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Alphabet, Microsoft spark $400 billion megacap rout

Technology powerhouse Alphabet Inc. thrilled investors during the bull market by consistently reporting stronger-than-expected sales and earnings. Those days are over.

Disappointing quarterly updates from the Google parent, as well as Microsoft Corp. and semiconductor giant Texas Instruments Inc., triggered a selloff threatening to wipe more than $400 billion in market value off some of the biggest US companies. The news is foiling bets that this year’s $5.5 trillion selloff in tech stocks had reached bottom.

The quarterly updates underscored growing pressure on everything from corporate IT budgets to digital ad spending and chips for industrial machinery. The Nasdaq 100 Index dropped 2.3% as the results refocused investor attention on the damage to earnings and the economy from the Federal Reserve’s rapid interest rate hikes.

“The global economy is at a tipping point,” said Jessica Amir, strategist at Saxo Capital Markets. “The stronger dollar will continue to hurt businesses’ forward earnings, at a time when consumer demand is likely to fall with the reverse wealth effect expected to grip markets. Pressure remains on riskier asset classes such as tech.”

Alphabet now has reported three straight quarters of disappointing earnings per share, according to data compiled by Bloomberg, the longest such streak in seven years. Prior to this year, the company had beaten estimates nine quarters in a row, and had only missed once since the end of 2017.

Analysts and investors have been too optimistic this year about other tech giants reporting this week: Facebook parent Meta Platforms Inc. and Inc. each have missed on revenue in three of the past four quarters, the data show. Meta publishes earnings after the market closes Wednesday, with Amazon and Apple Inc. to follow on Thursday.

Signs of weakness were widespread in Tuesday’s results. Microsoft posted its weakest quarterly sales growth in five years, throttled by the surging dollar, slumping PC demand and faltering advertising revenue.

Microsoft’s forecast points to a serious slowdown, said Anurag Rana, an analyst at Bloomberg Intelligence.

“This guidance is worse than we had anticipated and shows that enterprise IT spending is decelerating at a faster pace amid rising economic woes,” Rana said.

At Alphabet’s most important financial engine, the search and related businesses, sales rose less than analysts estimated as spiraling inflation crimped growth in digital advertising. Microsoft sank 7.7% while Alphabet declined 9.1% for its worst day since March 2020.

The selloff extended to other consumer and tech giants, with Amazon dropping 4.1%. Those that derive sales from online advertising followed Alphabet lower, with Meta and Pinterest Inc. dropping 5.6% and 2.4%, respectively.

The Nasdaq 100 has plunged 30% this year, on course for its worst annual performance since 2008.

The demand outlook was particularly dire in the semiconductor industry, which had been one of the hottest sectors during the pandemic. Texas Instruments, whose chips go into everything from home appliances to missiles, saw shares tumble after its weak forecast signaled that the chip slump is spreading beyond computing and phones into other businesses. The stock lost 2.7%, while Analog Devices Inc. and Marvell Technology Inc. also dipped. Bloomberg

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