The so-called Big Six technology stocks’ profit growth momentum may “collapse” during the upcoming quarters, according to strategists at UBS Global Research, who downgraded the mega-cap firms’ rating on Monday.
The “Big 6 TECH+” stocks—Apple, Amazon.com, Alphabet, Meta, Microsoft and Nvidia—were predicted by strategists led by Jonathan Golub to see a decline in earnings per share (EPS) growth to 15.5% by the first quarter of 2025 from 42.2% estimated for the same period this year.
Over the next two weeks, the Big Six companies—which are seen as predictors of the IT industry and the success of the S&P 500—will release their quarterly financial reports.
These highly valued stocks have also been negatively impacted by rising bond yields, hotter-than-expected recent U.S. economic statistics, and uncertainty around the Federal Reserve’s prospects for interest rate cuts.
Laptops 1000According to UBS, the Big Six’s profits momentum has gone through four distinct cyclical waves. The first one began with the COVID-19 epidemic pushing consumer demand for social media, online commerce, and personal computers.
Profits decreased as a result of declining demand for IT products when the epidemic passed and the economy recovered, which led to a contraction in EPS growth in 2022. Simpler comparisons and lower costs for businesses brought about the increase in profits in 2023.
“Earnings are projected to quickly renormalize in mega-cap tech, following a sharp decline in profit growth from 4Q23-3Q24,” Golub stated.
The Big Six companies’ price-to-earnings (PE) ratio is currently between 21.6 and 39 times ahead of the benchmark S&P 500 index, while the index trades approximately 25 times a day.
