For over a year, the market has ridden the wave of artificial intelligence (AI), with giants like Meta Platforms (NASDAQ: META), Amazon (NASDAQ: AMZN), Alphabet (NASDAQ: GOOG, GOOGL), and Tesla (NASDAQ: TSLA) heavily investing to secure their slice of the pie. But Friday saw a shift in the narrative, as these tech behemoths stumbled, sending ripples across Wall Street with Meta Platforms down by 2.8%, Amazon by 3.3%, Alphabet by 3.6%, and Tesla by 6.8% by 3:10 p.m. ET.
Certainly, the decline wasn’t triggered by any specific news from these companies. Instead, it was a larger macroeconomic concern that whispered unease into the ears of investors pondering the future trajectory of the stock market.
Image source: Getty Images.
The Rumbling Economy
The U.S. Bureau of Labor Statistics delivered the monthly jobs report for August, revealing an uptick in total nonfarm payrolls by 142,000 – shy of the forecasted 161,000. Though the unemployment rate held steady at 4.2%, the plate seemed to be shifting beneath the market’s feet.
At first blush, the whisper of a slowing economy sounds like music to investors’ ears. A languid jobs scenario often ushers the Federal Reserve to wield its interest rate-cutting wand. And this time, the Fed might finally tip the scales, nudging rates lower in a bid to tame the inflation dragon that once breathed fire upon the economy.
But beneath the surface, cracks appeared. Revisions in the job figures of June and July unveiled a shadow cast by 86,000 fewer jobs than initially perceived. As the Fed aimed for a graceful descent without a recession, a lurking specter of economic cool-off emerged – a reminder that even a soft landing might not be guaranteed.
Just a whisker ago, in July, the market soared to dizzying heights, but today’s jobs report paints a stark message. Investors, hearing the distant rumble of economic clouds, decided to parley caution over greed and pocketed their gains.
The AI Frontier
How does this economic ballet play out for Meta, Amazon, Alphabet, and Tesla? The common melody threading these Magnificent Seven seems to be the allure of AI. Each of these conglomerates has bet heavily on the AI wave, each vying for a piece of the $2.6 trillion to $4.4 trillion generative AI market annually, as projected by McKinsey & Company.
This river of riches beckons the tech titans at the forefront of innovation. However, the shakiness in today’s economic data served as a light drizzle on the parade, leaving smaller players wary of plunging into uncharted technological waters until the economy affirms stability.
For Amazon and Alphabet, reigning members of the “Big Three” cloud providers, the opportunity to furnish AI services to cloud clients stands ripe for harvest. Meta Platforms, amassing user data like treasure, birthed the Large Language Model Meta AI (LLaMA) – a jewel that cloud providers vie to host. Tesla, the trailblazer in the self-driving universe, gears up for a European and Chinese FSD launch, leveraging the newest AI breakthroughs.
The practitioners of these AI arts span a spectrum of valuations. Alphabet and Meta Platforms tout multiples of 20 and 24 times forward earnings, Amazon flaunts a price less than 3 times sales, and Tesla’s stock shines bright but pricey at 90 times forward earnings and 7 times sales – not for the faint-hearted investor.
Yet, if Tesla cracks the code for self-driving cars first, its valuation may transcend mere numbers and dance to a different tune altogether.
Invest Wisely: A Meta Platforms Tale
Before diving into the realm of Meta Platforms, a word of caution:
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