Microsoft, Meta beat Street estimates; what should you do?

As reported by Wall Street Journal, Facebook parent Meta Platforms Inc. on Wednesday reported its first increase in sales in nearly a year due to continued improvements in its advertising business.

Meta reported revenue of $28.6 billion, up 3 per cent against the previous year while Microsoft’s revenue for the January-March quarter rose 7 per cent year-on-year (YoY).

Both Meta and Microsoft exceeded analysts’ expectations in terms of their quarterly revenue.

Early to say all is well

While the growth figures of Microsoft and Meta are encouraging, it is early to say that the trend will reverse from here on.

In fact, tech companies are under strong pressure to the global economic slowdown. Some of the biggest names in the sector, including Microsoft, Amazon, Google and Meta, have announced a significant number of layoffs since January 2023. And the trend is likely to continue for the coming few months too.

“The unexpectedly good results of Microsoft and Meta might give a breather to the global IT sector, but it would be too early to say that now all’s well in this sector. The reason is, the recessionary fears are far from over in the USA and Europe coupled with anxiety over future rate hikes,” Aamar Deo Singh, Head Advisory, Angel One, observed.

“Going by the number of cuts in IT jobs clearly establishes the fact that the companies are placing themselves to weather the current turbulence and that it might not all become good in a hurry. Investors also understand that good quarterly results will be hard to get in the global IT sector, at least in the near term, so a cautious approach is being adopted,” Singh said.

What should you do?

Both stocks have corrected significantly from their highs so this may be a time to make a bet on them. But short-term investors need to keep in mind that the market structure is fragile and these stocks too may turn volatile in sync with the market.

Analysts advise considering these stocks for the long term as these companies are expected to maintain their profitability in the long run.

Akhilesh Jat, Category Manager – Equity Research at CapitalVia Global Research advises investors to continue their exposure to them for the long term perspective, which not only will help diversify their portfolio but also offer a hedge because of depreciating rupee against the dollar.

“The price of these tech giants may continue their bull run amid a surge in investor interest after the better-than-expected quarterly results. After the major correction, these tech stocks have started looking attractive again,” said Jat.

Mohd Abutarab A. Shaikh, Market Analyst, at Vantage, underscored that the increase in revenue of these companies is because of the good results from AI-related products which are seen to boost efficiency.

“With the tech giant’s announcement of more AI investments and higher demand for AI products and services, we can expect better profits for these global IT companies in the near future,” said Shaikh.

Will it have a positive rub-off on Indian IT players?

Analysts do not expect the Nasdaq and Nifty IT index to move in sync this year.

Nasdaq is up over 13 per cent this year so far while the Nifty IT index is down more than 4 per cent.

Santosh Meena, Head of Research at Swastika Investmart said that for this year, there is no correlation between the Nasdaq and Nifty IT index.

He pointed out that compared to the Nifty IT index, the Nasdaq has a greater concentration of technology stocks. Due to Indian IT businesses’ significant exposure to the BFSI sector and the recent global financial crises, Nifty IT companies have come under pressure.

“The Indian IT sector may continue to underperform for some time, as there are concerns about a recession in the USA and uncertainty regarding the stability of the global financial system, but the current correction is a good buying opportunity for long-term investors,” said Meena.

Disclaimer: The views and recommendations given in this article are those of individual analysts and brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.