Artificial intelligence (AI) megacap stocks have soaked up much of the stock market’s gains over recent years.

We’ve become used to the AI megacaps being the top stocks for investors, but top bankers from the likes of Morgan Stanley, JP Morgan and Goldman Sachs have voiced their concerns that AI stocks’ valuations are reaching bubble-like levels.

In November, a regulatory filing revealed that legendary contrarian investor Michael Burry – famously portrayed by Christian Bale in The Big Short – had allocated over 80% of his fund to bets against Nvidia (NASDAQ:NVDA) and Palantir (NASDAQ:PLTR). It later emerged that he had closed his hedge fund, saying in a statement: “My estimation of value in securities is not now, and has not been for some time, in sync with the markets.”

Nvidia’s earnings beat in the same month ended up spooking the markets: Nvidia had made so much money, investors apparently wondered how long its customers could afford it. Shares in Oracle (NASDAQ:ORCL) then fell 12.6% overnight following its 10 December earnings release which fed capex overspend fears.

“Markets quickly looked past the massive earnings beat, driven by a one-off asset sale, and focused on the rising capex and weak cash flows,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “Oracle has been at the epicentre of the AI financing debate, lacking the mammoth cash flows of the more traditional cloud giants.”

But some experts think it is too soon to worry about the scale of AI capex spend.

“The AI capex boom will likely create excesses, but neither its size nor its leverage is extreme,” said Henry Wu, chief quantitative strategist at Alpine Macro.

So is the AI boom market a bubble? Or is there still more value for investors?

Is AI a bubble?

The tricky thing about stock market bubbles is that they can only be definitively identified in retrospect.

“As AI adoption accelerates at unprecedented speed, investors are questioning whether today’s boom is laying the foundations for long-term growth, or inflating the next major market bubble,” said Ian Mortimer, co-portfolio manager of the Guinness Global Equity Income fund.

Doubts over the economics of current capex spend are being weighed against optimism over the long-term potential of AI.

“Despite bubble fears, early evidence shows AI is already improving business outcomes across major platforms including Meta, Microsoft, and Amazon,” said Mortimer. “Compared with previous market bubbles, today’s leading tech firms maintain strong margins, robust balance sheets, and reasonable valuations, with the Magnificent 7 trading well below the extremes of the dotcom era or Japan’s 1980s boom.”

What did for the dotcom boom was unprofitable companies borrowing money that, ultimately, they were never able to pay back. While the use of debt to fund AI investments is creeping up, lenders don’t appear concerned at present.

“Corporate bond markets – often the first to spot trouble – remain calm, with credit spreads close to record lows,” said Felise Agranoff, portfolio manager of JPMorgan American Investment Trust.

And while the stock market has ballooned on the back of AI exuberance, this appears to be backed up by financial performance.

“Despite soaring share prices, earnings have broadly kept pace, and the Morningstar Global Next Generation AI Index is currently trading close to fair value,” said Kenneth Lamont, principal at Morningstar.

Protecting against the AI bubble bursting

That doesn’t mean that bubble talk is misplaced, or that a major correction could wipe billions of value off stock markets.

“Announced mega-scale infrastructure programmes imply collective capital expenditure that could dwarf even the most capex-hungry industries, such as oil and gas,” said Lamont. “If data-centre assets fail to deliver their assumed useful lives, or if projections for the profitability of AI applications disappoint, today’s enormous spending plans could quickly become a millstone around the neck.”

You are likely more exposed to any potential bursting of the AI megacap bubble than you think. Most of your portfolio, whether that’s investments in a stocks and shares ISA or your pension, will likely comprise index funds that track the global stock market. If sentiment towards these stocks dips, your portfolio could take a hit, at least in the short run. This concentration risk is one of the drawbacks of passive investing.

You can reduce your concentration risk by buying equal-weight funds, which will cap every holding at a certain weighting of the portfolio. Lamont highlights Xtrackers S&P 500 Equal Weight UCITS ETF (LON:XDWE) as an example.

Or alternatively, you could buy a fund that excludes the megacaps altogether, such as Amundi MSCI USA Ex Mega Cap UCITS ETF (LON:XMGA).

Investors that want to retain some exposure to AI without being over-exposed to the stretched valuations of the megacaps could look for value opportunities in AI and its broader ecosystem, such as the suppliers to companies like Nvidia.

Rob Morgan, chief investment analyst at Charles Stanley, emphasises that diversification is the key to protecting your portfolio against market volatility.

“In today’s context, investors should ensure their portfolios aren’t completely dominated by the theme of big tech and AI, including tracker funds heavily skewed towards large US stocks,” he said.

Morgan recommends bonds as one offset to big tech concentration as well as defensively-minded global equity funds, or equity funds that target resilient, dividend-paying stocks. He highlighted JO Hambro Global Opportunities and Trojan Global Income as two quality-focused funds for investors to consider.

Bear in mind, also, that there are risks to being under-invested during a stock market boom. The table below shows how £10,000 invested into the S&P 500 in various years leading up to the dotcom crash fared compared to the same investment into a safe money market fund in the same year.

Source: AJ Bell and FE, total return in GBP from S&P 500 and IA Standard Money Market fund sector average (31^st December to 31^st December)

“The numbers show that investing in the market in December 1994, 1995, 1996 and 1997 was still preferable to investing in a money market fund, if you held on until the end of 2005, despite the market crash that was coming,” says Laith Khalaf, head of investment analysis at AJ Bell. “Investing in the money market fund was the better course of action in December 1998 and 1999, in the later stages of the bubble.”

Summary

• Microsoft (NASDAQ:MSFT) and Meta’s (NASDAQ:META) shares both jumped after impressive earnings beats
• Meta's stock gained 12% overnight after announcing a 38% year-on-year earnings increase
• Microsoft shares surged almost 9% after announcing 24% year-on-year increase in earnings
• Those gains are enough to push Microsoft's stock to a $4 trillion+ valuation
• Wedbush Securities raised Meta share price target to $920 from $750
• Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) both posted earnings beats
• Apple stock gained 2% overnight as China sales grew 4%
• Amazon's share price fell over 7% as AWS growth lags that of rivals GCP and Azure

| Microsoft and OpenAI | AI ETFs | Apple shares |

Microsoft and Meta kick off big week of results

Good afternoon, and thanks for joining our live coverage in the run-up to Microsoft and Meta’s results tomorrow evening, followed by Amazon and Apple’s on Thursday.

Microsoft’s share price movements are the subject of intense interest on Wall Street, as the company’s market capitalisation (market cap) nears the $4 trillion threshold Nvidia became the first company to break earlier this month.

A bumper earnings release on Wednesday could send Microsoft’s shares soaring. Will it be enough to join Nvidia?

Magnificent Seven earnings season is in full swing. Follow here for rolling previews, analysis, updates and reaction.

Microsoft and Meta shares gaining ground ahead of results

Markets have been open for around twenty minutes today, and as things stand Microsoft shares are up around 0.7%, while Meta’s stock has fallen 0.2%.

During yesterday’s session, Meta’s shares gained a boost from market optimism over a US-EU trade deal, gaining 0.69%. Microsoft’s stock was 0.25% up at one point, but closed the session down 0.24%.

When do Microsoft and Meta announce their results?

Both Microsoft and Meta will announce their results this Wednesday (30 July) after US markets close. That means after 9pm UK time.

Meta’s earnings call is scheduled to start at 2pm PT, which is 10pm in the UK. Microsoft’s is scheduled to start half an hour later, at 10.30pm in the UK.

Results will be released in between the close of markets and the start of the respective earnings calls – generally, soon after markets close.

Microsoft and Meta’s shares will continue to be traded during this period in what is known as after-hours trading.

What do analysts expect from Meta and Microsoft’s results?

Analysts polled by FactSet and LSEG have the following expectations for Meta and Microsoft’s results this week:

The FactSet estimates see Meta’s revenue increasing 14.7% and earnings rising by 14.0% year-on-year.

Microsoft, meanwhile, is expected to grow revenue by 14.0% and earnings by 14.6%.

Microsoft earnings preview

Besides the headline numbers, analysts and investors will be keeping a close eye on Microsoft’s cloud revenue platform, Azure.

Azure is one of the top three cloud service platforms, alongside Magnificent Seven rivals Amazon Web Services (AWS) and Google Cloud. Cloud services like these are getting a boost from the compute demands of artificial intelligence (AI) training.

“We strongly view this as Microsoft’s ‘shining moment’ with AI set to change the cloud growth trajectory,” says Dan Ives, global head of technology research at Wedbush Securities.

Like Google, Microsoft has its own AI model, Copilot. A theme for this week’s results could be analysts watching for signs of return on these AI investments.

“Adoption [of Copilot] has been picking up, and investors want to know whether it's boosting revenue in a meaningful way,” says Lale Akoner, global market analyst at eToro. “Microsoft is spending heavily to build more AI infrastructure, so profit margins will be closely watched.”

Meta earnings preview

Like Microsoft, investors will want to see evidence that Meta’s extensive investments into AI, especially its Llama model, are yielding results.

“So far, markets have rewarded the company’s massive capex pivot, driven by custom silicon, Llama models, and expanding infrastructure, but now it’s “show me the money” time, says Lale Akoner, global market analyst at eToro.

“Reality Labs losses remain a sore spot, but are tolerable if core earnings impress,” adds Akoner. “User growth and ad pricing trends, especially outside the US, will be scrutinised closely given recent dollar strength and macro wobble in emerging markets.”

Thanks for following our reporting ahead of Microsoft and Meta's earnings. Join us again tomorrow for a full day of preview and analysis, followed by Amazon and Apple's on Thursday.

Meta stock falls and Microsoft trades flat ahead of earnings

Good morning, and welcome back to our live coverage ahead of Microsoft and Meta’s results.

Microsoft shares closed yesterday’s session just 0.01% above the previous session’s close.

Meta’s share price, meanwhile, fell 2.46% in regular trading, though some of these losses were recovered after hours.

Expect to see lots of movement in both Microsoft and Meta’s stock this evening as both companies announce their results for the most recent quarter.

When do Apple and Amazon announce their results?

Apple and Amazon will both announce their latest results tomorrow (31 July), after markets close in the US.

The results will land in between markets closing and the start of each company’s earnings call, both of which are scheduled for 2pm Pacific time (10pm BST).

During after-hours trading, both Apple and Amazon’s stock is likely to be highly volatile. Share price movements will depend initially on the reaction to how the raw numbers compare to the expectations of analysts (we’ll bring you more on those later today), as well as how each company’s management discusses them during the earnings calls.

Why the Mag7 still matter

In case investors are wondering why changes in Microsoft or Meta’s share price should interest them, it is worth remembering that the Magnificent Seven group has been outperforming the broader market for over a decade.

“It really has been a case of investors needing to keep up exposure to these companies to enhance portfolio returns,” says Daniel Casali, chief investment strategist at Evelyn Partners.

The roots of this outperformance goes back to the rise of the internet during the 1990s, mobile data in the early 2000s, and the cloud computing revolution from 2006 onwards.

“In 2025 this is reflected in their earnings forecasts,” says Casali. “For the second quarter, they are expected to post an aggregate annual earnings increase of 14%.”

Data from FactSet suggests that the S&P 500 as a whole has, by contrast, posted average year-on-year earnings growth of under 6% so far this earnings season.

When it comes to the Magnificent Seven, “their financial leadership is not just a matter of trend: it’s a structural advantage,” says Casali.

Meta’s AI spend in focus

Meta’s share price has made solid gains this year as the company is, currently, viewed as one of the winners of the AI boom. It has been successful in incorporating AI into its ad business, for example, boosting targeting, engagement and efficiency.

However, the company is spending big on developing its own AI models, and that could lead to some investor pessimism if it isn’t able to demonstrate results.

“Meta’s had some disappointing progress on its open-source language models, and it’s opening the chequebook to put things right,” says Matt Britzman, senior equity analyst at Hargreaves Lansdown. “The creation of a new ‘superintelligence lab’ has caused quite the stir, with Meta rumoured to be dangling $100 million+ packages to poach AI talent.”

Last week, Alphabet shares fell immediately after it released its results despite strong headline numbers, with investors alarmed at its increased capital spend projections for this year.

Could we see a similar reaction in Meta’s share price this evening?

Microsoft shares are a favourite among fund managers

Microsoft’s stock has a dominant share of overall fund exposure compared to the rest of the Magnificent Seven, according to data from Morningstar, suggesting that it is a favourite of institutional investors.

Despite having been overtaken by Nvidia as the world’s most valuable company, it still edges the semiconductor giant out of top spot in terms of institutional fund holdings.

“Institutional confidence remains strong, driven by Azure’s 30% growth, deep enterprise ties, and its leading position in AI through OpenAI,” says Monika Calay, director of UK manager research at Morningstar.

Microsoft’s share of the top fund holdings has fallen by just 0.41% over the past ten years – and it has demonstrated greater consistency than any other Magnificent Seven stock during that time.

“Microsoft is the only member of the Magnificent 7 to consistently hold at least a 20% average weight in global equity portfolios every year for the past decade, a testament to its enduring institutional appeal,” Calay adds.

Apple and Amazon results: what the analysts expect

Analysts polled by FactSet and LSEG have the following expectations for Apple and Amazon’s results tomorrow:

The FactSet forecasts, if accurate, envisage Amazon’s revenue increasing 9.5% and its earnings rising by 5.6% year-on-year. For Apple, they predict a 3.9% increase in revenue and a 1.4% rise in earnings.

Meta and Microsoft shares swing during final session before earnings

We’re about one hour into the final trading session before Meta and Microsoft announce their results.

Meta’s stock opened 1.1% higher today, but it has fluctuated through the first hour of trading, currently sitting around 0.5% above yesterday’s close.

Microsoft’s share price opened 0.6% higher than yesterday’s close, but has lost much of those gains in the meantime.

Recap: Microsoft and Meta results expectations

Analysts polled by FactSet and LSEG have the following expectations for Meta and Microsoft’s results tonight:

Meta and Microsoft shares will likely make their first moves based on their performance against these headline figures, as well as other relevant factors included in their earnings release, like capex expectations and forward guidance.

We’ve seen before, though, that management comments during the earnings calls can have a big impact on share price movements. The sentiment for both Microsoft and Meta’s stock will depend heavily on whether they can convince investors that they are winning the AI war.

Microsoft results: Azure growth in focus

Microsoft shares are still struggling to make gains during this session, up just 0.14% three hours into trading.

Could strong growth in Azure - Microsoft's cloud platform - give Microsoft stock a boost this evening?

"Cloud performance through Azure was stronger than expected last quarter, and there could be some upside to guidance of 34-35% growth," says Matt Britzman, senior equity analyst at Hargreaves Lansdown.

Dan Ives, head of global technology research at Wedbush Securities, also believes that Azure's growth could take the market by surprise.

"We believe the stock still has yet to price in what we view as the next wave of cloud and AI growth," says Ives. "We view MSFT as the clear front-runner on the enterprise hyper scale AI front, despite increasing competition from Amazon's AWS and Google's GCP."

We're going to take a pause in reporting for now. Join us back here at 9pm for live coverage of Microsoft and Meta's earnings releases.

Breaking: Microsoft stock surges on earnings beat

Microsoft's share price has gained over 7% since close of trading.

Earnings per share increased 24% year-on-year to $3.65, and revenue increased 18% to $76.4 billion.

Azure revenue increased 34% year-on-year to $75 billion.

BREAKING: Meta stock up over 9% as earnings soar

Meta's stock, meanwhile, has surged 9.1% in after-hours trading on a bumper earnings beat.

Revenue increased 22% year-on-year to $47.5 billion and earnings per share rose 38% to $7.14 - smashing through the ~$5.90 that analysts had expected.

Concerns over Meta's profits following its AI investments seem misplaced now...

Microsoft's "slam-dunk quarter"

A few more highlights from this earnings beat that has seen Microsoft's stock surge over 7%:

• Intelligent Cloud revenue of $29.88 billion, ahead of an expected $28.92 billion.
• Gross margin of 68.6% beat an expected 68.0%; operating margin of 44.9% beat the expected 43.6%.
• Net income increased 24% year-on-year to $27.2 billion.

"This was a slam-dunk quarter for MSFT with cloud and AI driving significant business transformation," said Dan Ives, global head of technology research at Wedbush Securities. "We believe Microsoft is just hitting its next phase of monetisation on the AI front and more enterprises are accelerating their AI budgets," he added.

Meta's capex will keep growing next year

Meanwhile Meta's stock is still climbing, now up almost 9.5% since those results dropped.

"Meta has knocked it out of the park," says Matt Britzman, senior equity analyst at Hargreaves Lansdown. "AI is clearly delivering real-world benefits for advertisers, and they’re willing to pay more as a result. Average price per ad was up 9% over the quarter, a clear indication that Meta is delivering an improved product for both users and advertisers."

Capital spend is likely to increase $30 billion in the full year 2025, and CFO Susan Li signposted a similar rate of capex growth next year.

That may have taken analysts by surprise, but the market doesn't seem to mind. With the previous investments yielding such strong returns already, big spending seems to be going down well, and Meta shares are climbing.

We're going to end coverage here for this evening, but we'll be back tomorrow with more reaction and analysis for these eye-catching results, as well as a digest of what Meta and Microsoft's management says during their upcoming earnings calls.

Microsoft to enter $4 trillion club?

Good morning, and welcome back to our live coverage of tech earnings season. We’ll be digesting those huge earnings beats from Microsoft and Meta as today goes through.

Meta’s stock has gained 12% in out-of-hours trading since it reported a 22% revenue rise and a massive 38% increase in earnings.

Meanwhile, Microsoft looks set to join Nvidia in the $4 trillion market cap club when regular trading opens today. Microsoft stock has gained 8.7% overnight, following a 24% year-on-year increase in its earnings. Its market cap at close yesterday was $3.81 trillion – so closing today’s session with share price gains of anything over 5% from yesterday’s close will be more than enough to make Microsoft the world’s second $4 trillion company.

End of the AI profitability debate

There have been questions over the last two years as to whether or not the money that the Magnificent Seven hyperscalers are pouring into AI will deliver results.

That debate seems to be over.

"Meta and Microsoft turned over a new chapter in the AI story last night," says Matt Britzman, senior equity analyst at Hargreaves Lansdown. "Both companies crushed it, with debates around whether AI is delivering tangible returns starting to fade into history."

Meta’s stock surges on Superintelligence optimism

There was speculation ahead of Meta’s earnings release that investors would be put off by the big spending that the company is pouring into its Superintelligence Lab. But in the event, the vision of a superintelligent future painted during the earnings call saw Meta’s share price surge.

CEO Mark Zuckerberg led with optimism over the lab and its potential early in the investor call.

“Developing superintelligence, which we define as AI that surpasses human intelligence in every way, we think, is now in sight,” said Zuckerberg at the start of his prepared remarks.

“To build this future, we've established Meta Superintelligence Labs, which includes our foundations, product and FAIR teams as well as a new lab that is focused on developing the next generation of our models.”

Zuckerberg said that AI-infused smart glasses, such as those it has developed with Ray-Ban and a new range it is launching with Oakley, will be the main way that superintelligence is integrated into people’s daily lives.

He explained that one of the biggest technological hurdles that needs to be overcome in building AI that is more intelligent than humans is to build software that can train itself.

“We’ve begun to see glimpses of our AI systems improving themselves,” he said, adding that the progress was “slow for now”.

BREAKING: Wedbush raises Meta share price target

Influential investment bank Wedbush Securities has raised its 12-month price target for Meta from $750 to $920.

Based on where Meta's stock closed regular trading yesterday, that implies 32.3% in share price gains over the next year.

"We believe the recent level of investment is justified, and the infusion of AI capabilities across the company's ad stack and content recommendation engines are driving tangible results for Meta's Family of Apps and Reality Labs," said Scott Devitt, managing director, Equity Research at Wedbush Securities.

Recap: when do Amazon and Apple announce results?

With Microsoft and Meta's stock surging after their earnings beats is easy to forget we've got two more Magnificent Seven companies announcing results tonight.

Here's a recap of those timings:

eToro: Microsoft stock offers "perfect mix" to investors

It’s quite hard to overstate how impressive the double beat from Microsoft and Meta was last night.

Microsoft in particular hit all the right notes for a stock that looks set to break $4 trillion in market cap.

“Microsoft is investing heavily to build AI infrastructure, though it seems to be working,” says Lale Akoner, global market analyst at eToro. “Margins are holding up, and the business is seeing real demand, not just hype.”

Akoner believes that investing in Microsoft is one of the best ways to ride the AI wave long term.

“For retail investors, this is a perfect mix of a tech giant growing fast, spending smart and actually delivering on their AI promise,” she says.

Amazon stock on a high heading into earnings

Amazon’s share price looks set to catch some of the positive fallout from Microsoft’s big earnings beat yesterday. Amazon stock is up 2.6% in pre-market trading five minutes before US markets open.

With Azure revenue growing 39%, investors seem to be positioning themselves for the possibility of AWS following suit.

Scott Devitt, managing director, Equity Research at Wedbush Securities, expects AWS revenue to increase by 16% year-on-year in these results. That figure would put AWS revenue on approximately the $30.5 billion mark.

“AWS commentary was encouraging last quarter, highlighting the strength of AI demand,” Devitt said in a research note. He also highlighted that AWS management had said that AWS growth would have been higher in Q1 were it not for near-term capacity constraints.

BREAKING: Microsoft stock opens session at $4 trillion+ market cap

US markets have opened and Microsoft's share price has opened 8.2% above yesterday's close, more than enough to tip its market cap above $4 trillion during regular trading for the first time in its history.

Can Meta stock stay higher for longer?

Meta’s share price has also sustained its overnight gains, opening today’s session up 11.6% following its stellar results last night.

“Meta reported a blow-out quarter, meaningfully eclipsing both Street and Buyside estimates for 2Q revenue and the 3Q guide,” said Benjamin Black, co-head of Internet Equity Research at Deutsche Bank in a research note.

Black drew attention to Meta alleviating fears that its capex might be getting out of control.

“Perhaps just as importantly, the high ends of both FY25 operating expenses and capex guidance were maintained, while the lower ends were both modestly increased, which is meaningfully better than feared,” he said.

Big spending is perhaps the only cause for concern with Meta’s stock at present.

“Meta is planning to spend a lot more, possibly over $100 billion next year on AI and infrastructure. That’s a huge bet and while it could pay off long term, it adds real risk in our opinion,” says Lale Akoner, global market analyst at eToro.

“Meta stock jumped after earnings, but it’s had sharp ups and downs lately. Investors are still trying to figure out if all this spending will drive future profits, or just higher costs,” she added.

Apple’s share price has fallen 16.5% in the year to date. Apple used to be the world’s most valuable company, but at the moment it is languishing.

Macro conditions haven’t helped. Trump’s tariffs pose a particular threat to the company given how reliant its supply chain is on components manufactured overseas – particularly in China. Apple’s management has already flagged a $900 million hit to its profits as a result of tariffs.

But this is compounded by mounting disappointment on its progress in AI, which has “fallen well short of what investors and consumers have come to expect from one of the world's leading brands”, says Matt Britzman, senior equity analyst at Hargreaves Lansdown.

“Apple Intelligence has so far failed to deliver the game changing experience that was promised, so investors should watch out for any updates on new AI features,” Britzman adds. He also believes that tariff impacts are likely to come under scrutiny during this evening’s earnings call.

Apple and Amazon shares steady heading into results

Apple shares are trading flat today, while Amazon stock is up 1.7%, in their final trading session ahead of results.

On paper, analysts polled by FactSet expect the following figures from each company:

While these numbers could impact Amazon and Apple’s share price moves in after-hours trading, there is also likely to be a strong focus on deeper metrics.

In Amazon’s case, that will be growth of its cloud division, AWS. Microsoft set the bar high on that front last night, with its Azure division posting 39% revenue growth.

Apple, meanwhile, will need to demonstrate to the market that it is not being left behind in the AI race. Again – both Meta and Microsoft have demonstrated that spending big on AI is already delivering profits. Apple will need to convince the market that it is prepared to be bold in this race.

Our coverage is going to pause here for now, but we will be back after these results have been posted to bring you the headlines and all the reaction.

Apple shares rise after encouraging results

Good morning, and welcome back to our live coverage of big tech earnings season.

Apple shares have gained 2% overnight, following the company’s latest earnings release which revealed a return to positive growth territory in China, a key market for Apple.

Revenue of $94.0 billion represented 10% year-on-year growth and a record for Apple’s June quarter. Diluted earnings per share (EPS) were up 12% on last year to $1.57. Analysts had forecast revenue of $89.2 billion and EPS of $1.43.

“This was a major step in the right direction for [Apple CEO Tim] Cook and Cupertino with China the star of the show,” said Dan Ives, global head of technology research at Wedbush Securities.

“Now it's time to address the elephant in the room: the AI strategy which remains absent while the rest of the tech world is laser focused on the AI Revolution,” he added.

Amazon stock falls despite earnings beat

Amazon delivered an earnings beat – $1.68 compared to $1.33 expected – but its share price has fallen by more than 7% since the close of trading yesterday.

Revenue increased by 13% year-on-year to $167.7 billion, well ahead of the $162.2 billion that analysts had forecast.

AWS revenue rose 17.5% to $30.9 billion. In isolation, that’s not a terrible result – but compared to the momentum that Google’s GCP and, in particular, Microsoft’s Azure have demonstrated, investors are clearly concerned that AWS is being caught by its rivals.

“The spotlight was firmly on AWS, and it didn’t quite shine as brightly as expected,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

“While Microsoft and Alphabet have already shown strong momentum in cloud growth, AWS wasn’t the knockout many wanted to see, highlighting just how tightly investor sentiment is tied to the AI narrative right now.”

AI pessimism dampens reaction to Apple’s results

The 2% overnight gain for Apple’s shares is a fairly modest response to what is on paper one of the strongest sets of results in recent years.

iPhone sales grew 13% year-on-year, as did Apple’s Services division.

Investors, though, are clearly still underwhelmed by Apple’s progress on AI.

“We believe our platforms offer the best way for users to experience the full potential of generative AI,” said CEO Tim Cook during the earnings call that followed Apple’s results.

But the market isn’t convinced.

“Apple should be a leading name in AI hardware, but that’s simply not the case,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “Apple Intelligence was a flop, so a lot of hope now lies in an AI-powered Siri – but that might not come until next year.

“Brand loyalty gives Apple time to get the AI transition right, but it needs to start delivering,” adds Britzman.

Thank you for following

Thanks for following our coverage of Meta, Microsoft, Amazon and Apple's results.

We're going to wrap up our live reporting here. But we will keep breaking down the latest round of results and their implications for the market over the coming days, so keep checking MoneyWeek for the latest news on tech stocks.

We'll also bring you live coverage of Nvidia's results at the end of August. With cloud revenue booming and AI capex booming in Magnificent Seven results season so far, will it be another bumper set of results for the semiconductor giant?

Summary

• Alphabet announced earnings per share (EPS) of $2.31 and revenue of $96.4 billion, beating analyst estimates
• Tesla’s results showed EPS of $0.40 and revenue of $22.50 billion, down year-over-year, but in line with analyst estimates
• Tesla shares fell over 4.6% during the earnings call
• Five other Magnificent Seven companies announce earnings next week. Nvidia announces at the end of August

The MoneyWeek team is bringing you rolling previews and analysis, along with live coverage and reaction. Keep following for the latest.

| Magnificent Seven latest | Invest in Tesla? | S&P 500 | AI ETFs |

Good morning, and welcome to our live coverage of another big tech earnings season.

Two of the industry’s heavy hitters – Netflix (NASDAQ:NFLX) and Taiwan Semiconductor Manufacturing Company (NYSE:TSM) – got things underway last week, but big tech earnings season truly kicks into gear this week, as the first two of the Magnificent Seven companies announce their results on Wednesday.

Alphabet’s earnings release will be an intriguing glimpse into how the company is navigating the choppy waters that artificial intelligence poses. Is its core Search business holding up in the face of increased AI competition? If not, can growth of its Google Cloud service make up for any shortfall?

Then there is Tesla. Once again, quarterly delivery numbers have disappointed, calling Musk’s much-publicised political activity into question. But Tesla is now a robotics company – didn’t you know? – so updates on this month’s robotaxi launch will be the focus of attention at Tesla’s earnings call.

We will bring you rolling updates, preview and analysis, throughout this week and next.

When are Alphabet’s and Tesla’s earnings releases?

Both Alphabet and Tesla announce earnings after US markets close on Wednesday 23 July.

Alphabet’s earnings call is scheduled for 1.30pm Pacific Time (9.30pm in the UK), half an hour after US markets close. Its earnings will likely be published online during that window.

Tesla’s earnings call is scheduled to start at 4.30pm central time – 10.30pm in the UK, so one hour later than Alphabet’s.

TSMC results paint upbeat picture for big tech earnings

Taiwan Semiconductor Manufacturing Company – often referred to as TSMC for short – is rarely included in any of the big tech groupings, and isn’t anything like as much of a household name, but that is perhaps unfair.

In a nutshell, it is the world’s most advanced manufacturer of computer chips. Nvidia, which is the best-known semiconductor company in the world, doesn’t actually build any of its chips. TSMC does. It also builds chips for Apple, Arm, Qualcomm, AMD and Broadcom.

TSMC announced a 61% increase in profits last week, with revenue rising 39%. Yesterday, the company joined several of its high-profile customers in the $1 trillion market cap club.

Given that it builds the hardware that the rest of the tech industry depends on, TSMC’s success is a good bellwether for the health of the sector.

Netflix shares fall despite earnings beat

Streaming giant Netflix also posted its results last week. Shares fell in after-hours trading following the announcement, despite an earnings beat, exemplifying the weight of expectation that big tech companies are under at present.

Netflix was once numbered among the world’s most prominent big tech stocks during the ‘FAANG’ (Facebook, Amazon, Apple, Netflix and Google) era. Now, with a market cap around $520 billion, it is no longer in the upper echelons of big tech stocks, analysts, if not the market as a whole, were impressed with its 16% year-on-year revenue growth, and 47% increase in earnings.

“Netflix continues to produce phenomenal results with ever more growth in its sights,” said Alicia Reese, SVP Media & Entertainment equity research at Wedbush Securities. “Even as investor expectations were high heading into the print, and shares reflected some disappointment in the size of the beat and raise, the quality of the beat and raise keeps us positive as we assess the ongoing expansion of Netflix’s free cash flow.”

See our explainer on the results and subsequent Netflix shares reaction for more detail.

S&P 500 earnings strong so far

TSMC and Netflix are two of the highest-profile tech companies to have beaten earnings estimates so far, but it’s a trend that is playing out across the S&P 500.

Around 60 of the biggest 500 US companies have declared Q2 results so far. Of those, more than 80% have beaten expectations.

“That’s not unusual,” says Tom Stevenson, investment director at Fidelity International. “Companies tend to massage forecasts lower in the run up to results season.

“But it does suggest that earnings growth will continue at around the long-run average of 7%,” he adds.

Of course, with their high valuations, most of the Magnificent Seven stocks are expected to grow their earnings above this rate. Will they deliver?

Alphabet earnings: the watch-outs

Let’s take a closer look at the big tech earnings releases coming up this week, starting with Google’s parent company Alphabet.

Market sentiment towards Alphabet has dimmed in recent months. It is the cheapest of all the Magnificent Seven companies relative to past and projected earnings, trading at 21.22 times trailing earnings and 20.46 times projected earnings – below the S&P 500’s average on both fronts.

The fact that those two figures are so close to each other highlights part of the problem: analysts do not see Alphabet’s earnings growing significantly in the near future.

Many fear that generative AI could cut into demand for Google’s core Search business.

“New competition from language models like ChatGPT [is] a genuine threat,” says Matt Britzman, senior equity analyst at Hargreaves Lansdown. “Alphabet has a quality lineup of businesses, but its long-standing crown as the entry point to the internet is under pressure, and that’s put the valuation under strain.”

There is also the possibility that regulators could force a breakup of Google’s business, with two antitrust cases having found that the company operates an illegal monopoly over internet search over the last year.

“Calls for a forced Chrome divestment could challenge Alphabet’s search dominance, and that will keep some investors cautious until there’s more clarity,” said Josh Gilbert, market analyst at eToro.

Google has said it will appeal the decisions, but with Search lying at the heart of Google, any updates will be closely monitored on Alphabet’s earnings call on Wednesday.

Alphabet earnings: the tailwinds

While generative AI poses a threat to Alphabet’s business, it also offers opportunities, and investors will watch out for these keenly at the earnings call tomorrow.

For one thing, AI demand is driving growth of Google Cloud, with analysts projecting top-line cloud revenue growth of around 26-27%.

“Alphabet is continuing to invest heavily in Gemini, its flagship AI assistant, as well as AI-powered ad products and enterprise tools,” says Josh Gilbert, market analyst at eToro. “With growing investor interest in monetisable AI applications, updates on Gemini’s integration into Search, Workspace and Cloud could be a key focus this quarter.”

Capital expenditure is likely to rise, but the market won’t necessarily regard that as a negative given the arms race that big tech companies are engaged in over AI.

“In this environment, it’s spend or get left behind,” says Gilbert.

Tesla earnings: under-delivery becoming a habit

Tesla’s earnings will be released under a cloud: delivery numbers fell year-on-year for the second consecutive quarter. The company announced a total of 384,122 deliveries for the quarter on 2 July.

Shares in Tesla actually rose by 4% following the announcement, but fell 8.4% on 7 July. Tesla shares have fallen nearly 20% this year, as the relationship between CEO Elon Musk and president Donald Trump has soured.

“Elon’s position as a Tony Stark-like personality at the head of the company was a boon for a long time, but it’s hard to argue that his prominence isn’t having some detrimental effect on the brand,” says Josh Gilbert, market analyst at eToro. Read more on Musk’s changing relationship with Tesla here: Who’s driving Tesla?

Cybertruck sales have also continued to decline, having hit their lowest level in a year during the last quarter.

Fairly poor financial results can be almost baked-in for Tesla, barring any major cost-cutting achievements. As is often the case with the company, the short-term share price movements might hinge more on what Musk says that what the numbers show.

Tesla earnings: the robo-revolution

Tesla believers, though, don’t tend to have their faith shaken easily. Few are more bullish than Dan Ives, global head of technology research at Wedbush Securities.

Ives points to an uptick in Chinese sales during June as one reason for optimism ahead of Tesla’s earnings.

“Despite seeing more low-cost models enter the market from Chinese OEMs like BYD, Nio, Xpeng, and others, the company’s recent updates to the Model Y spurred increased demand,” says Ives.

With the long-awaited robotaxi launch having taken place in Austin earlier this month, there will be plenty for Musk to shout about if he wants to. Investors will look for updates on all things robotics when gauging Tesla’s mid-term prospects.

“There are a number of other key endeavors at Tesla including Optimus and the future of robotics, with Tesla one of the clear future leaders in AI in our view,” says Ives.

Thanks for following our reporting ahead of Tesla and Alphabet's earnings. We're leaving things here for today, but join us here again tomorrow morning for a full day of preview and analysis ahead of live coverage of the earnings releases in the evening.

Good morning, and welcome back to our live coverage of big tech earnings season.

This evening sees both Google parent Alphabet and Elon Musk's Tesla announce their second quarter (Q2) results.

Both companies are coming into this earnings season facing challenges as well as headwinds from the rise of artificial intelligence (AI). Follow here live for rolling previews and live updates from both earnings calls.

When do Alphabet and Tesla announce earnings?

To recap, both Tesla and Alphabet announce their Q2 earnings today, after US markets close. That means any time from 9pm in the UK.

Tesla and Alphabet will host an earnings call where management will field calls from analysts. These are scheduled to take place back to back. The earnings release for each company could land any time between the close of markets and the start of the earnings call, but they tend to land fairly soon after markets close.

The key timings are summarised in the table below:

Alphabet and Tesla earnings: what to expect

Analysts are forecasting the below revenue and earnings per share figures at Alphabet and Tesla’s releases this evening, according to consensus estimates from analysts polled by FactSet and LSEG:

Based on FactSet estimates, analysts expect Tesla’s revenue to fall 12.6% year-on-year, and for its earnings to fall by 23.1%.

The forecasts imply a 10.9% increase in revenue and a 15.3% increase in earnings for Google’s parent company Alphabet.

Alphabet earnings: beyond the numbers

As ever with big tech earnings, it is less likely to be the headline numbers that dictate which way Alphabet's shares trade immediately after it announces results today.

Instead, the data and comments from management surrounding the longer-term challenges and opportunities is likely to be the main driver.

In Alphabet's case, this all boils down to whether or not the potential gains from AI outweigh the threats it causes to the Google parent company's business.

"The rise of ChatGPT and other AI platforms has created unprecedented challenges for Google's search business," says Fabien Yip, market analyst at IG. "These new competitors offer conversational interfaces that provide intellectual answers to complex questions, potentially reducing users' reliance on traditional search engines and the advertising revenue they generate."

Google has developed competitors to ChatGPT, particularly its latest model Gemini 2.5 Pro, and investors will look for evidence of growth and adoption of Gemini during tonight's earnings call.

There is also the opportunity for Google Cloud to keep taking market share from competitors, like Amazon Web Services and Microsoft Azure.

"Innovation in AI enterprise solutions will be crucial for Google Cloud's continued success," says Yip. "The company's ability to integrate cloud offerings with other Google products like Workspace provides a competitive advantage that rivals find difficult to replicate."

Could Tesla invest in xAI?

One topic that could come up on Tesla’s earnings call this evening is the possibility of the company investing money into Elon Musk’s artificial intelligence start-up, xAI, which makes the Grok chatbot.

“Tesla is about to embark on an aggressive AI-focused strategy that we believe will include owning a significant piece of xAI,” says Dan Ives, global head of technology research at Wedbush Securities. “While near-term and this quarter the numbers are nothing to write home about, we believe investors are instead focused on the AI future at Tesla.”

Tesla investing in xAI would be subject to a shareholder vote later this year. Historically, Tesla investors have tended to follow Musk’s lead when it comes to corporate votes, but Josh Gilbert, market analyst at eToro, feels that convincing investors to put Tesla money into another Musk company could be a hard sell.

“Even if there is a theoretical future benefit for Tesla, it’s going to be a very hard case to make,” he says.

Winning the AI race: Trump to speak at AI summit as Tesla announces earnings

Today’s tech earnings announcements are conveniently timed, coinciding as they do with a major event in American AI.

President Donald Trump is due to speak at the ‘Winning the AI Race’ summit hosted by the All-In podcast and the Hill and Valley Forum in Washington, DC today.

Along with senior leaders from tech companies like Palantir and VC firms such as Y Combinator, Trump is expected to outline a roadmap to making the US the world’s leading AI economy.

Dan Ives, global head of technology research at Wedbush Securities, anticipates three main strands:

• The build-out of AI infrastructure;
• Innovation aimed at blocking states’ ability to hinder AI development with regulation;
• Ensuring that global US allies adopt its models, rather than those of “foreign adversaries”.

“The Trump keynote will likely aim at outlining a national AI strategy while targeting aggressive plans to accelerate chip exports reflecting the new administration’s elevated focus on winning the AI race,” says Ives.

Trump’s address is scheduled to take place at 5pm Eastern time, and as such could overlap with both Alphabet and Tesla’s earnings calls.

TSLA and GOOGL shares: one hour until US markets open

There is just under an hour to go until US markets open for the final session before Tesla and Alphabet announce their results.

Yesterday, Tesla stock gained 1.1%, but pre-market moves suggest Tesla shares could open today slightly below this level.

Alphabet shares likewise saw gains yesterday, of around 0.65%, but look set to open slightly down today.

Tesla share price opens 0.4% down ahead of earnings

US markets are now open, and shares in Tesla have opened the final session before the Q2 earnings release 0.4% below yesterday’s close.

Tesla shares have fallen around 18.3% so far this year

Alphabet’s shares opened today’s session slightly above yesterday’s close, but have since slipped below it.

Investors can expect big changes in both Alphabet and Tesla’s share price in after-hours trading following their earnings announcements today.

Magnificent Seven earnings calendar

Alphabet and Tesla are the first two Magnificent Seven companies to announce their Q2 earnings. Here’s the full schedule with the rest of the season’s releases:

There is a big gap between the first six companies and Nvidia, as is usual. Some semiconductor companies, such as Broadcom, won’t release their results until September.

Google revenue: what to watch in Alphabet's earnings release

Google’s heart and soul is its Search business, but its Cloud division is the fastest-growing segment by some distance.

“Cloud growth is the other key driver for Alphabet, with Google Cloud looking much more competitive for AI workloads than it was in previous cloud wars,” says Matt Britzman, senior equity analyst at Hargreaves Lansdown.

Analysts are forecasting somewhere between 26-27% revenue growth for Google Cloud, implying a figure of $13.04-13.14 billion.

Alphabet’s share price movements following the earnings call could largely depend on whether the figure comes in above or below this level.

Look out also for Google Services revenue. This division includes the core search and advertising revenue that Google’s empire is built upon.

Analysts expect growth here to slow to 8.5%, implying a figure of $80.21 billion. Beating that would suggest that Google Search is more resilient than thought to the generative AI threat – for now at least. However, falling short could set alarm bells ringing.

We're going to pause coverage for a few hours, but we'll be back around 9pm, when US markets close. Join us then as we report Tesla and Alphabet's earnings releases live.

Tesla shares look set to close up ahead of earnings

Good evening, and welcome back to our live coverage of Alphabet and Tesla's results.

Tesla shares opened this session down, but are around 0.3% up for the day as we head into the final minutes of regular trading.

Shares in Alphabet, though, have fallen through this session. Will Q2 results, and the subsequent earnings calls, change the picture for either stock?

US markets close; Alphabet and Tesla results now due

US markets have now closed. Alphabet shares finish this session 0.58% down, while Tesla's stock gained 0.14%.

Attention now shifts to the imminent release of each company's Q2 earnings report. As a reminder, here's what analysts polled by FactSet and LSEG are expecting:

BREAKING: Alphabet earnings rise 22% year-on-year

Alphabet's headline figures are in:

• Revenue of $96.4 billion, 14% up year-on-year
• Earnings per share of $2.31, up 22%

Alphabet beats on revenue and earnings

Both earnings and revenue came in above analysts' expectations. Google Search and Google Cloud revenue have both beaten expectations too.

Services revenue increased 12% to $82.5 billion, while Cloud revenue grew 32% to $13.6 billion. Analysts had been forecasting these segments to grow by 8.5% and 27% respectively.

Despite this, Alphabet shares have fallen 2.3% in after-hours trading. A reflection, perhaps, of how high market expectations are on the big tech giants.

BREAKING: Tesla earnings fall by 23%

Tesla has now released its results. The headline figures:

• Total revenues down 12% year-on-year to $22.50 billion;
• Earnings per share down 23% to $0.40.

Numbers like these were expected; earnings per share is exactly as FactSet analysts had forecast, while revenue is a touch higher.

Tesla shares are, in fact, gaining ground in after-hours trading following the earnings release.

Alphabet bumps capex to $85 billion

Alphabet's results make great reading on the face of it. Beats across the board, and the core Google business lines (especially Search and Cloud) have outperformed expectations.

The share price is tanking all the same.

One reason for this could be a big spending announcement.

"We are increasing our investment in capital expenditures in 2025 to approximately $85 billion and are excited by the opportunity ahead," said Alphabet CEO Sundar Pichai in the earnings release.

Has this big spending increase caught the market off-guard? AI is known to need big cap-ex from the major players, but some investors may be baulking at the level of this spend.

Tesla: affordable car is now in production

Tesla stock made gains immediately after its results were released - though these have since reversed.

Poor financial results had already been factored in ahead of today's results, given the deliveries were announced earlier in the month.

But there are positives in the earnings release. One of these is an announcement that the long-awaited affordable car began production in June, and that this will scale up in the second half of 2025.

The announcement also states that Cybercab will enter volume production in 2026. Anything relating to the self-driving car business is going to attract investors' attention. Expect Elon Musk to dive into detail on this during this evening's earnings call.

Alphabet earnings call starts

Alphabet's earnings call is now getting underway. Management will flesh out the raw numbers that have already been released.

Shares are down about 1.25% in after-hours trading at the start of the call.

Alphabet earnings highlights: Alphabet CEO says AI is benefitting Google Search

Alphabet CEO Sundar Pichai is delivering his open remarks, and striking an emphatic tone on the positive impacts of AI on Google’s business.

AI Overviews in Google Search now has over 2 billion monthly users, across more than 200 countries, according to Pichai.

The Gemini app has over 450 million monthly active users. Daily requests were 50% higher in June alone than in the first quarter of the year.

“AI features cause users to search more, as they learn that search can meet more of their needs,” says Pichai. That seems to be a direct response to market fears that generative AI could eat into demand for Google Search.

The market is responding positively to these comments. Alphabet stock has rebounded to above where it closed today’s session, reversing the share price drop that accompanied the results’ initial release.

Alphabet’s capital expenditure in focus

According to Alphabet’s CFO Anat Ashkenazi, the extra $10 billion that Alphabet is spending this year largely reflects “additional investment in servers, the timing of delivery of servers and an acceleration in the pace of data centre production, primarily to meet cloud customer demand”.

Both she and Pichai have spoken of a tight supply environment for compute power, as the world’s technology companies vie for access to the world’s data centre resources.

Part of Alphabet’s response to that tight market is to increase the supply, by building out its own data centre infrastructure. But Pichai warns there will be a lag before that new capacity comes online; demand for compute power is going to outstrip supply for the foreseeable future.

Alphabet's share price has now gained more than 3% in after-hours trading, as investors digest management's framing of the results.

Can Google Search keep making money in the AI era?

A question has come in on the monetisation of Google Search, given the falling number of ad impressions available per click-through in the era of AI Overviews.

Google's chief business offer Philipp Schindler replies: "AI Overviews... continue to drive higher satisfaction [and] higher search uses.

"We see monetisation at approximately the same rate, which gives us a really strong base on which we can then innovate and drive more innovative, next-generation ad formats."

Alphabet's earnings call sees shares gain 2.7%

Alphabet's earnings call has now finished. Shares are up 2.7% in after-hours trading at the end of it.

Now our attention turns to Tesla, whose earnings call will start shortly. At present, Tesla shares are down around 0.4% in after-hours trading.

Tesla: robotaxis could serve half US population by the end of the year

Tesla's earnings call starts with some big statements on the rollout of its (geofenced) robotaxi service.

Robotaxi is set to expand to "well in excess of what competitors are doing" in the next two weeks, says Tesla CEO Elon Musk.

The company is also seeking regulatory approval to launch in the San Francisco Bay Area, Arizona and Florida. Musk says that by the end of the year, Tesla will "technically" be able to offer self-driving rides to half the US population.

"That's our goal, subject to regulatory approvals," said Musk.

Musk aims for 1 million Optimus robots annually within five years

Optimus, Tesla's humanoid robot, will have prototypes this year, followed by scaled production next year, says Musk.

He says that the objective will be to produce one million units per year as quickly as possible - hopefully, within five years, he says.

Market will need more convincing on Google’s AI staying power

The conundrum that surrounded Alphabet, and whether AI is a headwind or a tailwind for Google, still remains even after a strong set of results.

“Alphabet is being forced to adapt or risk becoming a dinosaur in the new AI age,” says Matt Britzman, senior equity analyst at Hargreaves Lansdown.

The numbers on the key areas – Search and Cloud revenue – were impressive. But the question of monetisation remains.

“The Alphabet AI investment case is something of an enigma,” says Britzman. While the market seems to have decided that Alphabet is destined to be a loser in the AI race, Britzman feels that view is “both short-sighted and overly pessimistic.

“That said,” he adds, “until there’s more confidence that AI integration won’t cannibalise core search revenue, and some clarity around ongoing legal battles, there’s enough uncertainty to cap near-term upside.”

Customers love robotaxi, says Tesla

The opening remarks in Tesla's earnings call are now done. They were unusually uneventful, the robotaxi and Optimus plans notwithstanding.

The first analyst question asks for more detail on the robotaxi rollout.

"Robo taxi has been doing great so far in Austin," replies Tesla's CFO Vaibhav Taneja. "Customers really love the experience. Super smooth, very safe, and just a great experience overall."

He adds that expansion in Austin has already started, and that testing in a number of other cities has already started.

Tesla CFO: not appropriate to discuss xAI investment in earnings call

A question is asked about the benefits of Tesla invested into xAI.

CFO Janeja replies that this isn't the forum to discuss that issue, and that "if there is something which we need to discuss, we'll discuss it separately".

Musk then adds, "Obviously, we're a publicly-traded company. Shareholders are welcome to put forward any shareholder proposals that they'd like. I personally encourage that."

Tesla stock falls 2.8% in after-hours trading

Tesla shares slumped at around the time that Elon Musk finished his prepared remarks. They are now down around 2.8% in after-hours trading.

Most of the comments have been a little underwhelming, and non-specific. A lot of reasons given for delays in delivery - but many of these same reasons have been given at previous earnings calls.

Is the market starting to lose patience with Tesla?

How will the end of EV tax credits impact Tesla?

The end of tax credits could lead to "a few rough quarters", says Musk in response to a question on the subject. President Donald Trump has said that he will remove the electric vehicle (EV) tax credits that were introduced during the Biden era later this year.

Musk says that while tax incentives for EVs are vanishing in the US, they are still in place in much of the rest of the world.

"On the other hand, autonomy is most advanced and available from a regulatory standpoint in the US. So does that mean we could have a few rough quarters? Yeah, we probably could."

While the second half of this year and the first half of next could be tricky, Musk says that "once you get to autonomy at scale in the second half of next year... I'd be surprised if Tesla's economics weren't very compelling".

That's the end of Tesla's earnings call. Shares are down over 4.6% in after-hours trading, with investors having responded negatively to a cautious set of responses from Musk and his team.

Thank you for following our live coverage. That's everything for this evening, but we will be back tomorrow morning with rolling analysis and reaction to Google and Tesla's earnings.

Tesla’s long game

Good morning, and welcome back to live coverage. We’ll spend today breaking down the implications of last night’s earnings results from Alphabet and Tesla.

There are two contrasting stories there. Alphabet’s share price gained 2.3% in after-hours trading as management was able to paint an upbeat picture of Google’s place in the AI ecosystem, in spite of the challenges to its core business that the technology poses.

But Tesla’s share price fell 6.1% in after-hours trading, as CEO Elon Musk warned that the company could be set for a tough period until the second half of 2026.

“The typical playbook for the past few quarters has been declining fundamentals but enough AI hype to keep investors sleeping at night,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

Musk’s cautious tone went against this typical pattern, but he was as ever bullish about the longer-term plan for Tesla, saying it is easier to predict where the company will be in five years’ time than in one or two.

“Tesla is in a very small cohort of companies with enough growth potential that investors are, for now at least, willing to look past weakening core financials,” says Britzman. “Last night's comments confirmed many fears around tariffs, rising costs, tougher margins, and struggling cash flows.

“But with that now firmly built in as the base case, the AI story can take back the wheel.

Robotaxi versus Waymo

One of the big questions that surrounds Alphabet and Tesla – and which both management teams discussed on last night’s earnings calls – is the future of the self-driving car market. Google’s Waymo and Tesla’s robotaxi are viewed as the two front-runners.

Waymo has now covered 100 miles on public roads, it was revealed yesterday. But Elon Musk went out of his way to talk down Waymo’s prospects, saying “Google is good at AI, yes, but they’re not good at real-world AI”.

ARK Invest – known for its bullish stance on Tesla – explains why they feel Tesla is the frontrunner in this race.

“Waymo in San Francisco, while more expensive than Uber and Lyft, are already starting to take share,” says Sam Korus, director of research for autonomous technology & robotics at ARK Invest. “And there are a lot of reasons why Tesla should be able to offer rides for a lower price than Waymo.

“They're using vision only, so their vehicles are less expensive. They have an adaptable fleet, so they can meet peak trough demand, without having underutilised vehicles. And they've got manufacturing scale so don't have to negotiate with other auto manufacturers.”

He adds that Tesla produces around 5,000 cars per day, which is around double the size of Waymo’s entire fleet. All of these can hypothetically become self-driving robotaxis.

“At the end of the day, people are going to look at an app and say, I can get from point A to point B for less money,” adds Korus.

Google Search looks safe for now

A major highlight for Alphabet last night was the resilience that its core Google Search business showed.

“Management commentary should alleviate investor caution around the perceived risks of generative AI on the Search business,” said Scott Devitt, managing director, Equity Research at Wedbush Securities. “These concerns are overdone, in our view, with Alphabet validating its ability to navigate this period of transition by exhibiting healthy query volume growth across both new and traditional surfaces.”

Top-line revenue growth for the Search arm beat analysts’ expectations, coming in at 11.7%. Paid click growth accelerated from 2% in Q1 to 4% in Q2.

While Alphabet still trades at the lowest earnings multiple of all Magnificent Seven companies, Devitt feels there is room for this improve over the coming quarters as investors become more comfortable with “the current macro environment, regulatory risk and the impact of generative AI on the business”.

Tesla and Alphabet earnings recap

Here’s a reminder of the headline results that Alphabet announced last night:

Tesla’s results looked like this:

Expectations are based on the consensus estimates of analysts polled by FactSet.

Tesla stock continues to fall

Any hope that Tesla stock would bounce back quickly from its after-hours decline has been dashed today.

Tesla's share price opened today's session 6.8% below yesterday's close, and has since fallen further, currently down around 7.6%.

The data centre supply gap

There was much talk during Alphabet’s earnings call yesterday on the tightness of compute supply: that is, how much resource is available in AI-dedicated data centres compared to the demand for it.

That tight supply is what eventually ameliorated the market’s response to Alphabet’s eye-watering $85 billion capex figure for 2025. There is huge demand for resources, and with Google Cloud revenue growth exceeding expectations, it makes sense for Alphabet to invest in capturing this market.

“AI adoption is growing at a speed far greater than what anyone is prepared for,” says Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics. Morningstar’s demand model forecasts US data centre capacity to triple between 2024 and 2030.

So while Google’s investment seems extreme at first glance, this is a market with significant growth potential. Google Cloud’s backlog increased 38% year-on-year, “implying continued momentum in the coming periods”, says Scott Devitt, managing director, Equity Research at Wedbush Securities.

Thank you for following our coverage of Alphabet and Tesla's earnings releases. We're going to end things here for now, but we'll be back next week for coverage of the next four Magnificent Seven stocks to announce earnings: Amazon, Apple, Meta and Microsoft.

The MoneyWeek exchange-traded fund (ETF) portfolio holds most of its equity allocation in broad funds: US, Europe, Japan and emerging markets. 

However, there are many other ways to slice up markets, such as sector, size, factor (stocks with specific characteristics such as high yields or low price/earning ratios), thematic and more. 

Given that many companies – especially larger ones – depend on the state of the global economy more than the country where they have their main listing, this may seem like a more sophisticated approach. 

So why not ignore geography and build a portfolio using sector trackers to reflect which sectors offer the best value?

How ETFs work

Before considering this, it’s important to note that not all sector funds offer exactly what an investor would expect from their names. 

Take the MSCI World Communications Services index, for example, which sounds like it will be mostly telephone companies. Historically, that was largely the case. However, in 2018, changes to the global industry classification standard (GICS) – the industry categories used for companies – put Alphabet, Meta Platforms, Netflix and Disney in the sector. As a result, Alphabet and Meta now account for more than 50% of the index. A tracker for this is not going to behave like a collection of telecommunications stocks (which might be a relief, given the poor long-term returns of many telcos). 

Or take consumer discretionary, a category that seems as if it should be about fashion and leisure. Yet about 20% of the index is automakers, which are definitely a big, discretionary purchase but have very different dynamics to McDonald’s.

MoneyWeek’s ETF portfolio

Another 20% is in Amazon, which is a key part of the consumer economy but is more about logistics and data centres than making and selling goods. 

Out of the giant tech megacaps, only Apple and Microsoft fall into the MSCI World Information Technology index. And why Apple, which is as much about fashion and branding as tech (and earns luxury-style margins as a result) and is less a consumer-discretionary stock than Amazon, is not easy to explain. 

In any case, given the huge US weighting in this index (almost 90% of the total), arguably a Nasdaq-100 tracker gives much better exposure to tech than a dedicated world tech ETF.

A core of cheap broad funds is best

Not all sector funds are useless. Energy, real estate, healthcare and consumer staples mostly offer what their names imply. 

The MoneyWeek portfolio held an energy ETF until recently as a hedge against inflation. It also holds a real-estate income ETF, the next holding to be reviewed, with UK mid caps afterwards. 

But building an entire portfolio around sector trackers would be a messy process and would push up costs. Holding a core portfolio of cheap, broad funds and using specialist ETFs to add specific exposures is a more effective option.

This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription. 

The Magnificent 7 – or Mag 7 – is a group of seven companies that are viewed as some of the leading names in artificial intelligence (AI) and technology.

These are frequently popular stocks with DIY investors, given their perceived leadership of crucial tech trends, as well as their massive global reach.

At the start of 2023, the seven tech companies collectively comprised approximately 20% of the S&P 500 between them. Now, they make up more than a third (34%) of the index.

So, which companies make up the Mag 7?

What are the Mag 7 stocks?

The seven companies that comprise the Mag 7 group are:

• Alphabet (NASDAQ:GOOGL) – the parent company of Google, as well as other companies such as the AI lab DeepMind;
• Amazon (NASDAQ:AMZN) – originally an online bookstore, now a giant of e-commerce and cloud computing via AWS;
• Apple (NASDAQ:AAPL) – the tech hardware company that brought the world the MacBook and the iPhone;
• Meta (NASDAQ:META) – formerly Facebook, the company is now heavily focused on ‘Metaverse’ technology as well as AI products, like the Llama model;
• Microsoft (NASDAQ:MSFT) – the computing giant behind the Windows operating system and the Azure cloud platform;
• Nvidia (NASDAQ:NVDA) – the hardware developer that pioneered GPUs, the chips that power AI data centres;
• Tesla (NASDAQ:TSLA) – the electric vehicle manufacturer that launched its long-awaited robotaxi service in Austin, Texas in 2025.

The term ‘Magnificent 7’ was coined by Bank of America analyst Michael Hartnett in 2023. By then, the group was already starting to dominate the stock market in the wake of the AI and tech stock mania that followed the public launch of ChatGPT in late November 2022.

While most of the group are highly diversified – Amazon is an e-commerce company as well as the world’s largest cloud services provider; Alphabet makes phones, self-driving cars and owns YouTube in addition to its cloud computing division and its core internet search business) – AI is their unifying feature as a group.

Some (like Nvidia) sell the hardware that underpins AI, or the cloud services on which models are trained and distributed (Amazon, Microsoft and Alphabet hold a 63% share of the global cloud market between them). Others develop AI platforms, such as Meta’s Llama or Microsoft’s Copilot, or integrate ‘physical AI’ into robots and self-driving cars (especially Tesla).

They are stock market behemoths; all have a market capitalisation (market cap) over $1 trillion as of 17 April. Nvidia, currently the largest in the group, has a market cap of close to $5 trillion.

How have the Mag 7 stocks performed over time?

Over recent years, each of the Magnificent 7 stocks have seen substantial increases in their share price.

In the five years to 17 April 2026, the Mag 7 stocks registered the following share price performance:

• Nvidia: +1,170%
• Alphabet: +202%
• Meta: +127%
• Apple: +107%
• Microsoft: +69%
• Tesla: +62%
• Amazon: +47%

In terms of how the group as a whole has performed, the CNBC Magnificent 7 Index – which tracks the seven stocks – gained 328% between its inception in October 2022 and 17 April 2026.

Why invest in the Mag 7 stocks?

It is no coincidence that the Mag 7 are some of the world’s most popular stocks to invest in.

“These stocks have a history of technological innovation and investment, which has allowed them to become the frontrunners in their field,” said Lee Wild, head of equity strategy at investing platform Interactive Investor. “Vast financial resources mean they can continue to spend heavily on further research and development.”

If you think about how frequently you search on Google, order goods from Amazon or check your iPhone, it soon becomes apparent just how wired in these companies are to daily life all over the world.

“Throughout the years, Magnificent 7 companies have grown significantly in size, enjoying market dominance and significant brand power,” said Wild. “They also have global recognition and large loyal customer bases, which helps reinforce their growth credentials.”

That has translated into rapid earnings growth for these companies, which in turn has underpinned the kind of share price gains noted above.

The risks of investing in the Mag 7 Stocks

However, popular stocks bring risks with them, regardless of how large and successful they are.

“All stock markets experience some level of volatility, but technology shares can experience greater price movements given the sector’s growth potential,” said Wild.

Tech companies in particular often trade on high price/earnings multiples given the expectation that their business will grow at pace many years into the future, and this is especially true of the Mag 7.

“However, if growth is slower than expected, or something goes wrong, share prices can sharply fall,” said Wild.

He added that their global reach can expose these companies to legal and regulatory scrutiny. Last year, Alphabet won an antitrust lawsuit that had been brought against it claiming that Google had a monopoly over online search.

There are also geopolitical risks in operating such massive businesses in innovative fields, as the various blockers that both the US and China have tried to raise against Nvidia selling its most cutting-edge chips into the Chinese market.

“As companies grow larger, they might reach a scale whereby it becomes more difficult to maintain a level of high growth that investors have become accustomed to,” said Wild. “They might also become vulnerable to competition either from smaller, more nimble rivals within their sector, or from alternative technologies.”

Are the Mag 7 still magnificent?

This group of stocks started being referred to as the Magnificent 7 during the rise of AI and in the aftermath of the Covid pandemic.

But up until then, the most common grouping to refer to big tech stock market giants was ‘FAANG’ – standing for Facebook (now Meta), Amazon, Apple, Netflix (NASDAQ:NFLX) and Google (now Alphabet). These five garnered lots of hype in the years leading up to and, particularly, during the pandemic, but since then AI’s rise (and the stagnation of the work-from-home economy) has seen Microsoft, Nvidia and Tesla gain more attention, while Netflix has been slightly left behind.

A similar process might be underway at present. The Mag 7 are not the largest companies by market cap – semiconductor companies Broadcom (NASDAQ:AVGO) and Taiwan Semiconductor (NYSE:TSM), as well as Saudi Arabia’s state-owned oil company Saudi Aramco (TADAWUL:2222) – are all valued higher than Meta and Tesla as of 17 April.

Some investors discuss the ‘BATMMAAN’ stocks – Broadcom, Alphabet, Tesla, Meta, Microsoft, Amazon, Apple and Nvidia – or the ‘10 titans’, which adds Broadcom, Oracle (NASDAQ:ORCL) and Netflix to the Mag 7.

Additionally, Elon Musk’s SpaceX is expected to IPO at some point this year and recent reports suggest it could be worth more than Tesla or Meta when it lists. If so, that could prompt a reshuffle in how investors categorise the top tech stocks.

Football fans looking to buy last-minute Euro 2024 tickets have been warned about ticket scams.

In the wake of holiday scams, WhatsApp recruitment fraud, romance scams, copycat banking and credit card frauds, it’s important to remain vigilant and avoid getting caught out this summer.

New Santander data revealed that football fans lost over £113k last year to ticket scams, and could risk losing over £200k this year. This is mainly due to the 17th UEFA European Championship kicking off this summer in Germany. 

And with Berlin being one of the most expensive cities in the world to visit, football fans will be keen to make sure their money goes as far as it can in the German capital. 

But when tickets for big events are scarce or in high demand, fraudsters know they can cash in on desperate fans willing to pay much more. 

Chris Ainsley, head of fraud risk management at Santander said: “For many fans, this will be the first Euros since 2016 they can attend due to the pandemic, and with both England and Scotland qualifying, we know many will be desperate to get their hands on tickets to the big games.

“Unfortunately, criminals know this too, and they’ll be looking for ways to exploit fans’ excitement and extort money from them. Avoid scoring an own goal by getting scammed off the pitch - so you can enjoy the action on it.”

We look at what kind of football ticket scams are doing the rounds and explain how to stay safe. 

Rise in football ticket scams

New Santander data shows that customers lost £113,103 to football ticket scams last year. This is a rise of a staggering 82% from the year before. 

The situation is especially bad for 19-34-year-olds who face the highest risk of falling victim to these scams. 

Based on the amounts already lost to football ticket scams, Santander estimates that £200,000 is at risk of being stolen by fraudsters this year due to Euro 2024.

But, if you look at the bigger picture, the impact could be much worse. Santander warns that around 1,100 football ticket scam victims could be looking at losing an eye-watering £780,000 between them. 

Last year’s figures show that, similar to social media investment scams, a majority of these football ticket scams took place on social media channels. Facebook accounted for more than half of all ticket scams, while ‘X’ (formerly known as Twitter) was to blame for 15% of such frauds.

But how exactly do fans get caught out? We look at the tricks scammers use to steal innocent fans’ money. 

How to spot football ticket scams

One way they do this is by creating fake posts on social media or online marketplaces to advertise tickets that don’t exist. The emergence of ChatGPT has also led to a rise in AI scams, such as seemingly convincing emails and messages.  

Often scammers will include pictures of real tickets to convince the unsuspecting buyer that they are genuine. The victim is tricked into sending money via bank transfer. Once the money has been transferred, the fraudster simply disappears, and the victim receives no tickets.

However, Lloyds Bank points out that many consumers are unaware that bank transfers were not designed as a way of paying for things online as they offer little protection if something goes wrong.

Liz Ziegler, fraud prevention director at Lloyds Bank, says: “The vast majority of ticket scams start on Twitter and Facebook, where it’s far too easy for criminals to set up fake profiles and advertise items for sale that simply don’t exist. Social media companies must do more to tackle this issue given the vast majority of fraud starts on their platforms.” 

How to stay safe when buying Euro 2024 tickets

The best way to avoid a football ticket scam is to only purchase tickets from official vendors. UEFA has made it clear that while all tickets have been sold out, should any become available, they should only be purchased from the official UEFA website. 

Similar to other scams, it’s a good idea to never pay using bank transfer or PayPal. Instead, opt for safer methods like debit or credit cards. Those who pay for tickets by credit or debit card benefit from the well-established Section 75 and Chargeback rules, which have been protecting consumers for decades.

The regulation, part of the Consumer Credit Act 1974, means your card provider is “jointly and severally liable” for your purchases. This means that if you pay for something with your credit card, the lender is just as liable as the company you made the purchase from if something goes wrong.

As such, your card provider is legally required to help. It also covers services bought with a credit card, such as flights and accommodation – well worth being aware of if you’re planning on following your team around Europe or elsewhere in the world.

“Buying directly from football clubs or their official ticket partners is the only way to guarantee you’re paying for a real ticket, and always use your debit or credit card for maximum safety,” adds Ziegler. “If you’re not doing those two things, there’s a big chance you’re going to get scammed.” 

When you think of social media, the first name that almost immediately comes to mind would be Mark Zuckerberg.

And rightfully so — he’s the mastermind behind Facebook and owns several digital communication platforms, including Instagram, Threads and WhatsApp under the Meta umbrella. According to a January 2025 company presentation, Meta Platforms has around 3.4 billion daily users.

This comfortably ranks him as one of the richest people in the world, placing his net worth at $232 billion, according to the Bloomberg Billionaires Index. However, Forbes puts Mark Zuckerberg’s net worth as $227.1 billion.

How did Zuckerberg build his fortune and what factors contribute to his net worth today? We find out.

Breaking down Mark Zuckerberg's net worth

Almost all of Mark Zuckerberg’s net worth comes from his ownership stake in Meta, which is about 13%, based on a February 2025 filing. How did it all start?

While Zuckerberg was still a student at Harvard University, he created a website called Facemash, which allowed students to rate the attractiveness of their peers. The site caused controversy and was shut down, but it gave Zuckerberg the idea for a social networking site. He began working on a new project that would eventually become Facebook.

Zuckerberg enlisted the help of his roommates, Dustin Moskovitz and Eduardo Saverin, to build the new site, which they worked on in their dorm room. They launched it on 4 February 2004, initially as thefacebook.com.

It quickly became popular. The site began life confined to the Harvard campus, but as it grew, Zuckerberg and his team expanded it to other universities. The expansion required money, so they reached out to venture capitalists to fund the expansion. As a result, they moved their operation to Palo Alto, California to be among other high-growth startups.

By 2006, the company was worth $525 million. Facebook then opened its doors to anyone with an email address in 2007. When Microsoft bought a 1.6% stake in Facebook in 2007, it added around $240 million in cash to the company. In 2012, the company was worth $104 billion and was, at that time, the largest initial public offering in history.

From Facebook to Meta

Facebook changed its name to Meta in October 2021, signalling a shift in focus towards the metaverse. The metaverse is essentially a virtual universe (think Marvel but for the digital world) with a wide range of applications, from gaming to education to socialising.

While it started with just Facebook, the company soon made several mergers and acquisitions. Some of its high-profile investments include Instagram for $1 billion in 2012 and WhatsApp for $19 billion.

In 2019, Zuckerberg integrated an end-to-end encrypted system for the three platforms. A year later, The Verge reported that he merged Instagram and Messenger chats on both iOS and Android, which was another step in unifying the two social media giants.

So far, it’s been a successful journey for Zuckerberg. In 2024, he cashed in more than $2.2 billion according to a Fortune analysis. The Meta co-founder and CEO’s fortunes shot up by 70% as well thanks to investments in AI, adding around $72 billion to his wealth, the Bloomberg Billionaires Index reported.

According to Business Insider, AI enthusiasm has powered the company’s shares this year, having risen over 17%. Meta now commands a market capitalisation of $1.65 trillion, according to Trading Economics, which now puts the company with the likes of Apple and Amazon in the trillion-dollar club.

Zuckerberg recently executed a series of stock transactions which involved Meta’s Class A Common Stock, totalling around $9.17 million, MSN reports. The shares were priced between $700.72 and $716.20 per share.

Zuckerberg has donated a chunk of his wealth to charity over the years. He founded the Startup Education foundation dedicated to improving the quality of public education in Newark. In 2010, Zuckerberg, Warren Buffett and Bill Gates signed The Giving Pledge, in which they said they would give a majority of their wealth to philanthropic causes. He also donated 18 million Facebook shares to the Silicon Valley Community Foundation to contribute towards housing and children’s education.

Zuckerberg is married to Priscilla Chan, with whom he started the Chan Zuckerberg Initiative. It works on promoting housing affordability, providing economic opportunities and helping eradicate diseases.

“The worst of the post-pandemic hangover is fading” for Big Tech, says Meghan Bobrowsky in The Wall Street Journal.

Technology shares became overheated during the first 18 months of the pandemic as the world rushed to work online; tech firms “believed their own hype and over-expanded” says Tom Stevenson in The Telegraph. Reopening and rising interest rates proved a tough wake-up call last year.

Between March and December 2022 Amazon’s shares lost half their value, while Apple’s market cap slipped from $3trn to $2trn. But Big Tech has bounced back: just five tech stocks are responsible for 66% of the S&P’s 8% rise so far this year. The tech-focused Nasdaq 100 index has surged by 22% since 1 January, while Facebook-owner Meta has vaulted by 87%.

The US equity market is once again dependent on the fortunes of a handful of giant businesses.

First quarter reassures

Alphabet, Amazon, Meta and Microsoft recently reported first-quarter revenue growth rates of 3%-9%, say Richard Waters, Elaine Moore and Patrick McGee in the Financial Times. That is “a far cry from two years ago” when the lockdown boom “boosted Big Tech’s combined revenue by 41%”. But it was still an improvement from poor fourth-quarter levels, as cloud computing demand and PC sales slumped. The results have reassured investors that the tech rout is over.

“Global digital advertising spend is holding up” better than feared, says Lex in the same paper. Margins have been improved by “heavy cost-cutting via lay-offs”, while investors are excited by the “tantalising prospects from artificial intelligence” (AI).

The race for AI won’t be cheap. One estimate suggests AI spend will hit $800bn over the next ten years. That will only grow the gap between the tech giants that have the cash to splurge on aggressive research and smaller firms “such as Zoom and DocuSign” whose shares “remain in the doldrums”. “Companies can’t cut their way to prosperity,” says Tae Kim in Barron’s.

Rebound rebuttal

This year’s tech lay-offs risk improving margins today at the expense of revenue growth tomorrow. After dipping last year, valuations are once again eye-watering: “Big Tech stocks are trading at 20 to 70 times 2023 earnings while growing at single-digit rates – not a good combination for future returns.”

America’s Nasdaq index has rebounded 20% from its 2022 low, prompting some to talk of a new bull market, says Russ Mould of AJ Bell. Yet it remains 24% below its 2021 peak. The rally is reminiscent of the 2000-2003 bear market, during which the index staged nine separate rallies.

Yet the Nasdaq didn’t get back to its March 2000 peak until 2015. “It is highly unusual for the leaders in the last bull market to be the leaders in the next one.” Tech investors should “proceed with caution”.

One of the consequences of the dominance of the mega-cap growth stocks in the US over the last decade or so is that there is a huge amount of concentration risk. Many funds own the same stocks because they use the same investment process, which is to buy growth stocks, no matter where we are in the economic cycle.

The VT Tyndall North American Fund takes a different approach. It looks first at where we are in the business cycle, and then constructs the portfolio accordingly. There are times when growth as an investment style does not work – 2022, for example – and it is important to avoid periods of major stock market declines in order to bolster long-term returns: the Nasdaq slumped by 33.1% last year.

The fund seeks to differentiate in terms of the stocks we hold as well. We sold our last mega-cap tech stock in late 2020, and since then we have avoided Facebook (now Meta), Amazon, Netflix, Microsoft, Apple, Google (now Alphabet), and Tesla.

This positioning has been undertaken for fundamental reasons, partly because I think the best days are behind these stocks, but also because history shows us that when a group of stocks comes to dominate a market, their dominance does not last forever. Stocks move in cycles, just like the economy, and an era of outperformance always ends. Think back to the hero stocks of bygone decades: Cisco, IBM, GE, and Intel have been massive underperformers since their time in the sun ended.

Formula One roars ahead in America

In looking for stocks that are not widely owned by other funds and that have great long-term potential, I’ve picked out three stocks. The first is Liberty Media Corp. Series C Liberty Formula One (Nasdaq: FWONK), which owns the Formula 1 franchise. This stock gives investors exposure to one of the fastest-growing sports in the world. The Netflix documentary Formula 1: Drive to Survive has dramatically increased the sport’s popularity in America and made household names of the teams, drivers and owners. There are already two Grands Prix in the United States, Austin and Miami, and this year they are adding a third race in Las Vegas, which promises to be a global spectacle.

MGM Resorts International (NYSE: MGM) is a hotel and casino company. After a tough couple of years post-Covid, it’s now seeing its core market of Las Vegas getting much stronger. Weekend visitation has long since recovered, but the big change now is that the convention business is returning. This helps fill rooms during the week and boost revenue per available room. The F1 race in November will be a major event for MGM with its exposure to The Strip, the four-mile street with the most hotels and casinos, and I expect it to be a significant driver of revenue and earnings in 2023.

Cleaning up the competition

Clean Harbors (NYSE: CLH) specialises in hazardous waste disposal and environmental services. It operates in a highly regulated sector, which to a large degree protects it from new competition. Scale and reputation are prized in this sector, as no client wants to have to do the job twice, and this is where Clean Harbors has a clear advantage as the leader in its field. New environmental regulations are a key long-term theme in this sector as they are catalysts for growth, and this stock is a core holding.

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There is an old adage in investment that you should buy a share or market whose price rises on bad news. The logic is that the price action shows that the bad news was fully or over-discounted so the outlook has improved.

Storm central for the bear market in 2022 was growth, especially technology stocks and Nasdaq-listed equities. But, with Nasdaq up 16% so far this year, against less than 9% for the S&P 500, this is where the best gains have been seen.

A perfect example was provided by Meta, probably the most despised and hated “growth” stock of all.

Meta leads growth stocks higher

Last week, it announced quarterly earnings that had halved year on year and were 22% below consensus forecasts. Yet the share price - already up over 60% from its November low - gained another 25% instantly.

The almost equally-hated Tesla, actually beat earnings estimates by 5% on turnover up 37% year-on-year (though many were expecting much worse). Its shares are up over 50% this year.

Netflix was one of the first to announce disappointing results, but it was also one of the first to take remedial action. Its fourth-quarter revenue was flat and earnings were poor. Still, the shares gained on strong subscriber growth. They have now doubled since their June low.

What about Amazon, Apple and Alphabet, whose share prices, we were told by the media, had fallen on disappointing earnings?

They did fall after earnings, but these falls need to be put into perspective - they are still up 27%, 16% and 20% respectively this year.

They’re all concentrating on lowering costs and focusing their businesses; when this comes through in better-than-expected quarterly results, the share prices could jump 10% before you can blink and 20% before you can place an order to buy.

A better-than-expected earnings performance

Ed Yardeni points out that, with 38% of the S&P 500 having reported for the fourth quarter, the earnings season is off to a poor start. Revenues have beaten reduced expectations by 1% and earnings by 2.5%. Those are the weakest metrics since 2013. Year-on-year revenues have risen 6.8% and earnings are up 4.5%. JP Morgan, with data on 45% of the S&P500, reports earnings down 5% year on year but up 4% in Europe.

What this misses is that the pessimists were expecting much worse - a dramatic collapse in earnings that sent valuation multiples sky-high with no visible prospect of recovery. That looks increasingly unlikely as economic forecasts of a severe recession turn into a mild one or just a slow-down and cost pressures abate.

It’s not just the technology sector that the bears have had their teeth into. The share prices of housebuilders and property companies have been recovering even as their business outlook deteriorates.

Even more dramatic is the turn-around in the private equity sector where high discounts to net asset value were attributed to valuers being totally out of touch with current markets.

Private equity discounts narrow as sentiment improves

3i announced a year-end valuation last week, based on strong earnings growth from its portfolio, 7% above brokers’ estimates.

This caused the share price to jump to an all-time high, 50% above last October’s low and in line with JP Morgan Cazenove’s estimate of net asset value. The market is coming down on the side of the valuers, not the Armageddon crowd.

Even more remarkable has been the response of markets to last week’s increases in interest rates; 0.25% to 4.5% in the US, 0.5% to 2.5% in the eurozone and 0.5% to 4% in the UK.

Newscasters donned their favourite masks of being the messengers of grim news for all of us but equity and bond markets jumped for joy. The yield on 10-year gilts dropped to 3% and on US Treasuries to 3.4%, indicating investors’ confidence that the average inflation rate over the next ten years will be respectively well below 3%. This in turn boosted growth equities, making future earnings more attractive, and those with good yields.

Admittedly, the fall in energy prices has raised confidence that inflation will fall and the economic downturn will be shallow, hence the Bank of England’s sharply upgraded economic forecasts but few economists took their previous gloomy forecasts seriously.

Nobody should be surprised that equity markets have started the year well and look set to

improve further. US equities rose 6.6% in January while the FTSE 100 rose 4.2%; performance in January has always been a good harbinger for the year as a whole.

Long-term US returns have been heavily concentrated in the pre-election and election years, which bodes well for 2023 and 2024.

Sentiment, as measured by surveys of both private and professional investors, was at extreme lows, suggesting it couldn’t get much or any worse. 2022 brought record outflows from retail funds in the UK of £25.7bn, far ahead of the second worst year, 2008, which saw inflows of £4.2bn. Yet the financial system was shaken to its core in 2008, making 2022’s exodus look bizarre. Retail investors have an unfortunate tendency to buy high, sell low, so act as a contrary indicator.

What could go wrong to upset the rally?

What could go wrong? Commodity prices could go back up (they are already off their lows) but if that’s due to rising demand, notably from China, rather than restricted supply, that would not be negative for markets.

The dire warnings about the health consequences of China opening up have not been fulfilled, China has surely lost interest in invading Taiwan and is focused on improving the standard of living and quality of life of its people.

Equity valuations, especially in the US, could get too high, leading to a setback in markets or consolidation as earnings catch up. This is quite normal after the initial recovery from a bear market. With valuations already optimistic, bond yields could rise, but this would slow, not reverse the recovery in equity markets.

The bulls aren’t yet roaring - which is a good sign - but the silence of the bears is deafening.

Equity markets are going higher.

Risky investment adverts are being shown to UK consumers on Facebook and Instagram, according to the latest data from Which? These findings come as there’s a surge in losses linked to investment scams.

Ads without a risk warning, or promising “sensational, life-changing returns”, were found on both platforms. These could lead consumers towards “poor and risky investment choices”, or even fraud.

According to Action Fraud, victims can lose over £45,000 on average to “clone” firm investment scams. In its last quarterly data publication for the three months to June, the Financial Ombudsman Service said investment scams were the fastest growing type of “authorised” scam.

Facebook investment scams

Which’s investigation was carried out in partnership with Demos Consulting and took place between October 2021 and August 2022.

It found 1,064 adverts on platforms owned by Meta (the parent of Facebook and Instagram), which is more transparent than other online platforms about the ads placed on its network.

Some 484 of which were investment related. Half of these were for investment products, while the rest offered investment tips, training or advice.

One in four of these was property related, while one in five were about cryptocurrency and non-fungible tokens. One in ten investment products offered high returns without clarifying how these would be obtained. The investigation found 89 adverts without a risk warning and claims of guaranteed returns.

Rocio Concha, director of policy and advocacy at Which, highlighted the need for the government to pass the Online Safety Bill into law to protect consumers from the risk of “immense financial and emotional harm”.

“Otherwise we could be waiting even longer for alternative action to tackle online fraud infiltrating one of the world’s biggest search engines and social media sites,” Concha said.

Beware one repeat offender

The FCA has previously issued a warning about a scam investment company under the brand name “Tesler”, impersonating a regulated trading company based in the UK.

Which found 20 adverts for Tesler which raised eight different serious risk flags. These included being pressured to set up a trading account and promising an 87% success rate.

“The use of the name ‘Tesler’, with its similarities to automotive brand ‘Tesla’, and other language used may be reinforcing this potentially misleading reference to attempt to draw in victims,” said Which?.

Instagram investment scams

These adverts, on platforms like Instagram and Facebook often play on investors’ fear of missing out on potentially lucrative returns, especially as the cost of living crisis continues to worsen in the face of rising inflation.

The City watchdog, the Financial Conduct Authority (FCA) has proposed new measures to help social media platforms from allowing “illegal, unfair or misleading financial marketing”.

The measures will require firms to demonstrate they have the expertise for the promotions they want to approve. They will also be required to report back to the FCA on financial promotions they have approved so that the watchdog can “crack down on rogue adverts”.

“Social media and online advertising mean that consumers are taking less time between seeing a promotion and making a financial decision,” said Sarah Pritchard, executive markets director at the FCA.

“It is, therefore, essential that they are equipped with the right information at the right time so that they can make good financial decisions. This is especially important as we face the rising cost of living.”

Red flags for investment scams

Here are some things to keep in mind when looking at an investment ad.

1. Be sceptical of heavy marketing and promotional offers

Fraudulent adverts are “designed to lure in people fast”, says Susannah Streeter, senior investments and market analyst at Hargreaves Lansdown. “Make sure you are not rushed into making any investment.”

2. Avoid unnamed or non-existent team members

“It pays to do your research and check out the team behind any company,” says Streeter. “If there are unnamed or non-existent team members it could be a warning sign.”

3. Avoid “unusual” ways to invest

Weekly and monthly investments could be “suspicious ploys”.

4. Check out reviews

“It’s also very important to check out reviews of crypto trading platforms or brokers to try and spot any signs of past fraudulent behaviour,” says Streeter.

5. Be aware of scam websites

“Criminals will target shoppers by offering unmissable deals on the most popular items. They don’t have these items to sell, they just take payments from people and scarper,” says Streeter.

“Other fraudsters will set up sites to sell fakes, while others will sell on auction websites or social media. These can be poor quality and dangerous.”

Scam-detector’s search function allows you to check whether a website is legitimate.

6. Be particularly mindful of cryptocurrency adverts

One in five of the adverts looked at by Which were related to crypto assets. The Financial Ombudsman Service also said around a fifth of the 1,900 complaints it received involved cryptocurrencies. The Ombudsman saw consumers being scammed out of tens or even hundreds of thousands of pounds.

“Crypto currency fraud is rife with scammers spinning complex webs of deceit and an increasing number of younger people are being lured in with promises of high returns,” says Streeter. “The fear of missing out on the huge gains we saw in crypto assets over the pandemic, has meant more people have dropped their guard in recent years.

“If you are tempted to dabble in crypto assets you should only do so with money you are prepared to lose.”

Tech stocks dominated the market in 2021 as demand for the industry’s services exploded.

At the end of 2020, management consultancy McKinsey noted that digital adoption in the pandemic took a “quantum leap” forward as businesses and consumers had no choice but to work, shop and play online.

Nowhere was this trend more apparent than in the performance of the market’s top tech stocks, the so-called FANGs.

Led by the FANGs, tech stocks see revenues surge

The FANG group of tech companies, Meta (Nasdaq: FB) (formerly known as Facebook), Amazon (Nasdaq: AMZN), Netflix (Nasdaq: NFLX) and Alphabet (Nasdaq: GOOG) (the parent company of Google) collectively reported revenues of $532bn in 2019.

By the end of 2020, revenues across the group had jumped by 28% to $680bn. And by the end of 2021 that figure was $876bn, up 29% year-on-year and 64% since 2019.

Investors celebrated. The NYSE FANG+ Index, which provides exposure to the FANGs as well as Microsoft (Nasdaq: MSFT), Apple (Nasdaq: AAPL), Baidu (Nasdaq: BIDU), Nvidia (Nasdaq: NVDA), Alibaba (NYSE: BABA) and Tesla (Nasdaq: TSLA) doubled in 2020 and rose a further 22% in 2021.

But these tech stocks are now falling out of favour with investors. Since the start of this year, the FANG+ Index has slumped by 46%, erasing all of 2021’s gains and taking it back to the level last seen in June 2020.

Meta has been the worst performing stock by far this year. The stock is off more than 70%.

That’s the sort of return you might expect from a struggling penny stock, not one of the world’s most successful (and profitable) tech companies.

Investors lose faith in tech stocks

Analysts are not short of reasons to explain why the market has fallen out of love with these businesses. They point to rising interest rates, disruption, slowing growth and a rotation away from growth to value stocks.

But I think there’s a much simpler explanation. The market was just too overexcited about their prospects, something even the companies themselves are now starting to admit.

This week Meta announced it’s planning to cut 13% of its workforce around the world. CEO Mark Zuckerberg said the cuts were “the most difficult changes we’ve made in Meta’s history” and he went on to say the company was having to make these changes as the firm’s pandemic growth had not lasted.

“Many people predicted this would be a permanent acceleration,” he wrote, referring to Meta’s revenue growth during the pandemic. “I did too, so I made the decision to significantly increase our investments.”

Meta’s revenues jumped from $70bn in 2019 to $118bn for 2021 and Wall Street analysts were forecasting further growth in 2022. They’d pencilled in earnings growth of around 15%.

However, Wall Street is now expecting a slight decline in revenues from the company in 2022 and a staggering 33% decline in earnings.

A lot has changed for these tech stocks in a year.

Growth slows and cuts arrive

It’s not just Meta. Netflix’s growth engine has spluttered as competition has increased and the company has responded by launching an ad-supported version of its platform.

Google is struggling with a slowdown in digital advertising spending and this week Apple has told its suppliers to slow production of its new iPhone14. It has cut orders by three million units.

The e-commerce giant Amazon has also been forced to put its growth plans on hold. Earlier this year Fortune reported Amazon had “killed plans” to open 42 order fulfilment facilities and delayed opening an additional 21 locations.

These tech stocks have had to re-adjust their growth plans, and as a result, the market has had to re-adjust its perception of them.

Meta, Amazon, Apple and Netflix are no longer expected to generate double-digit sales and earnings growth indefinitely. Therefore, they no longer deserve a premium valuation

Could now be the time to buy tech stocks?

When valuing a business, analysts often try to estimate its future profits and work back to estimate how much these would be worth today. In theory, the higher the future potential profit stream, the more investors are willing to pay today.

So, when analysts revise their estimates for future growth lower, that will be reflected in the company’s current stock price.

That’s exactly what we’ve seen happen with these tech stocks over the past 11 months.

However, as the famous investor Benjamin Graham once said, “there are no bad assets, just bad prices.” In other words, everything has its price.

The fact is, none of these companies are going anywhere anytime soon.

Google remains the world’s go-to search engine, and the company’s cloud business serves millions of customers around the world.

Meanwhile, Amazon has built a global logistics giant, investing hundreds of billions of dollars over the past three years alone to develop its edge (it also has a highly profitable cloud division). Fellow FANG+ members Microsoft and Apple exhibit similar qualities.

Apple isn’t the world’s largest smartphone manufacturer, (that crown belongs to Samsung) but the company’s brand is one of the most valuable in the world, and consumers are willing to pay more to be part of the Apple ecosystem.

These companies are still at the top of their game. All that’s happened over the past year is growth expectations have shifted.

At some point their valuations will hit a level whereby the slower rate of future growth is fully reflected in the shares. When that happens, it could be the time to buy tech stocks.

There have been rumours for years; there have been presentations, speculations, and occasionally even a minor product launch, but now it is finally happening: the technology giants are making their long-awaited push into healthcare.

As so often, Amazon led the way, paying $3.9bn for One Medical in the US, a primary healthcare organisation that covers almost 800,000 people across 25 states. For Amazon, it is a huge step up in its attack on the medical market. It bought online pharmacy PillPack for $750m in 2018 and since then has started selling through its own pharmacy as well. But this is the first time it has taken control of a major healthcare provider.

Apple has similar ambitions. Last week, the company set out its strategy for making healthcare its next major expansion, with devices, apps and services based around its existing products. There is speculation that it may make a similar acquisition to Amazon. Google has also targeted the industry, as has Meta. Healthcare is shaping up to be a major battleground for some of the world’s biggest and richest companies.

Eyes on the prize

It’s not hard to understand the attractions. In most countries, healthcare provision is inefficient and expensive, with outcomes that could be vastly improved. The sector could certainly use new technology and new ideas, in management and delivery as well as drugs and treatments. And it is a huge industry, accounting for 10% of GDP in most countries, and even more in the US. With populations ageing, it is only going to grow. Even a tiny slice of the market will be valuable.

The problem, however, is that this will take the tech giants into dangerous political territory. “The deal will expand Amazon’s ability to collect the most intimate and personal information about individuals, in order to track, target, manipulate and exploit people in ever more intrusive ways,” warns the Open Markets Institute, an organisation that campaigns for stricter competition regulation.

There is truth in that. It is one thing to monetise our record of browsing for new phones or holidays and then use that information to feed us advertisements or recommendations for different products. That happens all the time, and we more or less accept it as the price we pay for all the free products we get from the internet. It is a different matter to collect and manipulate our health records – there is a reason why doctor-patient relationships have always involved a degree of confidentiality. The tech giants can promise to respect that, but they have been so cavalier with the use of data in the past, and so reckless about finding ways of making money from it, that no one is likely to believe them.

It’s not like slinging books

The political scrutiny will be intense. Even in a relatively free-market system such as the US, the government is a major player and in just about every other developed country in the world it is the dominant force. It’s one thing to disrupt the market in books, music, clothes or food retailing – they are already very competitive markets – it is something else to open up hospital services, GP surgeries, or even pharmacies to new ideas.

On top of all that, doctors everywhere have formed themselves into the fiercest trade unions ever seen. None of them will give up any of their privileges easily, and they invariably have the public on their side. Governments are not going to sit back and see how the dust settles – they will stop the process before it has even started.

The reality is that, if the tech giants become major players, they will invite intense regulatory scrutiny and provoke a political backlash. Most of the major tech companies are already skating on very thin ice, with lots and lots of governments, regulators and activists demanding that they be broken up, that they pay more taxes, and that their power be curbed. Healthcare could easily be the tipping point: the moment when all that talk finally turns into action. It is not worth it – and if the likes of Apple and Amazon don’t get that they will have big problems in the years ahead.

We may not ever know exactly why Sheryl Sandberg quit Facebook, now Meta. But there’s no question that Sandberg is one of the most talented corporate executives of her generation.

When she joined Facebook from Google in 2008, hired by the site’s founder Mark Zuckerberg, the business had revenues of just $272m and was making losses of $56m. It had no real business model, nor much idea how to create one.

After taking over as COO, Sandberg turned it into a brutally effective advertising machine, monetising all those hundreds of millions of eyeballs to brilliant effect.

By last year, Meta had revenues of $118bn and profits of $39bn. At its peak, it had a market value of more than $1trn, one of only a tiny handful of companies to break through that barrier. Sandberg’s brand of right-on, corporate feminism – especially as championed in her best-selling book Lean In – may have become a little grating over the years, but she is a class act. Without her, Facebook might have struggled to find a business model that actually worked.

What will happen to Meta without her remains to be seen. It faces a stiff set of challenges. But the more interesting question is what Sandberg will do next. After all, at 52 she is still relatively young. Every company in the world should be trying to snap her up. And some of the giants of the FTSE should be trying to tempt her across the Atlantic. Here are three that could definitely use someone of her ability.

Three UK companies that could use Sandberg's talents

First, Unilever. Alan Jope is completely out of his depth at the consumer-goods giant. It has trailed behind rivals such as Nestlé and Procter & Gamble while focusing on wishy-washy virtue signalling far more than delivering returns for shareholders. He launched the most hopeless takeover bid of recent times with a failed attempt to buy GlaxoSmithKline’s consumer goods unit ahead of its demerger, and his only plan for the conglomerate seems to be the kind of “reorganisation” that consultants come up with when they can’t think of anything better to suggest. US corporate raider Nelson Peltz has already taken a stake and a seat on the board. Sandberg would be the blast of butt-kicking corporate fresh air the company so badly needs, while also maintaining its impeccably liberal credentials.

Next, the company Jope tried to buy half of – GSK. The hapless Emma Walmsley may finally complete her long-planned demerger into its pharmaceuticals and consumer goods unit this year. But she will remain in charge of the more important drugs business even after years of failing to deliver the major new medicines the company needs to start growing again. There is no reason to imagine she will be any better at the job now she doesn’t have to worry about toothpaste sales any more. Sandberg knows how to run a tech-based business, and one that depends on cutting-edge science, and swapping genes and molecules for codes and algorithms shouldn’t be much of a problem.

Finally, HSBC. The world’s only real global bank needs a leader with political skills and vision to navigate the tense relationship between its Chinese and European interests. Perhaps it needs to demerge? Create two self-managing companies? Or find a way of keeping both sides happy at the same time? These are hard questions and it will take a lot of tact and diplomacy, and a firm idea of where its future lies, to provide the answers. Sandberg is more likely to be able to manage that than another grey, faceless career banker.

Snap her up before the Americans do

Of course, a US company would be a more natural home. Regardless of whether Elon Musk buys it or not, she may well be the one person who could sort out the mess that is Twitter. Jeff Bezos must be wondering if she wouldn’t make a better successor as CEO at Amazon than the man he chose, Andy Jassy. Or Ford could use her talent as it transforms into a manufacturer of electric vehicles. There are not many executives as talented as Sandberg out there – if any British company could hire her it would be a huge coup.

To say that 2022 hasn’t been a good year for technology stocks would be a bit of an understatement. Most of the leading names such as Apple, Amazon, Alphabet, Microsoft, Meta Platforms and Netflix have slumped. Netflix is now down nearly 75% from its peak. Lots more damage has been done outside the top names: the tech-heavy Nasdaq Composite index is down 30% from its highs and more than 45% of its constituents are down by 50% or greater.

Still, the Nasdaq remains far higher than it was before the start of the pandemic – it’s up by about 25% since the beginning of 2020. This raises the question as to whether a longer-term technology bear market has only just begun, or whether this is just a blip in a wider bull market and an opportunity to pick up technology shares at a cheaper price.

To understand what is going to happen in the future, it is important to understand what lay behind the very strong tech bull market of the last decade. “There have been two main fundamental drivers,” says George Boyd-Bowman of the Liontrust US Opportunities Fund. First, the rise of the digital economy has created a “powerful demand backdrop”. Many of today’s largest tech companies have been at “the forefront of providing the building blocks of the digital world as we know it”. Amazon and Microsoft created Amazon Web Services and Azure to allow the ongoing shift to the cloud. Google (now Alphabet) and Facebook (Meta) were the key forces behind digital advertising and social media.

At the same time, several new business models emerged. Many tech companies have reinvented themselves as platforms, offering a range of services. A prime example of this is Meta acquiring messaging service WhatsApp and photo-sharing app Instagram, in addition to Facebook, the core social network on which the company was founded. Another is the growing use of software as a service (SaaS), under which companies sell their products on a subscription basis, rather than in return for a one-off payment. These models have generated large margins and amounts of free cash flow, as well as extremely high levels of recurring revenue and potentially low levels of capital expenditure, says Boyd-Bowman. Investors tend to value this highly.

Beyond the technology

The long boom has been driven by some fundamental changes to the way we live and consume goods and services. But tech investors can’t ignore the fact that the sector has also been “supercharged” by “macro factors they couldn’t have predicted or indeed wished for in their wildest dreams”, says Boyd-Bowman. As well as Covid-19, which accelerated the use of e-commerce and remote working, these include an interest rate backdrop “supporting sky-high valuation multiples” and the “most benign market background conditions for fast growing companies” in a long time.

Indeed, the ultra-low interest rates created by accommodative central banks have been the big elephant in the room where technology is concerned, says James Penny of TAM Asset Management. This is because investors tend to value companies by their future cash flows, discounted to reflect how long these cash flows will take to appear. Since the discount rate is related to the interest rate, low interest rates “make future earnings a lot more valuable than they would normally have been under a more normal interest rate regime”. Throw in the fact that low productivity growth in the rest of the economy means that there are few alternatives for those seeking growth, and it’s not hard to see why tech shares became so attractive.

If low interest rates were one of the big reasons for the recent tech boom, then it’s only logical that interest-rate hikes by central banks now desperate to contain inflation are having the opposite effect, pushing down valuations and creating a “sour cocktail” for investors, says Boyd-Bowman. It’s significant that the big falls in tech shares have coincided with the “Fed pivot”, when the US Federal Reserve made it clear that it “was serious about getting on top of inflation” by choosing to start to hike rates. With the other major central banks, including the Bank of England, starting to follow, the days when near-zero bond yields led investors “to ascribe absurdly low discount rates to future revenue streams” seem numbered.

The removal of pandemic restrictions – while good for the rest of the economy – is another reason why tech stocks are falling, says Boyd-Bowman. This is because the return of people to physical shops and offices has caused the “Covid-induced sugar high” that it provided to certain companies to start to fade. Indeed, it’s become clear that “while many of the structural shifts that were in place before the pandemic are continuing to run”, they “aren’t necessarily going to do so at the supernormal rates we saw over the last couple of years”.

Why the market has soured

There’s also been a shift in investor expectations, says Penny. During the boom, many people “fell in love with the disruptive potential of these companies”, assuming that their success would continue, seemingly forever. This led investors to pile into them, driving up valuations to very high levels. However, in the past six months investors have started to become a lot less optimistic about the prospects of these companies.

Many of the biggest names of the boom period, such as Amazon and Netflix, have recently started to produce earnings and sales figures that have failed to meet the expectations of Wall Street analysts. As a result, many investors who have previously intended to stick with these companies in the hope of fast growth have decided “that now is a good time to take some of their profits while they can”, pushing down prices.

The big question is whether this decline will end up becoming a rout on the scale of the dotcom bust, where the Nasdaq lost three-quarters of its value between March 2000 and February 2003, or just another blip, followed by a quick recovery, like 2016, 2018 – or March 2020. Everyone agrees that much depends on investor sentiment – something notoriously difficult to predict. Anthony Ginsberg of GinsGlobal Index Funds is a relative optimist who doesn’t see this as a dotcom-era story, but “probably more similar to March/April 2020 at the start of Covid-19, when markets overreacted and panicked”. Markets are currently waiting to see whether the major central banks, such as the Federal Reserve, European Central Bank and Bank of England, are able to “successfully engineer a smooth landing this year”. Of these three, the US Federal Reserve is seen by technology investors as the most important. If the Fed is able to get US inflation under control, and do so without raising interest rates too high, then “sentiment on the US technology sector should improve, causing shares to rebound”.

Boyd-Bowman of Liontrust is also optimistic. He argues that while the lifting of restrictions has hurt many of the tech companies, it’s not on the scale of the dotcom bust where “the fundamentals of nearly every tech company imploded and many saw significant year-over-year revenue declines”. Meanwhile, the “Fed put” – the belief that the Fed would never let the stockmarket fall too far – has been replaced by a “private equity put”. Buyout funds are paying “healthy multiples” for some tech companies, says Boyd-Bowman. This year we’ve seen deals for virtualisation software firm Citrix ($16.5bn), cybersecurity and data-backup company Datto ($6.2bn), identity-management provider SailPoint ($6.9bn) and business-planning software group Anaplan ($10.7bn). This should help give investors confidence that the fundamentals are different this time, he argues.

Not everyone is convinced that there will be a soft landing. “This is like the start of the 2000-2003 tech crash,” says Jerry Thomas of Sarasin and Partners. Yes, the recent fall means that “valuations aren’t quite as crazy as they were during the dotcom era, and are much closer to fair value than they were only a few months ago”. It’s also fair to say that the companies in this tech boom “are much better than the 2001 vintage”. Still, history has shown that “negative sentiment tends to overshoot in the other direction”. What’s more, despite the market correction, there are still many “pockets of hype and expectation”.

Avoid the hype

There are a number of red flags that investors should note if they are looking for buying opportunities, says Thomas. For example, avoid companies “where the product they are selling is not differentiated from the competition, or where there are no barriers to entry”. This is especially important when it comes to mid-cap companies that lack economies of scale. Another big warning sign is companies that are “going on an acquisition spree outside their core areas in order to boost flagging growth rates” or are going through an “identity crisis”. However, perhaps the biggest group of tech companies to avoid is those with no real cash flow or earnings. These are still “super expensive”.

It’s not a good time to buy into companies where the investment case relies on earnings in the future rather than the present, “especially when the market is now focused on immediate profitability, and is much less forgiving of promises about the future”, agrees Neil Campling of Mirabaud Equity Research. And even companies that make money consistently might not be the best idea if they are still “priced for perfection”, as many still are. This is because they are not only likely to find that “any missteps... get punished hard”, but even if they meet their targets, they will suffer from “multiple compression” with investors simply less willing to pay huge multiples of current earnings.

In terms of specific sectors, Campling is particularly bearish about electric cars, where he thinks that there is a massive bubble. “Everyone in this area is now trying to become the new Tesla,” he says. That’s pushing down profit margins and leading to a lot of unproductive investment. What’s more, firms trying to enter this area are having to compete not just with other entrants, but all the major traditional manufacturers such as Volkswagen, General Motors and others, who have announced plans to move away from the internal combustion engine within the next decade.

A positive outlook for profitable firms

If Campling is bearish about shares that just promise fast growth without a clear plan for translating that into profits, he is much more optimistic about those which are not only currently profitable, but also have decent valuations. This is because this puts them at much less risk of investors cutting the earnings multiples they are willing to pay. The winning approach over the next few years can be best summed up by the idea of “growth at a reasonable price, rather than growth at any cost”, he says. And with inflation now a major worry, firms that “provide services enabling other firms to cut their costs” should do particularly well.

Investors are unlikely to go far wrong if they focus on “firms that will benefit from long-running themes which also have valuations that make sense”, agrees Thomas. While valuation is always subjective, one possible shortcut that investors can use to determine whether this is indeed the case is to compare a tech company’s share price with its position before the start of the pandemic in February. If the share price is at – or even better below – the pre-pandemic level, then this may be a good sign that it has not become overvalued as a consequence of the last two years, and may be worth considering as an investment.

In terms of specific sectors, cloud computing, the provision of data storage and IT services over the web, rather than on physical hardware directly controlled by the user, is one big theme to look at, says Ginsberg. The cloud-computing boom will also help boost demand for cybersecurity services, as not only are large American companies “shifting their IT spending increasingly to the cloud”, but they are also “demanding cybersecurity services be provided as part of any cloud-computing package”. What’s more, some of the big names in these sectors also stand to benefit from US government contracts in the near future.

It’s impossible to know how close we are to the bottom of this tech bear market. If the dotcom bust is any guide, there could be a long way still to go. However, the indiscriminate nature of these sell-offs means that long-term investors can usefully look for chances to begin buying profitable stocks, while leaving bottom-fishing in more speculative ones until later. We look at four that may already be interesting below.

Four tech stocks that still offer value...

Meta Platforms (Nasdaq: FB) owns the social network Facebook as well as a range of related apps, most notably the messaging service WhatsApp and the picture-sharing website Instagram. The company is now using some of the money generated by Facebook, which is an “incredible cash cow” says James Penny of TAM, to invest in the metaverse (a vision of a network of virtual worlds facilitated by virtual reality (VR) and augmented reality (AR)). While this investment “could end up falling on its face”, there are early signs that it “could be this generation’s Facebook”. Facebook trades at only 13.6 times forecast 2023 earnings.

Streaming service Netflix (Nasdaq: NFLX) has fallen a long way from its peak valuation due to concerns that the number of subscribers has peaked. However, there is still some value left in, reckons Neil Campling of Mirabaud, especially if it finds ways to cut down on password sharing, which has been blamed for allowing people to have a free ride on other people’s subscriptions. He also thinks Netflix could make money from developing computer games based on some of its hit series. Netflix trades at only 14.8 times forecast 2023 earnings.

Microsoft (Nasdaq: MSFT) should do well, thinks Anthony Ginsberg of GinsGlobal. He is particularly impressed by the way that it has become a “sizeable player in cloud computing”. At the same time, the company is also making moves into online gaming: it recently revealed that more than ten million people have streamed games over Xbox cloud gaming. The stock is more expensive than other blue-chip tech stocks at 23.6 times forecast 2023 earnings, but is showing strong growth. Sales have nearly doubled since 2016, and are set to keep growing at roughly 10% a year.

Cybersecurity firm Palo Alto Networks (Nasdaq: PANW) will continue to benefit from the surge in demand created by the move to cloud computing, says Jerry Thomas of Sarasin. It is particularly noted for its advanced firewalls as well as its automated security operations, and also provides security consulting services to companies. The shares are not cheap, even though they are down by around 30% from their peak, and still trade at 49 times forecast 2023 earnings. However, sales more than doubled between 2017 and 2021, and are expected to keep growing at around 25% a year.

... and two technology funds that do the same

If you want to invest in a broad portfolio of tech shares then HAN-GINS Tech Megatrend Equal Weight UCITS ETF (LSE: ITEP) might fit the bill. This has a portfolio of 114 companies in various fast-growing sectors, including cloud computing and big data, cybersecurity, social media, blockchain and digital entertainment. The companies in the portfolio are on an average price/earnings ratio of 22 and the ETF’s total expense ratio (TER) of 0.59% is reasonable.

If you want to focus on a specific theme, the HAN-GINS Cloud Technology Equal Weight UCITS ETF (LSE: SKYP) holds a group of 76 companies involved in the shift to cloud computing. It also has a TER of 0.59%. Equal weight means that a fund holds the same amount in each stock, rather than holding more in larger companies, like most indices.

It has been a terrible year for the technology stocks that were the big winners from lockdown and were meant to be at the core of any investment portfolio – the Nasdaq stock index is already down by 28% since January and is deep into bear territory.

Between them the major technology companies have lost almost $3trn in market value: Apple and Microsoft have both lost half a billion each; Alphabet, the parent of Google, has lost $400bn, as have Tesla, Meta – as Facebook now calls itself – and Amazon. Netflix is down by 60% since the start of the year and the once high-flying exercise bike maker Peloton is down by 80%. It is carnage.

It is easy enough to understand why. As the Federal Reserve starts steadily raising interest rates to control inflation, and stops printing dollars like crazy, money has started to become tighter, and that is hitting the value of every kind of asset. At the same time, some of the hype around lockdown has started to evaporate – it turns out that we don’t really want to spend the rest of our lives at home, watching streamed gigs, eating delivered food and keeping fit with apps. We like to go out from time to time.

Many of the predictions of a permanent shift to a purely digital economy have turned out to be premature and some of the business models touted at the height of the pandemic are now looking very flimsy.

It’s 2002 all over again

It is all starting to look a lot like the dotcom bust of 2002. On 9 October of that year, the technology sell-off reached its peak, with the Nasdaq down 78% from its turn-of-the-century highs.

Right now, the collapse of this year is tracking the dotcom collapse of 2001 and 2002 closely. The backdrop is similar: a wild bubble had built up over several years, with valuations chased ever higher. Led by the venture-capital funds, too much investment poured into flimsy ideas. Retail investors were sucked in, naively believing that it was an easy way to make a lot of money.

What lessons can we learn from the last dotcom bust? There are three big ones.

1. It will be a year before the bottom is reached

The bubble didn’t pop in one day, with a spectacular collapse, but dragged on for almost 18 months. There wasn’t any point buying the dips, because each one was followed by even steeper falls. It was a long, grinding process that wiped out all the euphoria of the previous years.

2. Weak firms will be washed away

During the dotcom mania, just about any twenty-something with a laptop and a business plan sketched on the back of an envelope could raise a few million in minutes. Some very poor ideas received a lot of funding.

Pets.com, which sold pet food online, managed to rack up losses of $147m in a single year before folding; E-Toys spent millions on marketing before quickly disappearing; shares in theglobe.com soared 600% on their initial public offering, but its site was quickly overtaken by social-media giants such as Facebook.

It will be the same this time around. As a bust unfolds, it is impossible for firms simply to raise more capital from the markets to sustain themselves. Any firm not cash-flow-positive will soon be in trouble – and that covers a lot of business. Before long, we’ll see a wave of collapses, bankruptcies and recriminations.

3. Some real bargains will eventually emerge

By the autumn of 2002 a lot of high-quality companies were once-in-a-generation buys. At the bottom of the market, Amazon, then mainly just an online books retailer, had fallen by 90%; over the next couple of decades it went on to conquer the world. EBay’s shares more than halved, but went on to rise tenfold in the following years. When this bust is over, there will be plenty of bargains.

Netflix has already fallen heavily, but whatever its problems it still has an incredibly powerful brand. Likewise, Uber may face plenty of difficulties, but it has mastered logistics like few rivals. Tech remains the most exciting industry in the world, with the strongest growth prospects. Anyone who can pick the winners from the survivors will do well.

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The tech bubble has burst – but I still want a Peloton

Back in 2013, American financial pundit Jim Cramer, host of the Mad Money TV show, introduced investors to a new basket of stocks: the Fangs. These were the tech investments of the future, he said. They were called Fangs because they “take a major bite out of the bears”. Classic Cramer.

The original basket was Facebook, Amazon, Netflix and Google – hence the acronym. Apple was added to the list fairly soon afterwards, and Microsoft sometime later. There were also some name changes to upset the acronym. Google’s parent company became Alphabet in 2015; more recently, Facebook relaunched as Meta Platforms in 2021. But the term Fangs has stuck as a shorthand for a basket of companies best poised to take advantage of new technological trends.

Old tech stocks, such as IBM and Dell, were based on the emerging personal computing revolution of the 1990s. But the new tech stocks were partaking in the upheaval brought to all our lives by the rise of high-speed internet and everything moving online. Facebook was going to be the new public square; Amazon would replace the high street; Netflix would push the cinema into irrelevance; Google would become the equivalent of the highway that connected you to the rest; Apple would provide the cutting-edge hardware to access the grid; and Microsoft would transport all the data into the cloud.

How did these prognostications work out? Pretty well. The world certainly has been taken over by these companies. Investment returns have reflected this as well – for a while anyway. Between early 2014 and early 2020 – just before the markets crashed after the Covid-19 outbreak – a market-cap-weighted portfolio of these companies was returning a stunning 37.4% price growth annually. Compare that with the 8.8% of the S&P 500 or 15.5% of the tech-heavy Nasdaq Composite over the same period. If you had listened to Cramer back in 2013, you could have truly made some mad money from his idea.

Fang stocks: not much in common

During this time, the Fangs also came to dominate the markets. They became the pack leaders for the market rally of this period. If Alphabet or Microsoft were up on a given day, you could bet that the Nasdaq was, too – and probably the S&P 500 to boot. This led some investors to think that the market rally as a whole was ultimately dependent on the performance of the Fangs. Yet if you looked deeper into the basket you could see some problems. These six stocks had been lumped together because of their technological affinity. But a more basic analysis showed that they operated on very different business models.

Alphabet, Amazon, Apple and Microsoft were classic monopoly companies. Amazon uses its sheer size and influence to dominate online retail. Google does the same for online search. Microsoft has managed to achieve the same thing behind-the-scenes in cloud computing and business IT infrastructure. Apple is firmly established as the hardware for people who like tech – or like to look like they like tech. But what about Netflix and Meta? Back when Cramer introduced the term, both looked like they had solid monopolies in their respective fields – online streaming for Netflix and targeted advertising for Facebook. A deeper analysis, however, suggested they might not hold onto this position for long.

Equity analysts talk about a company’s monopoly position in terms of how wide their economic moat is – the metaphor is obviously taken from a medieval castle. A company with a wide moat is thought to have an entrenched market position that would be hard for competitors to challenge. For example, it is almost impossible to imagine a small start-up trying to challenge Amazon’s impressive distribution networks.

It is not, however, so hard to imagine a company challenging Netflix’s online streaming services. Setting up a rival platform should be straightforward enough. At that point, the two would compete on quality and cost. Similarly, there seems no reason to think that Meta’s Facebook should have a permanent hold on social media. New trends are popping up all the time. Kids these days laugh at Facebook as a platform dominated by “old” people.

The Fang stocks’ diverging fortunes

Markets have belatedly caught up with this analysis. Meta and Netflix have started to see their share prices decline dramatically. At the time of writing Meta is down roughly 35% over the past 12 months, while Netflix is down about 60%. Alphabet is flat, Apple is up 20% and Microsoft up 12%. Amazon is down more (a 27% fall), mostly due to its recent results and the end of the lockdown-driven online-shopping boom, but overall it’s clear that Meta and Netflix are now being treated differently to the rest.

Markets have become more, not less dependent on the Fangs in this period, but they have shifted in such a way that they pay less attention to the price moves of Netflix and Meta. This may still be a problem, since the rest of the Fangs are not doing as well as they have in the past: they’re between 12% and 27% in the red since the start of the year. That’s a far cry from the 37.4% average annual growth they delivered in the 2010s (on a cap-weighted basis). No wonder markets are sagging.

Still, moving forward, if you still think the Fangs have serious value to deliver, it might be sensible to toss out Netflix and Meta – unless you think that company management can pull a rabbit out of the hat and turn them into hyper-competitive players in sectors that are suddenly newly competitive.

The tech-heavy Nasdaq index, which is frequently used as a benchmark for the tech sector, has crashed into a bear market. The index has fallen 22% from its record high close last November.

However, as my colleague Max King points out, the valuations of many quality growth stocks are now either “attractive or very attractive,” after being dragged down with the rest of the market.

As I recently noted – If you’re going to buy FANG stocks today, these are the three to focus on – companies with substantial competitive advantages and unique products are likely to pull through this turbulence, while corporations that lack any conceivable advantages over the competition are likely to continue to struggle.

We’re already seeing this trend play out in figures from the streaming giant Netflix (Nasdaq: NFLX) and Facebook’s parent company Meta (Nasdaq: FB). These corporations are losing market share to competitors and there are plenty of other examples.

Peloton (Nasdaq: PTON), down 80% in a year, is just an exercise bike with a computer attached. Affirm (Nasdaq: AFRM) a “buy now pay later’’ company, has cratered 80% since November. Its product operates in a very similar way to credit cards. Robinhood (Nasdaq: HOOD), down 72% from its IPO price, is now just one of many online stockbrokers that offers fee-free mobile app trading.

None of these organisations offer anything new or unique, and all face stiff competition.

For a company to succeed in the long-term it needs to have a niche, and it needs to defend that niche from the competition.

On that front, at the other end of the spectrum we have corporations such as Google‘s parent Alphabet (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT).

Google’s competitive advantage keeps the competition at bay

Alphabet disappointed the market by reporting a $1.5bn drop in profits for the first three months of 2022 compared to the fourth quarter of 2021. A worse-than-expected performance from YouTube was the biggest disappointment. YouTube revenues only rose 14% to $6.9bn, below the $7.5bn expected by Wall Street analysts.

Overall, the company reported a 23% rise in revenue for the quarter to $68bn, slightly below the $68.1bn expected by analysts.

YouTube’s lacklustre revenue growth reflects the wider trend in the streaming and online content sector. Consumers and advertisers are overwhelmed with too much choice, and they are starting to refocus where they spend their time and money. This is the same headwind that Netflix and Facebook are having to deal with.

YouTube may have more than two billion daily users, but it’s not a unique service. Platforms such as Tik Tok and Instagram are copying its business model, and they’re not the only ones. The lack of any competitive advantage is harming the company’s growth. I would not be surprised if this trend continues.

But where Google really has the edge is in search and services. Both of these divisions reported blow-out performances for the first quarter. Revenue from Google Search jumped 24% year-on-year to $39.6bn. The division now accounts for 58% of total revenue. Meanwhile, Google Cloud revenues expanded 44% to $5.8bn.

These divisions have huge competitive advantages. Google Search is one of the digital world’s most valuable assets. The Google brand alone is worth $263bn. It also has over two decades of data available to help users find the information they need. To back up its brand and data avantage, Google owns over $100bn of assets, mostly data centres, to process information and power Google Cloud.

Based on these numbers, a competitor would need around $400bn to build a brand capable of taking on Google in the search and cloud business. That’s out of reach for all but a tiny fraction of the corporate world.

Microsoft: a vital service for the corporate world

Microsoft exhibits similar competitive advantages. It has a world-renowned brand and has spent tens of billions building the infrastructure and software required to create and sustain a world-leading cloud and computer services business.

The company’s first quarter figures support this idea as revenues during the three months to the end of March jumped 18% to $49.4bn, beating Wall Street expectations.

The “more personal computing” division, which includes its PC and gaming businesses, reported revenue growth of 11%, while intelligent cloud revenue jumped 26% and the productivity and business process unit grew 17%. The company also revealed that demand for its cloud services is accelerating as customers press ahead with the digitisation plans.

In many respects, cloud computing is already a commoditised industry, but Microsoft and Google stand out because they offer services as well. They offer access to services such as AI systems and the suites of Microsoft Office and Google Workspace – all valuable resources for other businesses.

Bargains are emerging from the rubble of the tech sell-off, but investors need to be careful. The world of business is only becoming more competitive, and companies without a durable advantage are going to continue to struggle.

My money’s on stocks like Alphabet and Microsoft, which have a clear advantage over the competition and the resources to keep improving the customer experience.

The exchange-traded fund (ETF) market has seen a flurry of recent launches, especially when it comes to actively managed ETFs. These became popular in the US and have now made their way to the UK.

Most ETFs are passive funds, following an index. But actively managed ETFs either have a manager who uses a public benchmark index, but might make some changes (and so deviate from the underlying index), or uses an internal index that is essentially just like any actively managed portfolio.

The rise of Chinese green-tech

For example, JPMorgan Asset Management has recently launched a string of active ETFs covering Chinese bonds and stocks, including some with an environment, social and governance (ESG) filter.

Equity funds include the JPM China A Research Enhanced Index Equity (ESG) ETF and the JPM AC Asia Pacific ex-Japan Research Enhanced Index Equity (ESG) ETF, while the bond funds consist of the JPM RMB Ultra-Short Income ETF and the JPM BetaBuilders China Aggregate Bond ETF.

Having an active manager scrutinise a portfolio of Chinese bonds and equities makes sense, especially as these produce a fairly high yield compared with developed market peers.

ETFs tracking green-tech firms (those involved in solar, wind and nuclear energy, for example) in China also look interesting. Beijing’s regulatory crackdown on big tech has triggered a sell-off in stocks such as Alibaba and Tencent, but it’s also dragged down many names in the growing green-tech sector, making them good value.

That makes the launch of a handful of new funds by Global X worth watching. The ones I would highlight are the Global X China Clean Energy ETF and the Global X China Electric Vehicle and Battery ETF. Both have recently listed on the SIX Swiss Exchange and Deutsche Börse. The former ETF tracks the largest 20 companies set to benefit from the increased adoption of clean energy in China including solar, wind, nuclear and hydro-energy, while the latter invests in the 20 largest Chinese stocks likely to benefit from the rising popularity of electric vehicles.

I’d expect these to list in the UK fairly soon. Once they do, they might represent the most interesting thematic play on the market at the moment.

(Don’t) dive into the metaverse

I’m slightly less enthused about a brand new ETF from HANetf called the ETC Group Global Metaverse ETF, which invests in 52 companies involved in the metaverse. This very broad theme includes augmented and virtual reality, 3D-graphics, semiconductors, high-speed wireless communications, online gaming, video streaming, blockchain technologies – including NFTs and digital land – and connected cloud, file and data storage.

While this is an area to watch, I am deeply cynical about the imminence of the metaverse outside of gaming. The ETF’s top-ten holdings currently feature Apple, Snap, Meta, Activision and Nintendo, which make up 20% of the fund. Lesser-known names include Parametric Tech, S4 Capital, eXp World Holdings and gaming platform Roblox.

Betting on a travel recovery

Finally, on a different note, WisdomTree has added to its range of leveraged long and leveraged short trackers. These track an index with upside and downside leverage and could appeal to the active trader.

The firm has just launched the WisdomTree STOXX Europe Travel Leisure 2x Daily Leveraged ETF and the WisdomTree STOXX Europe Travel Leisure 2x Daily Short ETF.

These two products amplify the returns by two times in either direction. The European travel sector is a classic value-oriented cyclical play. If the economy booms, this sector will shoot ahead. If it falters, those summer holidays get cancelled. It’s a cyclical swing trade and these products will amplify gains or losses.

It was not the kind of warning you see very often in company statements. In its annual report filed with regulators in New York earlier this month, Meta, which owns Facebook, Instagram and WhatsApp, stated bluntly that it may be forced to pull its operations from the EU. The reason? That planned rules for transferring data between America and the EU were so onerous it would be impossible for the company to operate anymore. Leaving would be the only responsible option.

You might think that would be of concern to the EU’s leaders. Meta is, after all, one of the world’s biggest, most innovative, and fastest-growing businesses with a market value of close on $600bn and more than two billion users, and which is investing huge sums in new products. Politicians usually bend over backwards to persuade those kinds of companies to invest more, not less, in their countries. Yet the continent’s power-brokers could hardly be more pleased. “Life would be very good without Facebook,” said French finance minister Bruno le Maire, alongside German counterpart Robert Habeck. Both made it clear that driving Meta out of the continent would be a victory for their policies.

A perverse pride in obstruction

We understand that Meta is not a popular company. It has paid little attention to privacy and aggressively monetised its data. Its ubiquitous apps have sown political division. Even so, it would be quite something if it left the EU completely. Yet that is surely only a matter of time.

Over the last decade, the EU has engaged in a sustained campaign of harassment against the US tech giants, with ever larger fines and more and more cumbersome rules. In GDPR it created data rules that were so badly designed and difficult to follow, backed up by the threat of huge fines, that they crushed innovation and forced some websites to close. Another huge piece of digital markets legislation is being drafted right now. Vast fines have been levied, such as the €13bn punishment of Apple for basing itself in Ireland, or the $2.8bn Google was charged for allegedly abusing its position in the search market, even though many of them have subsequently been overturned by the European Court as clearly illegal.

The EU’s commissioners pride themselves on punishing the tech companies as if this were a virtue in itself. The data transfer rules are simply the latest in a long series of barriers put in place. At a certain point, it is surely only a rational commercial decision for one or two of the internet giants to decide it is simply not worth the cost of trying to operate a business on the continent. Sure, the EU is a big prize, but in the end it is only 15% of global GDP, and doesn’t grow very fast. It might be better to concentrate on other markets.

Making the EU a museum

European leaders can welcome that if they want to, but they face three big problems. First, you can’t regulate your way to success. The EU believes that if it can drive US companies out then European ones will replace them. But that is not necessarily true. Nothing might replace them, or the firms that do might be far less competitive and innovative. Second, if companies such as Meta are forced to leave, it will isolate Europe from the most dynamic sector of the global economy, leaving it to the Americans and the Chinese. Ideas won’t be incubated and consumers won’t have access to the most advanced technology. Finally, it will almost certainly set a precedent for the other internet giants. If Meta goes it may not be long before Amazon, Apple and Alphabet, the owner of Google, follow.

“Mexit” could then very quickly turn into a wider “Tech-xit”. That would turn the EU into a museum – a nice place to visit, but one cut off from the rest of the world. Growth would dwindle and the world’s fastest-growing industries may decide it is no longer worth bothering with. Maybe then the French and German finance ministers won’t be quite so relaxed about i

Welcome back,

Facebook stole the show in the crypto market this week, with its decision to “unban” cryptocurrency ads.

Here are the top stories that caught our eye.

Facebook marks end to cryptocurrency ad ban

Meta, known in a previous life as Facebook, has performed a U-turn on ban on cryptocurrency ads across its platforms.

“We’re doing this because the cryptocurrency landscape has continued to mature and stabilise in recent years and has seen more government regulations that are setting clearer rules for their industry,” a statement by Meta said.

Facebook banned cryptocurrency ads back in January 2018. Under the ban, start-ups and blockchain companies were prohibited from promoting their work and from approaching any customers on Meta’s core social media products such as Instagram and Facebook.

In June 2018 it softened its ban by allowing approved businesses to promote some of their services. And in May 2019, it further softened its stance as speculation mounted whether it would actively participate in cryptocurrencies– it then launched its Libra cryptocurrency project.

The policy change comes as Facebook’s executive David Marcus announced his departure this week. He was at the forefront of creating both Novi and Diem. Novi is the name of the company’s digital wallet, meanwhile Diem is the digital currency that has yet to be offered by the public.

SEC rejects WisdomTree’s proposal to list bitcoin ETF

The Securities Exchange Commission, the US financial regulator, has denied permission for US-based asset manager WisdomTree to list a bitcoin exchange ETF. The SEC rejected a proposed rule change from Cboe BZX Exchange to trade and list WisdomTree’s Bitcoin Trust.

The SEC said that BZX had failed to meet the listing requirements under “its rules in addition to the Exchange Act, saying the BTC ETF proposed would not allow the commission to obtain information necessary to detect, investigate, and deter fraud and market manipulation, as well as violations of exchange rules and applicable federal securities laws and rules,” Coin Telegraph reported.

The SEC has delayed its decision on the Bitcoin ETF many times this year already.

Vietnam police bust $3.8bn crypto raid

Ho Chi Minh City police have detained 59 people connected to an illegal online cryptocurrency gambling ring which had transactions worth almost $4bn, Bloomberg reported.

The ring registered cryptocurrency wallets on Remitano, a foreign platform which allows the purchase of cryptocurrencies such as tether or ether. The funds were then used to gamble on websites, Bloomberg said, citing a report by local broadcaster Vietnam Television.

“Subjects admitted to authorities that they organised online gambling on those sites, which were intermediaries to international betting platform Evolution.com to earn commissions,” Bloomberg said.

HMRC says bitcoin exchanges are not exempt from the digital services tax

HMRC has said that cryptocurrency exchanges will not be exempt from the Treasury’s “tech tax” reports The Daily Telegraph. The digital services tax came into force in April 2020 and is a 2% levy “revenues of search engines, social media services and online marketplaces which derive value from UK users”. It applies to those companies with global revenues of £500m or more per year and UK sales of over £25m a year – companies such as Amazon, Google and Facebook.

HMRC says cryptocurrency assets are not financial instruments, despite lobbying by industry bodies including CryptoUK, which thinks it is “unfair to treat cryptocurrencies differently to other financial assets”. A spokesman for Crypto UK said the plan would lead to higher fees for those who buy and sell cryptocurrencies.

The tax could affect cryptocurrency exchanges such as Coinbase, which last year reported sales in the UK of £18m.

Here’s what happened in the cryptocurrency market in the last seven days:

• Bitcoin fell 3% to $56,850.
• Ether rose 2% to $4595.
• Dogecoin fell 5% to $0.21.
• Cardano fell 1% to $1.65.
• Solana rose 13% to $237.05.

What you need to watch out for

Coinbase Global is developing a Non-Fungible Token (NFT) marketplace which could become a “super app” for trading, lending digital assets and custody, according to Barron’s.

The shrinkage of public markets has been a well-documented phenomenon for many years now. Between their peak in 1996 and 2018, the number of publicly-listed companies in the US fell from 8,090 to 4,397, according to World Bank figures. While the trend reached its nadir in 2012, and the past couple of years have seen IPOs (initial public offerings) make a strong comeback, it seems clear that “going public” is no longer automatically the first port of call, or even the end goal, for ambitious entrepreneurs.

Even those companies that do eventually go public, often come to market at a later stage than might once have been the case. You need only look at the recent history of the tech sector to see this in action – many of the biggest names had already achieved “unicorn” status (a valuation of more than $1bn) before they went public, with their early backers enjoying a substantial proportion of the gains. Yahoo famously bid $1bn for Facebook (or “Meta” as it’s now known) as early as 2006. On the day it went public in 2012, Facebook attained a market capitalisation of more than $100bn.

There are several factors behind this trend, some more obvious than others. One is the fact that many founders would rather grow their businesses away from the spotlight, the regulatory burdens, and the sheer short-term pressure of public markets. Another is that capital has steadily become more readily available from alternative sources. This has been driven in part by the lower interest rate environment, but that’s by no means the only factor. Governments have become increasingly keen to encourage investment into early stage businesses, and an entire ecosystem of investors actively looking to step in and invest at different stages of a firm’s development has blossomed.

Finally, today’s businesses tend to be less capital intensive than those of the pre-internet era – they simply don’t need the level of capital that once made a public listing essential for those wishing to expand.

Given that these factors are unlikely to go away – even assuming future boom and bust cycles – it makes sense for private investors to look beyond public markets and add exposure to private companies to their portfolios. There is a diversification argument for doing so. Private companies tend to be at earlier stages of their development, or alternatively, coming out of extensive “turnaround” situations – so these aren’t necessarily the sorts of companies or situations you would typically find in public markets. Moreover, an investment into private markets can be viewed as a way to hedge an investor’s existing exposure to major stock market indices – the companies that are set to disrupt or even replace these established firms tomorrow, are today more likely to be found growing and thriving under private ownership rather than on the stock market.

Finally, in a world where passive investing is increasingly the dominant force in public markets, private markets are one area where truly active investing – with investment managers not just picking companies but actively working alongside them to improve their performance – can make a huge difference to returns.

But how can private investors get access to what has historically been an asset class restricted to larger investors? The good news is that there are many popular funds, including the likes of Scottish Mortgage, which already have some exposure to private companies in their portfolios. This just goes to show that forward-thinking managers already recognise how critical private markets are becoming to overall returns.

However, another – perhaps under-appreciated – option for building out your asset allocation to private companies is to consider a private equity fund of funds. Such funds offer a number of potential advantages. As a whole, funds in this sector typically still trade at historically high discounts to net asset value (in other words, you can purchase shares in the funds for less than the stated value of the underlying portfolio). Better yet, they also give a wide spread of exposure to companies across different stages of maturity – from very early-stage companies to those which may be about to join public markets.

In the next article, we’ll look at these different phases of development and why it makes sense to take this and other factors into account when considering how to diversify your exposure to private companies effectively.

Richard Hickman is director of investment and operations at HarbourVest Global Private Equity Limited. For more information visit www.hvpe.com

Disclaimer:

This material is solely for informational purposes and should not be viewed as a current or past recommendation or an offer to sell or the solicitation to buy securities or adopt any investment strategy. The opinions expressed herein represent the current, good faith views of the author(s) at the time of publication and are provided for limited purposes, are not definitive investment advice, and should not be relied on as such.

Certain information contained herein constitutes forward-looking statements, which can be identified by the use of terms such as“may”, “will”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, “continue”, or “believe” (or the negatives thereof) or other variations thereof. Due to various risks and uncertainties, including those discussed above, actual events or results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. As a result, investors should not rely on such forward-looking statements in making their investment decisions.

Welcome back.

On the cover of this week’s magazine, we’ve got the “metaverse”. Discerning readers will recognise the term from Neal Stephenson’s 1992 dystopian sci-fi novel Snow Crash. Reality and virtual reality come together in an online universe controlled by mega-corporations, in which our heroic protagonist, called, er, Hiro Protagonist, grapples with a mystery computer virus that’s proving deadly in both the virtual world and the real world.

Anyway, Facebook’s Mark Zuckerberg has decided he’s going to build the metaverse, and has rebranded his company as “Meta Platforms”.

So, what does it all mean? Is it just marketing flannel to sell more Oculus VR headsets, or will it prove to be the beginning of a whole new way of living? Nobody really knows. But what’s certain is that it will open up some new opportunities for investors.

Elsewhere, Dr Mike Tubbs picks nine of his favourite stocks that he reckons you should buy and hold forever; David Stevenson looks at four of the best new investment trusts coming to market; and we ask – is it worth taking out private health insurance?

If you’re not already a subscriber, sign up here and get your first six issues free.

In this week’s podcast Merryn – fresh from her appearance at the COP26 Fringe – is joined by John. They discuss the climate conference and talk about nuclear power (it’s a lot safer than pretty much everybody thinks), the world’s ageing population and, of course, inflation. Listen to what they have to say here.

Here are the links for this week’s editions of Money Morning and other web articles you may have missed:

• Monday Money Morning: Central banks are still sticking to the plan on inflation
• Tuesday Money Morning: Is investors’ enthusiasm for renewable energy justified?
• Merryn’s blog: Inflation forecasts mean interest rates should be on the rise – so why aren’t they?
• Wednesday Money Morning: Bitcoin hits a new record – and we all know what usually comes after fresh highs
• Thursday Money Morning: Inflation might surprise us again in the short-term – but it’s here to stay
• Friday Money Morning: All you need to know about investing for the year ahead in one handy package
• Cryptocurrency roundup: New highs for bitcoin and ether as Twitter jumps on the crypto-wagon

Now for the charts of the week.

Gold really took off this week after a long time going nowhere. US inflation surpassing expectations to hit a 30-year high has driven investors into the arms of the yellow metal, who hope it will provide some protection.

Interestingly (given that it traditionally goes in the opposite direction to gold), the US dollar index (DXY – a measure of the strength of the dollar against a basket of the currencies of its major trading partners) also put on a show of strength.

While the Chinese yuan (or renminbi) weakened against the US dollar (when the red line is rising, the dollar is strengthening while the yuan is weakening).

The yield on the ten-year US government bond turned back up after earlier falls, as investors bet on rates rising faster (in line with inflation).

The yield on the Japanese ten-year bond halted its recent slide and also turned back up.

A move which was mirrored in the yield on the ten-year German Bund.

Copper traded sideways.

The closely related Aussie dollar fell against the strengthening dollar.

Bitcoin hit a new all-time high of around $68,500, then retreated a little. But, as Dominic said this week, the thing about new highs is that they tend to lead to more new highs.

US weekly initial jobless claims fell by 4,000 to 267,000. The four-week moving average rose by 2,000 to 271,000.

The oil price recovered somewhat.

Amazon's share price turned down as growth stocks in general suffered an inflation-driven selloff (they don’t like the risk that interest rates will go up).

And Tesla’s share price took a battering from its own CEO, Elon Musk, who asked the Twitter hive mind if he should sell 10% of his holdings. Twitter said “yes”. So that’s what he did.

Have a great weekend.

What is the metaverse?

The metaverse is the overarching term used to describe the next big phase of the internet, in which advances in a range of new technologies – including virtual and augmented reality – are predicted to transform the online world into a more immersive, 3D experience, blurring the physical and the digital.

Facebook boss Mark Zuckerberg (who has just rebranded his company as Meta Platforms to position it as a “metaverse company”) describes the metaverse as “an internet you’re inside of, rather than just looking at” – a place where you, or your avatar, will be able to “get together with friends and family, work, learn, play, shop, [and] create”.

Most fundamentally, the metaverse is two things: a grand vision of the future, encompassing new technologies that may not come to fruition for decades – and also a buzzy new way of encapsulating, under one conceptual banner, a range of changes that are already happening.

What kind of changes exactly?

Zuckerberg’s pitch focused on his terrifically dull vision of an “infinite office”, while Microsoft is focused on an “enterprise metaverse” at work. But the more exciting current developments are in the world of gaming. Videogames such as Roblox, Fortnite and Animal Crossing: New Horizons, in which players can build their own worlds, have “metaverse tendencies”, as does most social media, says John Herrman in The New York Times.

Early videogames such as The Sims (which launched in 2000) and Second Life (2003) can be seen as early iterations of the metaverse, in that they involve virtual worlds and digital avatars. And today, the bosses of Roblox Corp. and Epic (the maker of Fortnite) specifically describe their creations as “metaverses”.

If you own a non-fungible token or some cryptocurrency, then you’re already “part of the metaversal experience”. Virtual and augmented reality are, at a minimum, “metaverse adjacent”. And if you’ve attended a meeting or a party using a digital avatar, then you are very much in “the neighbourhood of metaversality”.

Where did the word originate?

It’s from Snow Crash, a 1992 science-fiction novel by American writer Neal Stephenson. In his book, the Metaverse (always capitalised) is a 3D virtual-reality world where humans take refuge from the dystopian reality. It’s a shared “imaginary place” that’s “made available to the public over the worldwide fibre-optics network” and projected onto virtual-reality goggles.

A similar idea was developed in The Matrix films, and in Ernest Cline’s 2011 novel Ready Player One, in which people living in 2045 escape their nuclear war-torn environment via vast networks of artificial worlds called the Oasis.

The Covid-19 pandemic has obviously not been quite that hellish, but the social isolation foisted on much of the world has meant that the “idea of escaping into a fully digital space” no longer seem that outlandish, says Richard Waters in the Financial Times. “If workers took to Zoom so easily, why not congregate in a digital office?”

So is this just souped-up virtual reality?

No. Some sceptics do regard “metaverse” as marketing jargon chiefly aimed at helping Mark Zuckerberg shift millions of Oculus VR headsets. Facebook bought the company in 2014 for $2bn, but it has never quite lived up to its promise.

But most commentators define the metaverse much more broadly than just VR. Matthew Ball, a venture capitalist who has written extensively on the metaverse (his nine-part The Metaverse Primer, available online, is a detailed and eloquent exploration of the idea) sees it most simply as “a quasi-successor” to the mobile internet. It will “slowly emerge over time as different products, services and capabilities integrate and meld together”.

What will be the key features?

Ball’s own “best swing” at a brief definition is that “the Metaverse is a massively scaled and interoperable network of real-time rendered 3D virtual worlds which can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments”.

The key concepts here are, first, “persistent” and continuous: the world must not reset, or freeze, or pause, or end. Second, even more crucial, is “interoperability” of digital assets between different platforms.

For all the uncertainty about how the metaverse will evolve and develop, that will certainly mean massive commercial opportunities relating to hardware, networking, computer power, virtual platforms, content, services and assets – and payments services.

Any ideas for investors?

Oculus is “just one maker of unwieldy metaverse headgear”, says Jack Hough in Barron’s. Other makers of “preposterous-looking” units include Sony, HP and HTC.

In terms of augmented reality – using glasses that allow graphics to be overlaid on the real world – Google is now beta testing its Google Meet videoconferencing on its Glass Enterprise Edition 2 (the new name for Google Glass). And Facebook, which has taken on 10,000 staff in Europe to focus on the metaverse, is partnering with Ray-Ban on its own smart glasses, Ray-Ban Stories. Microsoft and Apple are gearing up to fight for metaverse territory.

Other opportunities for metaverse investment mostly range from “outrageously valued to financially nihilistic”, says Hough. The metaverse will need real-time rendering, or image-drawing, which favours chips from Nvidia (trading at more than 20 times sales) and programs from the likes of Unity Software, closer to 40 times sales.

Better value might be found in Immersion, which specialises in haptic feedback that can give the illusion of feeling in virtual worlds, and goes for six times sales.

Finally, Qualcomm, valued at four times sales, makes chips for mobile devices, including smart glasses.