Are Big Tech Stocks Too Expensive?

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Amazon fell after earnings yesterday, Facebook and Apple the day before. Microsoft has drifted below where it was trading earlier. Google (the stock known as Alphabet) is alone among the majors in taking a leg higher.

It’s not that any of these companies were doing badly. They all turned in eye-popping sales and profits. So aside from Google, why did the shares fall on good news?

One likely explanation: The market wanted a PlayStation 5 for Christmas, and got an iPhone 12.

Not literally. But investors can sometimes make the mistake of thinking good news makes stocks go up, and bad news makes stocks go down. That does tend to be true over the long term. But over the short term, expectations have a lot to do with the direction stocks take. And in the case of these big tech stocks, they’ve been riding high for a while. For them to go higher, they needed more than good news. They needed perfect news. They needed a PS5 for Christmas.

Much like the PS5, perfect news is in short supply these days. At Amazon, e-commerce growth rates are moderating compared to last year’s torrid pace. Same at Facebook. At Apple, chip supply constraints led executives to sound a note of caution over iPhone production in the back half of the year. At Microsoft, cloud growth is amazing, but PC growth has similarly sobered.

The upshot for investors? Patience and realism. Stocks in general are expensive right now, partly because interest rates are low and equities are one of the few places you can put your money and hope to grow it. That means over the near (and medium) term, there are likely to be more days when stocks don’t rally, even with nice gifts under the tree.

Coming up today on CNBC’s TechCheck, 11 a.m. ET / 8 a.m. PT …

Adobe CEO Shantanu Narayen, GoPuff CEO Yakir Gola

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Adobe CEO Shantanu Narayen joined me for a Fortt Knox 1:1 yesterday, an in-depth conversation about Adobe’s business and his career path:

In the broader world …

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