Recent first-quarter earnings reports have underlined the level of uncertainty surrounding tech stocks at a time when confounding Consumer Price Index (CPI) inflation figures have had an adverse impact on Wall Street.
The news of March inflation data being hotter than expected at 3.5% caused widespread concern across U.S. markets. And the prospect of multiple Federal Reserve rate cuts arriving in 2024 are diminishing as a result.
Markets had largely priced in rate cuts arriving as early as March 2024 earlier this year. So, it’s unsurprising that the S&P 500 fell nearly 4% in April off the back of bad news.
Also, this poses fresh challenges for some key members of Wall Street’s Magnificent Seven. These tech stocks have been major beneficiaries of positive market sentiment. Now, as optimism recedes, we’re seeing more frailties emerge. As a result, these three U.S. bets could be moving into sell territory.
Apple (AAPL)
With a market capitalization of over $2.5 trillion, Apple (NASDAQ:AAPL) has long enjoyed an extensive market share. They’ve had higher profit margins due to the company’s commitment to innovation and high-spec technology.
However, storm clouds appear to be circling for the Wall Street giant. In January, the stock was downgraded by Barclays. This was due to weaker performance in China and a lack of iPhone innovation in recent years.
The stock has since declined more than 8% since the beginning of the year. And, the recent news that Q1 sales in China, the world’s biggest market, have fallen 20% as the same period last year, likely raises concern.
In addition, rival smartphone firm Huawei’s profits have recently risen six-fold. It seems the company found a way to eat into Apple’s market share despite Western sanctions.
All of this has left Apple looking for new opportunities to out-innovate rivals. True, the launch of the Vision Pro has opened the company up to a new market. But Apple’s slower adoption of generative artificial intelligence (AI) hurt the short-term recovery of the stock.
As a result, AAPL’s mounting challenges could ultimately damage the stock’s status as a Wall Street darling. Thus, the company must find a fresh avenue for tangible innovation.
Tesla (TSLA)
Another stock that’s struggling for momentum in 2024 is Tesla (NASDAQ:TSLA). The company has already endured a downgrade from Phillip Securities in Q2 from neutral to reduce. It suffers a lowly price target of $145 due to slower electric vehicle (EV) deliveries and pricing pressures.
Also, TSLA fell over 25% this year, with first-quarter adjusted profit down 48% and revenue declining 9% compared to Q1 of 2023.
With a price war raging among EV manufacturers in China, there’s a danger that Tesla will become collateral damage. Firms are bidding to secure higher sales volumes throughout global markets.
Then, of course, we can’t overlook the tumultuous leadership of Chief Executive Officer (CEO) Elon Musk. Recently, he fired Tesla’s entire team of 500 employees behind the firm’s supercharger network. However, it’s important to note that Musk’s idiosyncratic approach to managing the company has contributed to its recent struggles as well as its impressive rally toward becoming one of Wall Street’s most valuable stocks.
Additionally, it’s a testament to Musk’s leadership that the stock has recently experienced some growth. That followed a reported deal to roll out Tesla’s self-driving technology in China. It was described as a “watershed moment” by Wedbush analyst Dan Ives.
Thus, Tesla is a largely unpredictable stock at this moment in time, and for risk-averse investors, it is certainly a sell as the company tries to stop its long-term slide.
Meta Platforms (META)
Unlike the other stocks, Meta Platforms (NASDAQ:META) is enjoying a strong start to 2024, growing more than 40% in the first quarter alone. However, the tech giant may face future problems stemming from its significant bet on the AI boom.
Notably, AI and generative AI in particular have been big business over the past year. Meta Platforms raised its outlook for total expenses for 2024 to $96-$99 billion which represent a major outlay.
CEO Mark Zuckerberg has been a longtime cheerleader for AI. And while the company has managed to grow alongside the wider generative AI boom, the industry has remained largely speculative. Therefore, Meta’s heavy spending could represent a gamble for the company if other revenue streams decline.
The firm has experienced slower ad sales to Chinese advertisers, which was previously responsible for five percentage points of Meta’s growth in 2023. This points to a possible struggle to sustain momentum should its AI investments fail to pay off in the long-term.
On the date of publication, Dmytro Spilka did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
