Big Tech may have issues 'hitting some numbers,' strategist says

As some Big Tech companies prepare to release earnings on Thursday, Victoria Fernandez of Crossmark Global Investments weighs in on growth prospects. She believes "there's going to be some difficulty, I think, in hitting some numbers that continue to make the stocks move higher," given lofty expectations.

Fernandez explains that stocks like the tech giants have already priced in anticipated gains from areas like AI monetization. This helps explain disappointing results from names like Alphabet (GOOG, GOOGL) and Microsoft (MSFT) recently. Of the tech titans, she sees Apple (AAPL) as most worrisome for investors, since it has been "down versus the rest of that Magnificent Seven for a while," and faces a "tricky" path to meet forecasts.

Given high valuations, Fernandez notes she has been "trimming" tech holdings, advising investors not to "go all in" on those stocks. However, she singles out Microsoft as a top tech pick thanks to strengths in AI, cash flow, and balance sheet.

Watch the video above to hear what Fernandez has to say about investing in Amazon.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Angel Smith

Video Transcript

BRAD SMITH: When you think about what we would need to see from these companies that are reporting later on today, what would be the overall tone, the tenor, or even the catalyst perhaps that the markets are able to latch on to?

VICTORIA FERNANDEZ: I think it's going to be quite difficult, Brad, because as we've seen, they have had a huge run up. And I think it's part of the problem we saw with both Alphabet and Microsoft. You've had such large gains. People have already priced in that perfection of having the monetization of AI, which is something people have been waiting on.

And then we're getting information on CapEx spending going to be much higher than what a lot of people anticipated. Margins maybe not being as high as some people wanted. So there's going to be some difficulty, I think, in hitting some numbers that continue to make the stocks move higher.

Obviously, Apple is probably the one that people are concerned about the most. It has been down versus the rest of that Magnificent Seven for a while, except for Tesla. And that one's been down too. But I think it'll be a little bit tricky for them to meet expectations.

SEANA SMITH: So if they don't meet expectations, and we do see some pressure on these big names, how should investors be viewing that? Is that a buying opportunity?

VICTORIA FERNANDEZ: Well, we've seen the NASDAQ pull back pretty significantly this week because of the earnings that we had. We don't think you want to go all in. We've actually been trimming a lot of these Magnificent Seven names, as they have been making highs, going in and trimming some of those positions.

Right now, Microsoft is the only one we're actually above weight versus our benchmark. We're below weight on all the others. So if you don't have a neutral holding in there, could you go in on some of these and add? You could. But I think you need to be a little bit more diversified.

Those names have been driving the market. And when you look at earnings, they're expected to be 80% year-over-year earnings growth in next quarter, as well. That's going to be a really hard level to beat. So I would be cautious.

SEANA SMITH: What's the bullish thesis? Why do you think Microsoft is the best pick, it sounds like, of the seven right now?

VICTORIA FERNANDEZ: I think when you look at balance sheets and you look at expectations, you look at where they stand with AI compared to some of the others, obviously, NVIDIA is run away with that. But Microsoft is so strong in that element and being able to monetize that is going to be key.

Their balance sheet is strong. Their free cash flow is good. So I think from that perspective, we always want to look at balance sheets, when we look at the companies we invest in. That's why Microsoft is probably one of our favorites.

BRAD SMITH: And then when you think about the earnings Bellwether that we've continued to hear time and time again. Amazon. Both on the consumer side, but also on the big business to business purchasing side there.

How can this company perhaps give the markets a jolt for the rest of that can last the rest of the earnings season, perhaps.

VICTORIA FERNANDEZ: Amazon, specifically, is that. Yeah so Amazon because they have so many different business elements. They're able to pull from different areas that maybe some of the other companies can't. And we've seen them do that in the past.

Obviously, AWS is going to be huge. We're going to see how that pulls in. Now, Azure had some issues in those earnings. The non-AI component of Azure was lower than what people thought. So we might see that coming in from Amazon as well.

But guys, we have had a strong consumer. So those will probably pull in from the retail side, and really be able to give it a boost there. So I think Amazon will do OK. But they've also come out and talked about layoffs.

Layoffs are huge right now. We're seeing about 13% of the S&P 1500 companies that have reported talk about layoffs or announced layoffs already. That's more than double what you typically see in a bull market. So we need to be cautious on that.