Market Report: Big tech struggles to meet expectations, big pharma beats and raises
Steve Clayton, head of equity funds, Hargreaves Lansdown: “Wall Street posted a fairly lack-lustre session last night, the quiet before the storm really, because the action was always going to happen after market hours when three leading tech players were due to report earnings. In the event both the S&P 500 and the NASDAQ composite posted modest losses, the tech-heavy faring the worst, down 0.75%. This was always going to be one of those occasions when hope, expectations and reality collide. Microsoft, Alphabet and AMD all have plenty of skin in the AI game. Microsoft has a big stake in OpenAI, the owners of ChatGPT and they have also launched their Copilot AI-powered desktop assistant. Alphabet own Google, with multiple AI touchpoints in that business, along with the third largest cloud computing business globally. AMD for their part is developing a new generation of silicon chips that they say will take AI procession capabilities into entirely new territory.
Expectations were set high; all three stocks had been hitting all-time highs in the run-up to these numbers. All three said good things about how future growth would be, was already being, boosted by their fast-developing AI capabilities. Microsoft upped their quarterly growth guidance, Google highlighted 30% revenue growth in their cloud computing business and AMD talked about higher-than-expected sales for its new MI300 AI accelerator chips. All to no avail. Expectations were simply too high to match, let alone beat and all three stocks saw selling pressure in aftermarket trading. AMD slumped almost 6% after hours, Alphabet by slightly more. Microsoft’s numbers actually beat analysts’ forecasts, but their future guidance was not enough to keep the stock moving ahead and Microsoft shares slipped 3%.
GlaxoSmithKline (GSK) reported full year and fourth quarter results that look well up with analyst forecasts. Strip out the impact of falling Covid-related sales and underlying revenue growth for the full year and final quarter was 14% and 17% respectively. GSK sound confident in their statement, highlighting 71 Vaccines and Specialty Medicines now in clinical development, 18 of which have made it as far as phase III trials or beyond. Guidance for the coming year is for earnings growth of 6-9%, with a total dividend of 60p, up from 58p in the year just ended. Longer-term guidance is being raised and GSK now see sales between 2012 and 2026 compounding at more than 7% with profits rising by 11%+ p.a. Guidance for 2031 sales is lifted to more than £38bn. This growth is coming from new product launches, with GSK now predicting at least 12 major new products from 2025 onwards. The news was not quite strong enough to register against a slightly drab wider market opening and GSK shares eased a fraction of a percent at the opening.
Denmark’s Novo Nordisk has risen the wave of enthusiasm for weight control drugs faultlessly so far, becoming Europe’s most valuable company in the process. Their Wegovy and Ozempic products are helping to push Novo’s sales ahead, rising by 31% in 2023 and Novo are guiding toward as much as 26% expansion in 2024. Revenues and profits were ahead of forecasts, perhaps unsurprising given Novo posted a 62% surge in profits for the fourth quarter. Competition is increasing though, as more companies launch alternative GLP-1 agonist alternatives, but Novo say this is anticipated in their expectations. In a similar vein to GSK, the news from Novo Norodisk was good, but not good enough to match some of the wilder expectations out there and the stock is looking around 4% lower in early trade.”
