Inflation is hovering near its multi-decade high, and aggressive interest rate hikes by the Fed in response have started getting reflected in the third-quarter earnings of tech majors, such as Microsoft Corp. (MSFT), Alphabet Inc. (GOOGL), and Meta Platforms Inc. (META).
Moreover, with the U.S. economy growing at a 2.6% CAGR over the last quarter, the Fed looks all set to match the ECB’s interest rate hike of 75 basis points during its meeting next month. This could drive a fresh bout of volatility in the stock market.
This rising interest rate environment is expected to make it an uphill battle for cash-strapped and fundamentally weak firms to sustain and grow their operations due to reduced discretionary expenditure and increased borrowing costs. All this feeds into an increasingly gloomy forecast for 2023. Economists expect the gross domestic product to contract in the year's first two quarters.
With more significant turbulence on the horizon, we think once-popular technology stocks Snowflake Inc. (SNOW) and Palantir Technologies Inc. (PLTR) are best avoided now, as they could struggle to stay afloat because of their fundamental weakness.
Snowflake Inc. (SNOW)
SNOW operates as a cloud data platform provider that enables customers to consolidate data into a single source to drive business insights, build data-driven applications and share data. By leveraging the performance of the public cloud, its platform enables customers to unify and query data to support a variety of use cases.
For the second quarter of the fiscal year 2023 ended July 31, SNOW’s operating loss and net loss widened 3.8% and 17.4% year-over-year to $207.73 and $222.81 million, respectively. The company’s quarterly loss per share worsened by 9.4% year-over-year to $0.70.
Analysts expect SNOW’s EPS for the fourth quarter of the current fiscal year (ending January 31, 2023) to decline 58.3% year-over-year to $0.05.
The stock has declined 2.4% over the past month and 49% year-to-date to close the last trading session at $169.45.
SNOW’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of D, equating to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SNOW has a D grade for Value, Momentum, Stability, and Quality. It is ranked #69 out of 77 stocks in the D-rated Technology Services industry.
Click here to see the other ratings of SNOW for Growth and Sentiment.
Palantir Technologies Inc. (PLTR)
PLTR builds and deploys software platforms that help organizations integrate their data, decisions, and operations at scale. The company operates through two segments: Government and Commercial.
For the fiscal 2022 second quarter ended June 30, 2022, PLTR reported an adjusted net loss of $21.12 million attributable to common stockholders, compared to an adjusted net income of $97.96 million in the prior-year quarter. This resulted in an adjusted loss of $0.01 per share for the same period, compared to a gain of $0.04 a year ago.
Analysts expect PLTR’s EPS for the fourth quarter of the fiscal year ending December 2022 to remain flat at $0.02. For the entire fiscal 2022, PLTR’s EPS is expected to decrease 61.8% year-over-year to $0.05. Additionally, PLTR has missed the consensus EPS estimates in three of the trailing four quarters.
The stock has declined 53.8% year-to-date to close its last trading session at $8.57.
PLTR’s poor prospects are also apparent in its POWR Ratings. It has an overall D rating, equating to a Sell in our proprietary rating system. The stock has an F grade for Value and a D for Sentiment and Stability.
It is ranked #20 of 26 stocks in the F-rated Software - SAAS industry.
Click here to access additional POWR Ratings for Growth, Momentum, and Quality for PLTR.
SNOW shares were trading at $172.03 per share on Thursday morning, up $2.58 (+1.52%). Year-to-date, SNOW has declined -49.22%, versus a -18.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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