My regular readers know I have highlighted the lack of breadth in the stock market's advance throughout 2023. Without the performances of the mega-cap stocks that make up the Magnificent Seven, the S&P 500 largely would have been flat this year. Big Tech has been in the vanguard of this rally from the beginning of the year. However, there seem to be potential cracks forming in Big Tech.
Oracle (ORCL) started off Tuesday by posting its second-quarter results. The software company beat on the bottom line but is revenue growth from its cloud services slowed dramatically on a sequential basis from the first quarter of this year. When the day was done the stock had lost more than 13% of its value and helped triggered a 1% decline in the Nasdaq as well. Oracle's results also cast doubt on how well corporate spending on technology is holding up.
A few hours after Oracle reported its numbers, Apple (AAPL) hosted a much-anticipated launch gala for its new iPhone 15. Unfortunately, the event didn't generate enough buzz to get the stock out of its recent doldrums as the shares fell nearly 2% on the day. Apple, which is a holding of the Action Alerts PLUS portfolio, also is facing challenges in China in September.
Apple's recent headwinds are important for two reasons. First, the stock almost is priced for perfection at nearly 30x earnings even as profits and revenues are projected to fall ever so slightly in fiscal 2023. Second, the stock has the biggest market capitalization of any equity in existence. Weakness in its shares would be a negative for major indexes.
Finally, an antitrust trial kicked off on Tuesday in Washington, D.C., against Alphabet (GOOGL) , which also is an Action Alerts PLUS portfolio holding. The case pits the Department of Justice against the tech giant and it is important because it is the first significant monopoly trial the DOJ has launched against a major technology company in two decades. The government is alleging that Alphabet's Google is squashing all competition in the search market by spending $10 billion annually to maintain its default position on Internet browsers and mobile devices.
Now, if I was dictator for a month, I would force Alphabet to divest YouTube and Meta Platforms (META) to do the same with Instagram and WhatsApp as these tech giants in some ways have more concentrated power than the Robber Barons and Standard Oil did at the start of the 20th century before Teddy Roosevelt busted up those trusts.
That said, a breakup of Alphabet likely is not going to be the outcome of the current government action. However, it could help cast a cloud over Big Tech and Alphabet might end up needing to make some significant concessions.
Big Tech has done little wrong so far in 2023 in the eyes of investors and the biggest tech companies have been market darlings throughout the year. However, if more cracks start to develop, sentiment could become more negative, which would be a significant headwind to the overall stock market.
(AAPL and GOOGL are holdings of Action Alerts PLUS. Want to be alerted before the portfolio buys or sells these stocks? Learn more now.)
