Before the bell: Buy the dip!

Google parent Alphabet disappoints; Melexis sees profit drop; Chinese markets open lower while rest of Asia rallies.

What stood out to investors last year? Panic often created opportunities to buy stocks at a discount. On Tuesday, investors took comfort in the postponement of U.S. trade tariffs on Mexico and Canada. Chinese stocks such as Alibaba (+3.8%) and Baidu (+5.9%) surged, even though new U.S. trade tariffs on China officially took effect. In the cosmetics sector, Estée Lauder plunged 16.1% after cutting its 2025 revenue forecast. As a result, the company announced 5,800 to 7,000 job cuts. Meanwhile, Palantir skyrocketed 24% after better-than-expected earnings. PayPal (-13.2%) reported slowing growth in its card processing division, even though Q4 earnings beat analyst estimates. Spotify Technology (+13.2%) posted its first-ever annual profit and was rewarded with a stock surge, further fueled by strong subscriber growth. Today, Chinese mainland markets reopened after the Lunar New Year holiday but traded lower, while the rest of Asia saw gains, especially in tech stocks.

Investors will soon react to the latest earnings reports. Chipmaker Advanced Micro Devices (AMD) could face profit-taking after weak data center revenue. Snap, the social media company, turned its 2023 losses into a small profit, which may fuel a positive opening. Later today, Uber and Walt Disney will report earnings, followed by Ford and Qualcomm in the evening.

Not magnificent enough

Why do we call them the ‘Magnificent 7’? Because Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla consistently beat high investor expectations. Not this time for Google parent Alphabet. Revenue came in at 96.5 billion dollars, missing estimates by 200 million dollars. The main culprit? A weaker performance in its cloud division. Additionally, Alphabet plans to invest 75 billion dollars in 2025, far exceeding the 59 billion dollars analysts had expected. This higher spending is expected to weigh on profits, setting the stage for a negative opening. A ‘Magnificent’ stock valuation demands equally magnificent earnings—and Alphabet fell short.

Melexis investors feel the whip

This morning, Melexis’ earnings reminded us of an old interview with Françoise Chombar, the company’s current chairwoman. She often spoke about the whiplash effect in the automotive sector: A small change at one end of the whip can create a massive effect at the other. Melexis is at the beginning of that whip, according to Chombar—but the effect works both ways. A small revenue decline can exponentially impact profit. This year, Melexis’ revenue fell just 3%, but net profit plunged 18% to 4.24 euros per share. Experienced investors recall a similar scenario during the 2008-2009 financial crisis. Global car sales dropped just 4%, yet Melexis’ revenue plummeted 31% in 2009. The following year, however, sales rebounded by 70%. Today’s whip effect is painful for investors, but if the trend reverses, the upside could be just as dramatic.

Did you know…

Google parent Alphabet has been under antitrust investigation in China since yesterday? Since Google Search has been unavailable in China since 2010, this move appears to be a symbolic response to Trump’s new trade tariffs.

This article was translated from Dutch and was originally published on Spaarvarkens.be.