As the stock markets appear to finally begin showing signs of stability after an extremely volatile few years, all eyes are now on the markets for the remainder of 2024, with investors keen to offset some of the losses seen in 2022, and get back into the green.
In 2022, tech stocks in particular took an enormous hammering. The tech-heavy NASDAQ Composite for example, declined by a staggering -32.5%. 2023 was a little better, as markets staged somewhat of a rebound, up +9% on the previous year.
With the rise of AI, and with markets showing signs of stability as inflation begins to come down, tech stocks have certainly helped stock markets to stage a comeback in 2023. The hope for 2024 however, is that the markets will rally further.
Now, when talking about tech stocks, you can’t help but talk about GAFAM (Google, Amazon, Facebook, Apple, Microsoft). The so-called ‘big 5’ in the tech world are often market drivers in the world of investing, and after unveiling their Q4 earnings reports for 2023, what might this mean for the stock market in 2024?
Strong Earnings for 4 of 5 Tech Giants
GAFAM, also known as GAMAM (Meta, instead of Facebook) are 5 of the world’s biggest companies, estimated to be worth close to 7 trillion dollars as of early 2024! Recently, GAFAM stocks unveiled their earnings reports for the final quarter of 2023, and the results largely looked extremely positive.
Alphabet Inc, who are of course the parent company of Google, reported a Q4 revenue of $86.3 billion – an increase of just over 13% from the previous year.
Amazon also fared much better, as they reported an increase of 14% in net sales compared with the previous year.
Facebook (Meta) also reported strong earnings and actually exceeded expert predictions, with Q4 earnings up 25%.
Apple, however, fared less impressively, posting a Q4 revenue of $89.5 billion. Now, this is still an insane amount of money, but the reason why investors were less impressed with this stat is that it was down 1% from the previous year, and was below the $89.28 billion that was expected.
Finally, Microsoft reported an 8% increase in revenue year over year in the final fiscal quarter of 2023, and actually beat expectations.
GAFAM Stocks and the Stock Market
GAFAM stocks are five of the biggest tech companies in operation today. With a combined value of around $7 Trillion, they have a significant impact on economies and stock markets all over the globe. Considering the fact that technology plays such an important role in everyday life, that’s hardly surprising.
Tech companies such as those that make up the so-called ‘big 5’ are constantly looking for ways of innovating, evolving, and staying two steps ahead of their competitors. How these stocks perform, or indeed, how they are predicted to perform, plays a significant role in how stock markets in general perform.
Based upon GAFAM stocks’ Q4 earnings reports, what impacts from them, if any, can we expect on global stock markets and is there still room for growth?
Market Volatility?
Despite the fact that GAFAM stocks are worth such mind-boggling amounts of money, they are notoriously volatile, especially at the moment. GAFAM stocks are very much on the riskier end of the spectrum, but with high risk comes the potential for high reward.
GAFAM stocks tend to influence the stock markets, but at the same time, the markets also influence them. When tech stocks perform well, stock markets tend to perform well. When tech stocks perform badly, however, so do the markets, and vice versa.
Tech stocks were up and down for much of 2023, whereas 2022 saw them largely down in general. Because the price of tech stocks often fluctuates, those holding GAFAM stocks may find that 2024 offers volatility, though this is not expected to be anything close to the volatility we saw in 2022.
Overvalued AI stock?
Artificial intelligence was very much the buzzword of the day for 2023, and as more companies invest in AI tech, there is still a lot of room for growth. With that said, however, market experts do have concerns.
Even though AI is being focused on at the moment, it’s not a new concept and there are concerns that the AI bubble may burst in 2024. The reason for this is that, based upon early data, some market experts and analysts are concerned that AI stock may be overvalued. If this is indeed the case, AI-heavy stocks, such as Alphabet and Microsoft, may see losses in 2024.
However, some believe that AI stocks have not yet peaked and that there is still plenty of room for growth. If this is indeed the case, these increases in AI-heavy stocks will likely drive up the markets in general, and not just the NASDAQ Composite.
GAFAM and Other Market Indices
Again, as is always the case in investing, past performance is not an indication of future performance. With that said, historically speaking GAFAM stocks tend to outperform other market indices (2022 not withstanding) and this tends to drive up other market indices.
In 2020 for example, following the crash in early March as a result of the COVID-19 pandemic, the S&P 500 still recorded returns of 16.3%. This was largely thanks to the huge rally that tech stocks such as GAFAM enjoyed, which recorded returns of 47.6%.
Basically, because GAFAM stocks are worth so much and play such key roles in global economies, how they perform will have a strong influence on other market indices. Strong gains for GAFAM stocks will likely result in very healthy gains for other market indices such as the Dow Jones, S&P 500, and the FTSE 100 in the UK, to name but a few.
On the downside, if GAFAM stocks underperform as they did in 2022, major market indices around the world will also likely struggle.
Room for Growth?
Finally, is there still room for growth when investing in GAFAM stocks? The answer to that question is almost certainly yes.
Investing in GAFAM stocks for the long-term is seen as a safe bet. These companies have proven track records, they are always innovating and evolving, and they play such key roles in everyday life that they’re virtually guaranteed to grow.