost more than $2.5 trillion in market value this year and were set to lose another $330 billion on Wednesday.

“The results of the big technology firms were seen as a key determining factor in market sentiment going into the U.S. third quarter reporting season and both Microsoft and Alphabet have given investors reason to worry,” said Laith Khalaf, head of investment analysis at AJ Bell.

Alphabet missed Wall Street’s revenue growth target in the third quarter as ad sales remained weak, while Microsoft reported its slowest topline growth in five years due to inflation and a strong dollar. more info

At least 21 analysts reduced their price targets for Alphabet by as much as $36, while 17 reduced their targets for Microsoft.

With analysts predicting a reduction in advertising budgets due to rising prices, investors are concerned that Meta’s business, which is heavily reliant on advertising, may suffer as well.

“Investors will be bracing for Meta’s results with some trepidation, with a common thought being that if Google’s struggling, the rest of the tech pack faces a marathon climb,” said Sophie Lund-Yates, an analyst at Hargreaves Lansdown.

For Meta, JMP Securities analyst Andrew Boone wrote that Google Search’s soft results are concerning, while YouTube and Snap’s weakness indicate that macro and ad targeting challenges persisted in the third quarter.

Meanwhile, concerns have been raised about Amazon’s cloud business due to a slowdown in growth at Azure, Microsoft’s cloud platform and one of its most successful businesses.

While most Big Tech stocks have risen in recent weeks, it has been a dismal year for the sector, which has lost 15 per cent to 60 per cent of its value.

Europe’s tech index fell 2.3 per cent on Wednesday, leading sectoral losses in the region.

(Adapted from Reuters.com)

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