Can Mega-Cap Tech Stocks Rally Against the S&P 500 Momentum?
Potential for Mega-Cap Tech Stocks to Rejoin the Race
The tech sector, specifically the top 10 mega-cap stocks, has been facing challenges since the summer. These stocks led the charge during the significant lows in October of the previous year but have recently struggled to keep pace with the S&P 500. Investment in artificial intelligence may become more critical, especially due to tougher comparisons expected through 2025 and increasing capital expenditure, which could pressure valuations.
Despite these difficulties, the S&P 500 has reached a new all-time high this week. Among the mega-cap stocks, only META (NASDAQ: META) managed to close above its high from June to July 2024, achieving its own all-time high.
Current Status of Major Tech Stocks
As of late September, Apple (NASDAQ: AAPL) is nearly at its former peak, just 3% shy of its all-time high. In contrast, Nvidia (NASDAQ: NVDA) and Alphabet (NASDAQ: GOOGL) continue to experience notable declines, with their values down in the mid-teens percentage-wise. Meanwhile, Amazon (NASDAQ: AMZN) briefly reached $200 in early July 2024, technically marking an all-time high, but sustained resistance remains from the August 2021 highs around the $188 to $190 mark. This price zone has proven difficult to surpass consistently.
Each encounter with these previous highs has seen significant selling pressure, suggesting a challenging environment for Amazon's stock performance.
Micron Technology's Earnings Ahead
Similar to Oracle (NYSE: ORCL), Micron Technology (NASDAQ: MU) is gearing up for its fiscal Q4 2024 earnings release, which is pivotal for both the semiconductor and broader tech sector. The earnings results are essential for assessing the ongoing investment trends in the tech industry, especially with regard to AI.
Micron's Earnings Estimates and Expectations
Micron is expected to announce positive comparisons against last year, showing remarkable growth in its earnings:
- Revenue is expected to reach $7.6 billion, a substantial leap from $4 billion a year ago, translating to a remarkable forecasted year-on-year growth of 90%.
- Operating income is anticipated to be around $1.57 billion compared to a loss of $1.2 billion from the prior year.
- For earnings per share (EPS), projections are at $1.13 versus a loss of $1.07 per share from the previous year.
Looking forward to fiscal 2025, Micron's projected revenue is set to increase to between $37.9 and $38 billion, significantly up from the $25 billion forecasted for fiscal 2024. Operating income is also expected to surge to $11.5 billion from $1.7 billion, with EPS predictions climbing to $9 from the anticipated $1.21 for fiscal year 2024.
Industry Insights on Micron's Volatility
Investors should proceed with caution; Micron's stock has a history of volatility. In the late 1980s and early 1990s, the stock experienced dramatic fluctuations, with significant highs and lows influenced by market conditions and demands for semiconductors. After reaching highs near $98 in the early 2000s, it faced a lengthy period of decline, illustrating the cyclical nature of the semiconductor industry, which is characterized by substantial capital expenditures akin to the demands of the airline sector.
S&P 500 Performance Overview
- The forward four-quarter estimate for the S&P 500 currently sits at $258.76, showing a slight decline from last week's $259.80.
- The S&P 500’s price-to-earnings (P/E) ratio increased to 22x following this week's rally, up from 21.7x the previous week.
- The earnings yield for the S&P has dropped to 4.54%, compared to 4.62% last week and down from 4.87% earlier in August.
- Notably, there has been minimal movement in earnings over the past 10 days of September, with a likely continuation of this trend into early October.
Summing Up the Current Market Landscape
In terms of earnings outlook for the S&P 500, significant adjustments are not anticipated this week, despite Micron's upcoming report. Nike (NYSE: NKE) is also set to release its figures early in October, while banks and financials are gearing up to kick off the quarterly earnings season around that time.
As always, it’s wise to heed the old investment adage: "Don’t fight the Fed." This underscores the importance of understanding market trends and the broader economic landscape.
Frequently Asked Questions
What are the key challenges facing mega-cap tech stocks?
The mega-cap tech stocks are struggling with increasing capital expenditures and tougher comparisons due to the AI trade, impacting their valuations.
Why is Micron’s earnings report significant?
Micron’s report will provide insight into the overall tech sector's performance and the ongoing investment trends related to AI.
What can be expected from Apple’s stock in the near future?
Apple is close to its all-time high, indicating potential for further growth, depending on overall market conditions.
How has Amazon's stock performed in relation to its historical highs?
Amazon’s stock has struggled to surpass the $188 to $190 resistance level, which it frequently encounters after recent highs.
What did the S&P 500's P/E ratio indicate this week?
This week, the S&P 500’s P/E ratio increased to 22x, reflecting a rally in investor sentiment despite slight declines in earnings estimates.
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