The US reporting season is in full swing. The big US tech stocks, the "Magnificent Seven", are receiving a lot of advance praise. Companies from other sectors, such as GE and Johnson & Johnson, have nothing to hide.
25 January 2024. FRANKFURT (Börse Frankfurt). New records continue to be set on the US tech stock exchange Nasdaq: the Nasdaq 100 rose to almost 17,668 points yesterday (Wednesday) - a new all-time high. The latest trigger: good quarterly figures from Netflix (US64110L1061). "The companies' figures were already good in 2023, and now the interest rate cut fantasies are adding to this," says Marc Richter, who trades foreign equities for Baader Bank.
The market capitalization of Nasdaq heavyweight Microsoft (US5949181045) even reached the USD 3 trillion mark for the first time yesterday. In the middle of the month, Microsoft had already ousted Apple from first place as the world's most valuable company, and the two companies have been in a neck-and-neck race ever since. "The driver is artificial intelligence (AI)," says Richter. Microsoft is benefiting from its collaboration with chatGPT company OpenAI. Now Microsoft Copilot, an AI assistant for Microsoft 365 applications, is set to revolutionize the office world. "Microsoft is also broadly positioned and has enormous cash reserves," adds Richter. Microsoft shares are currently trading at 371.30 euros on the Frankfurt Stock Exchange. A year ago, it was only 222 euros - an increase of 67 percent.
Super Micro: Share price multiplied sixfold in one year
The Californian server specialist Super Micro Computer (US86800U1043) is less well known, but its share price has risen even more steeply. Since ChatGPT has been on the market, i.e. since November 2022, the share price has only gone up. Super Micro currently costs 434.50 euros on the Frankfurt Stock Exchange, compared to 67 euros a year ago - a more than six-fold increase. "In terms of turnover, Super Micro is now one of our top stocks," explains Richter. The company recently raised its turnover and profit estimates for the second quarter significantly, even before the official reporting date. "That's when things really took off." The Californian company manufactures computers for data centers, which are becoming increasingly important in times of AI, blockchain and cryptocurrencies.
Multi-year high for GE
Although not an all-time high, General Electric shares (US3696043013) reached a multi-year high at the beginning of the week. After the quarterly figures were announced, however, the share price fell slightly. This is because GE only forecast high single-digit sales growth and earnings per share of 60 to 65 cents for the first three months, while analysts had expected 70 cents. "But that's still very good," notes Walter Vorhauser from Oddo BHF. The US conglomerate's quarterly figures were convincing anyway: GE benefited from the very good performance of the aviation segment in the fourth quarter. In addition, the losses in the renewable energies segment were lower than before. "GE now wants to focus entirely on the aircraft business and spin off the energy division as GE Vernova and float it on the stock market," reports Vorhauser. Since mid-2022, the share price has more than doubled to currently 118.50 euros, as much as it was last in 2017.
Johnson & Johnson: upwards since December
Johnson & Johnson (US4781601046) was also punished after presenting its quarterly figures, as Vorhauser reports. The group benefited from a strong medical technology business and the spin-off of the consumer goods division in 2023. At over 35 billion US dollars, Johnson & Johnson earned almost twice as much in 2022, with sales rising by 6.5 percent to just over 85 billion US dollars. "For 2024, however, Johnson & Johnson expects a slower pace of growth than in 2023." The share price had fallen significantly in 2023, but has been rising again since December. Johnson & Johnson is currently trading at 146 euros.
Already valued too high?
Will tech stocks continue to rise now? "In 2023, it was primarily the 'Magnificent Seven' - Microsoft, Apple, Amazon, Meta, Alphabet, Tesla and Nvidia - that drove the market upwards. Now the second and third tiers are expected to follow suit," says Richter. Tesla, at least, disappointed with its figures published after the close of trading yesterday, Wednesday. Tesla is currently trading at 179 euros after 231 euros at the end of 2023.
According to Tilmann Galler from JP Morgan Asset Management, the economic conditions suggest that the positive development of tech and communications stocks will continue. "The prospects of weaker economic growth in 2024 should help companies that have above-average earnings growth prospects due to their competitive position." In addition, most of the 'glorious seven' are still hardly affected by financing risks due to their low net debt. However, they are now also very expensive: "The price/earnings ratio has risen to 34, while the 493 remaining shares in the S&P 500 only have a P/E ratio of 20," explains Galler. In addition, the "glorious seven" are expected to increase earnings by more than 30 percent over the next twelve months, while the rest of the US market is only expected to increase by 4 percent. "The bar has been set very high due to the euphoria surrounding artificial intelligence. This has increased the risk of a profit disappointment in the next twelve months."
by Anna-Maria Borse © 25 January 2024, Deutsche Börse AG
Anna-Maria Borse is a finance and economics editor specializing in financial markets/stock markets and economic topics.
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