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Large tech stocks show “resilience” amid economic uncertainty

Large tech stocks show “resilience” amid economic uncertainty

The profits of some of the large US technology companies have remained strong, despite the sell-off in equities and the relative underperformance of those companies share prices, according to global equities portfolio manager at Federated Hermes, Louise Dudley.

Dudley was commenting in light of profit announcements from Microsoft and Alphabet. The latter is the parent company of Google. 

She said: “Microsoft and Alphabet, two of the world's largest tech behemoths, have announced relatively positive results and guidance in their latest earnings reports. Overall Microsoft is more optimistic than Alphabet with their more hardware tilted business segments.

"Microsoft is also gaining in the cloud, despite some margin compression. The company’s sales expectations were revised down by 2-3 per cent, however this is less than we have seen for many other sectors. Long term investors will also be buoyed by the share repurchase announcement which beat market expectations.”

Dudley added that these positive results offered some stability to markets, though they did highlight the ‘stronger getting stronger’ trend , as well as the ongoing secular mega trend towards digitalisation and the essential technology spend for businesses.

"These names are not immune to inflationary headwinds as both companies experienced margin compression and cautioned about ongoing challenges relating to softer growth," Dudley said.

One area in which they are hoping to limit inflationary costs is around labour, with both companies announcing hiring freezes in the last month.

For Alphabet, is Google search engine was the most positive area, with Cloud and YouTube coming in below expectations.

Dudley said, the company’s dominance in search and ad sales overall ensured that even in a downturn there was a resilience to their business, particularly with their broad sector and geographic footprint enabling them to navigate some near term pull back in spending.

david.thorpe@ft.com