Investors are increasingly wary of tech giants' future prospects, despite fourth-quarter profit growth largely exceeding expectations. Concerns about elevated spending on artificial intelligence (AI) are weighing heavily on the sector, as high capital expenditures threaten to erode profitability and free cash flow, potentially leading to lower stock valuations. Alphabet's significant revenue miss and increased spending expectations have resulted in a sharp decline in its stock price, underscoring the market's negative reaction to underwhelming financial performance. Meanwhile, the Magnificent Seven index has seen a 1.7% decline since its members began reporting last week, reflecting broader investor apprehension.
Meta stands out as the only stock maintaining gains, thanks to its optimistic AI outlook and relatively lower planned AI spending compared to its peers. This strategic balance between growth investment and profitability has bolstered investor confidence in Meta, even as the broader tech sector faces headwinds. The general expectation of slowing earnings growth across major tech companies in 2025 has further increased market cautiousness, pressuring stock prices as investors brace for potentially weaker financial performance.
The MicroSectors FANG+ Index 3X Leveraged ETN (FNGU), which focuses on providing leveraged exposure to a basket of highly traded tech stocks, is currently trading at $621.62 as of 10:50 on February 5, down from its last close of $636.78. The ETF's performance reflects the broader concerns impacting tech stocks, as investors reassess the sector's near-term growth prospects amid rising capital expenditures and shifting market sentiment.