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It has been troubling times for the country's biggest tech companies. Apple and Microsoft are scaling back production amid the global chip shortage. The House Judiciary Committee is wondering aloud if Amazon executives lied to Congress while under oath. Dozens of state attorney generals are pursuing Google on antitrust grounds. Facebook faces a brand new existential crisis seemingly every other day.

And now, trust on Wall Street is waning.

Faith No More

The tech giants were riding high during much of the pandemic. On the surface, things appear to be going smoothly: Bloomberg Intelligence projects the cohort of Facebook, Amazon, Apple, Alphabet, and Microsoft — collectively known as FAAMG — to report combined profits of $67 billion in the third quarter, a 30% year-over-year increase roughly in-line with growth of the S&P 500. But as growth slows, optimism is diminishing.

According to Goldman Sachs Group Inc.'s prime broker, hedge fund exposure to the big five tech companies is now at a two-year low, andi it isn't hard to see why:

  • For each quarter through June 2022, the big five are expected to see profit growth stay behind the broad market: Analysts expect an 11 percentage point gap in the current period, the worst mark in nearly a half-decade.
  • FAAMG stocks lost nearly $1 trillion in combined market value in September, and have yet to climb back to their peaks — even as the S&P 500 sits steady near all-time highs.

Interest-ing Factor: Interest rates are rising, which means smaller companies will suffer, right? Not so, says a new study being circulated by the National Bureau of Economic Research. Lower interest rates helped the big five grow much faster than smaller firms, while high rates may see a competitive rebalancing, the study shows — yet another reason for hedge fund caution.

Oh, Snap!: Snap, the plucky little sibling of FAAMG stocks, reported a revenue miss in its third-quarter earnings call on Thursday, placing the blame on new iOS privacy changes that are disrupting the digital ad agencies. The bad news for Snap was a warning sign for Facebook and Google — and sparked a sell-off in both ad-dependent firms.