The ASX finished in the red today.
The S&P/ASX200 closed lower, dropping 9.70 points or 0.14% to 7,078.00. Over the last five days, the index has gained 3.51%, but is down 4.92% for the last year to date.
The bottom-performing stocks in this index were Novonix Ltd (ASX:NVX) down 13.90% and Zip Co Ltd (ASX:Z1P) down 9.63%.
Block down 9.56% and WiseTech down 7.65% also dragged the ASX down.
It is not all bad news for tech.
VanEck head of investments and capital markets Russel Chesler believes the profitable mega tech companies will thrive in this new era of rising inflation.
"Although the mega techs can all be considered growth stocks and there has been a swing towards value investing, the quality nature of the companies and earnings of the like of Apple, Microsoft and Google should ensure their resilience in these volatile inflationary times," Chesler said.
"Now is the time to invest in mega tech as opposed to tech companies whose price is simply based on innovation and visionary growth. As always diversification is important as there will always be under performers as this the case with Meta in this reporting period."
Microsoft, Apple and Alphabet have all recorded excellent December quarters and exceeded expectations amongst the volatility.
"In terms of valuation we observe that the mega techs appear to be reasonably priced compared to the S&P 500 and the NASDAQ 100 which have P/E ratios of 24.3 and 35.7 respectively," Chesler says.
Alphabet stock split
That said, Alphabet Inc (NASDAQ:GOOG) will soon split its stock and carve into its massive share price, which will drive its price down.
Alphabet’s board has approved a 20-for1 stock split, which means its shares will soon trade at a much lower price.
News of the split saw its shares rise 7.5%.
Apple has split its stock several times during the iPhone era to keep its share price down. Stock splits are a requirement of being in the blue-chip Dow Jones Industrial Average.
Apple has done it relatively easily.
However, Alphabet has only done it only once in its history – in 2014 when it was trading as Google.
The move then was to create a new class of stock that did not convey voting rights.
It was a ploy by co-founders Larry Page and Sergey Brin to maintain control of class B supervoting shares.
Class A shares trade under GOOGL, class C shares trade under GOOG.
It is a complex system, which caused a major hold-up for its long-needed stock split.
Alphabet’s stock currently trades at nearly $3000 per share – one of the more expensive stocks on the market.
Chief Financial Office Ruth Parat said the move will allow more people to trade in the stock.
“The reason for the split is to make our shares more accessible,” Parat said.
“We thought it made sense to do.”
“This could be the move that gets Google into the Dow Jones index,” Wedbush Securities analyst Dan Ives told CNBC Make It.
“This would be a positive impact to the stock as being part of this flagship index would cause index buying from investors.”
The move by Alphabet would leave only Amazon.com Inc (NASDAQ:AMZN) with a four-digit stock price.
Meta disappointment
As for Meta Platforms. It continues to disappoint in many ways.
"Meta Platforms, formally known as Facebook, reported its Q4 earnings of US$3.67 per share on revenues of US$33.67 billion, compared to analyst expectations of US$3.87 per share on revenue of US$33.43 billion,” Josh Gilbert analyst at the multi-asset investment platform eToro said.
"Investors are likely to be disappointed that Meta Platforms’ results missed forecasts, after its market expectations in Q3 also fell flat.
"One of the key metrics for Meta Platforms’ Facebook is its DAU (daily active users), which came in at 1.93 billion, while analysts were expecting around 1.95 billion. This result is disappointing, considering that Facebook’s daily active users demonstrated no further growth from its Q3 report. It appears that Facebook is clearly struggling to attract new users with younger demographics turning to apps such as TikTok and Snapchat.
"To add insult to injury, Meta Platforms offered nothing to stem the bleeding with its weak Q1 guidance. Analysts had expected revenue guidance around US$30.25 billion, but Meta Platforms said it expects between US$27 billion to US$29 billion. It also seems that Apple’s IOS changes are beginning to affect Meta Platforms’ growth, as advertisers struggle to track and identify users.
"Meta Platforms is now the cheapest mega-cap tech name, trading at 24 times earnings. This valuation has priced in the antitrust and regulatory headwinds it has faced over the past 12-18 months. Of course, Meta Platforms has the ‘Metaverse’ growth potential on its side, however, these investments are unlikely to contribute in the near term and could take several years to come to full fruition.
"In the short term, Meta Platforms needs to focus on sales growth and growing users in order to please Wall Street analysts. Instagram is anticipated to play a crucial role in this effort, given its ‘reels’ feature that can rival TikTok."