Here’s where the growth is in large-cap tech stocks
John Shinal, Special for USA TODAY 7:03 a.m. EST November 16, 2015
Facebook is one of the large-cap tech stocks expected to past significant sales growth over the next two quarters.(Photo: Brendan Smialowski, AFP/Getty Images)
SAN FRANCISCO — The rich valuations of technology stocks have made the sector look overpriced for value-conscious investors.
But if you’re a pure growth player or momentum trader unafraid of such market froth, now’s a good time to see which of the biggest large-cap tech companies is growing the fastest.
That’s because stock analysts have updated their revenue and profit forecasts after third-quarter earnings reports, and the market has had more than a week to digest them.
Looking at the world’s 10 most-valuable tech companies reveals where Wall Street thinks growth will be for the quarters ending in December and March.
The growth winner here is Facebook (FB[1]), which is expected to have the fastest top-line growth rate within the group.
The No. 1 social media company is seen posting year-over-year revenue growth of 39% in the fourth quarter and 41% early next year.
While that’s not surprising in one sense, because Facebook is far smaller by revenue than most of the others, the growth has powered it to a whopping valuation of $296 billion, making it the fifth-most valuable tech firm.
Yet it was passed in valuation this week by Amazon (AMZN[2]), which has been rewarding growth investors for 20 years and is now worth $303 billion.
The company run by CEO Jeff Bezos is seen boosting revenue by 23% in the December quarter and 22% in March, compared to comparable year-earlier periods.
Those growth rates are impressive given that Amazon is expected to post annual revenue of more than $100 billion this year ($107 billion), a first.
Even though it’s more than a third larger than Alphabet (formerly Google) by revenue, Amazon is growing significantly faster.
Alphabet (GOOGL[3]) is expected to post year-over-year sales growth rates of roughly 15% for this quarter and next quarter.
(Yes, Google is vastly more profitable than Amazon, but as noted above, this isn't a column for value investors.)
Amazon may be growing faster than Google, but not as fast as several tech firms in Asia, home to some of the fastest growth in the large-cap tech sector.
Samsung and Tencent Holdings both posted near-term revenue growth rates of more than 30% for the quarter ended in September.
(Forward-looking growth rates are less reliable for U.S. investors – due simply to fewer analysts here covering those firms — so I used their most recent quarterly results to compare.)
Alibaba (BABA[4]), which is traded and covered heavily here, is growing almost as fast, with year-over-year sales growth of 25% expected for the December period and 31% for the March quarter.
Tencent and Alibaba both got a boost this week from reports that China’s largest one-day online sale, known as Singles Day, provided huge numbers for both Internet rivals.
Back in the U.S., telecom stocks are usually more attractive to income investors than growth players.
Yet giant AT&T (T) is expected to grow its top line by 24% and 27% during the next two quarters, on a year-over-year basis, thanks to a string of acquisitions.
Meanwhile, Verizon (VZN[5]), AT&T’s archrival, is seen posting much-slower revenue growth of 3% and 1.5%, respectively, for those periods.
Microsoft (MSFT[6]) is also in slow-growth mode, with its sales expected to drop 4.7% this quarter vs. a year ago, before rising 3.3% in the March period.
And what about Apple (AAPL[7])?
Despite being the largest tech company by both revenue and market value, the hardware giant managed to post revenue growth of 22% in the September quarter.
Yet the forward-looking numbers suggest that growth party is over.
Apple is expected to increase sales by just 4% during the next two quarters.
For its full 2016 fiscal year ending next September, Apple is expected to report sales growth of just 5%.
CHART:
Near-term, yr/yr revenue growth, 5 most valuable tech firms
Company, Dec. Qtr, March Qtr
1. Apple, 3.7%, 4.2%
2. Google, 14.8%, 15.6%
3. Microsoft, (-4.7%), 3.3%
4. Amazon, 22.8%, 22.1%
5. Facebook, 39%, 41%
Source: Thomson Financial
John Shinal has covered tech and financial markets for more than 15 years at Bloomberg, BusinessWeek,The San Francisco Chronicle, Dow Jones MarketWatch, Wall Street Journal Digital Network and others. Follow him on Twitter: @johnshinal.
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