For Big Tech, beating expectations is not enough

Big Tech drags the markets down
Major U.S. indexes fell on Thursday, weighed down by losses in Big Tech stocks. All three indexes fell for the month. Europe’s Stoxx 600 the index fell 1.2% to end October 3.4% lower, according to LSEG data, marking its worst monthly performance in a year. Separately, eurozone inflation rose to 2% in October, more than expected.

Apple and Amazon beat estimates
Apple’s fourth quarter earnings and revenue exceeded LSEG consensus estimates. The Cupertino-based company’s iPhone revenue grew 6%. Meanwhile Amazon also beat Wall Street expectations for third-quarter earnings and revenue. Although the company’s cloud division missed revenue expectations, it is growing faster than it had in the same period last year.

New contract offer for Boeing workers
Boeing and its machinists union has reached a new contract offer that could end a seven-week strike involving more than 32,000 machinists. The new proposal kicks off wage increases and allows for a ratification bonus. The vote is scheduled for Monday, and the union urged its members to approve the contract.

(PRO) Lowest level of cash in mutual funds
The US presidential election is less than a week away. Usually, this uncertainty heralds volatility in the markets. But cash levels in mutual funds are at an all-time low, according to Bank of America, suggesting fund managers aren’t afraid to put cash into the markets. CNBC Pro’s Jesse Pound explains what this means for the markets.

Expectations for Big Tech are so high that, ironically, it is no longer enough for them to beat expectations.

The picture is roughly the same with shares of Meta and Apple. Even Alphabet shares, which rose nearly 3% after reporting earnings on Wednesday, retreated 1.9% on Thursday.

“I think we’re getting to the point where AI enthusiasm and potential isn’t enough. These companies … aren’t quite delivering the growth priced for them,” said Ross Mayfield, investment strategist at Baird Private Wealth Management.

The size of the losses in these Big Tech companies decreased Nasdaq Compositewhich fell 2.76 per cent. The S&P 500weighted heavily toward these megacap companies, fell 1.86%. Both indexes had their worst day since September 3 Dow Jones Industrial Average lost 0.9 per cent. All indices ended October in the red.

However, some analysts remain optimistic about Big Tech’s catalyst for stock growth.

“The continued growth in AI-related investment reported by all three tech giants supports the positive structural trend,” Solita Marcelli, UBS Global Wealth Management’s CIO for the Americas, wrote in a note. Marcelli referred to Microsoft, Alphabet and Meta.

Likewise, Piper Sandler chief market technician Craig Johnson wrote to clients that “the overall technical evidence remains constructive and the primary trend for the major averages is higher,” though there are “closer pullbacks or modest profit-taking.”

Therein lies the big burden on Big Tech. Investors and analysts don’t just expect these companies to beat estimates. They also want megacaps to drive the markets, which is more driven by growth prospects than earnings.

In essence, Big Tech, more than any other sector, must meet expectations for both the past and the future at the same time.

— CNBC’s Jordan Novet, Jesse Pound, Alex Harring, Hakyung Kim and Brian Evans contributed to this report.