The Nasdaq 100 Index has plunged 8% in just over two weeks, teetering on the edge of a correction. This downturn is linked to a sharp rotation away from Big Tech, as investors reassess the value of the sector amid a broader shift in market dynamics. With the index down significantly, the forthcoming earnings reports from four major tech giants—Microsoft, Meta Platforms, Apple, and Amazon—are poised to be pivotal in determining whether the Nasdaq 100 can avoid a correction.
Upcoming Earnings Reports
Microsoft Corp. will report on Tuesday, setting the tone for the tech sector’s earnings week. Investors will scrutinize Microsoft’s AI investments and data-center expansions. In its fiscal third quarter ending in March, Microsoft invested $11 billion in capital expenditures, projected to increase to over $13 billion in the fiscal fourth quarter.
Meta Platforms Inc., reporting on Wednesday, and Amazon.com Inc., reporting on Thursday, have also heavily invested in AI. Investors will be watching for evidence that these investments are translating into meaningful revenue growth.
Apple Inc. is expected to report on Thursday. With shares up 32% from an April low due to optimism about AI integration in iPhones, expectations are high for further details on its AI strategy.
Market Conditions and Concerns
The swift rotation out of Big Tech has driven a significant sell-off, with the Nasdaq 100 losing $2.6 trillion in value. Investors have shifted focus to smaller companies and sectors like financials and industrials. This rotation intensified following cooling inflation data in June, which fueled speculation about imminent Fed rate cuts. The Russell 2000 Index has risen 10% since then, while financial and industrial sectors in the S&P 500 are up more than 3.5%.
The volatility in the market has been evident, with a rise in options trading for the Invesco QQQ Trust Series 1 ETF, which tracks the Nasdaq 100. Bearish put premiums have surged to their highest in eight months, and the Cboe Volatility Index (VIX) has exceeded 18, indicating increased market uncertainty.
Broader Impact and Valuation Concerns
Big Tech stocks have been hit hard, reflecting broader concerns about the return on AI investments. Nvidia, a key player in AI, has fallen 17% from its June peak. Dell Technologies and Super Micro Computer have also seen significant declines, down 37% and 40%, respectively.
The market’s recent performance underscores a vulnerability in Big Tech, which has driven much of the S&P 500’s gains. The sector’s elevated valuations—reflected in the highest price-to-earnings ratios for the S&P 500’s information technology index since 2002—add to concerns that expectations may have been overly optimistic.
Michael O’Rourke, chief market strategist at Jonestrading, highlighted the critical nature of the upcoming earnings reports. He noted, “If you can’t beat expectations then I think the interpretation is that AI is not delivering the way people hoped.”
As the tech sector braces for these crucial earnings reports and the Federal Reserve’s interest rate decision, the market remains on edge, with significant implications for future investment trends and economic outlooks.
