Apple IPhone Prices, Amazon Sales Show Big Tech Rally Has Legs

(Bloomberg) -- Apple Inc. and Amazon.com Inc. investors were girding for the worst Thursday afternoon ahead of financial results from two of the biggest bellwethers in tech. But holiday sales at both companies defied the skeptics, and market relief ensued.

The main exchange-traded fund tracking the Nasdaq 100 Index gained as much as 0.8 percent in after-hours trading. After closing lower on Thursday, the PowerShares QQQ fund had been on track for its worst weekly decline since June amid rising volatility. An options-derived gauge of turbulence in the Nasdaq 100 Index touched its highest level Tuesday since the election of President Donald Trump.

Apple reported a bigger-than-predicted gain in the closely watched iPhone metric known as average selling price, or ASP, a sign that consumers are flocking to the higher end of its flagship handset. That assuaged concerns -- as demonstrated by a 6.4 percent slump in the stock in the last 10 trading days -- that Apple was struggling to lure buyers for the iPhone X, the 10-year anniversary version of a product that accounts for more than 60 percent of its revenue.

Amazon gave shareholders even greater cause for cheer. Under Chief Executive Officer Jeff Bezos, the company logged the fastest year-end sales growth in eight years, helped by demand for cloud computing as well as the millions of books, toys, clothing and myriad other items Amazon peddles over the internet during the holidays. The numbers quelled unease over the pace of spending at a company that plows billions of dollars into warehouses to store products, robots to pack those items into boxes and the power-consuming servers churning out computing power not only for Amazon but a growing number of business customers.

Amazon gained as much as 6.8 percent in extended trading after closing at $1,390 in New York. In a sign that some were skittish before the results, the stock had slumped 4.2 percent in regular trading Thursday, with much of the decline coming in the afternoon hours.

Apple shares also whipsawed in late trading Thursday, initially dipping as low as $162.54 after the company released fiscal first-quarter results that missed analysts’ predictions and a forecast for current-quarter sales that also fell short. By late afternoon the stock reversed course to trade as high as $174.27 as investors focused on the bullish ASPs and a pledge by Chief Financial Officer Luca Maestri to use billions of dollars brought back to the U.S. from overseas to pay dividends, buy back shares and make acquisitions. He also predicted that iPhone sales would grow by at least 10 percent in the current quarter.

Apple’s comments about plans to deploy its cash are a “major positive for shares,” GBH Insights analyst Daniel Ives said in a note.

Not every colossal tech provider gave investors cause for optimism Thursday. Alphabet Inc.’s fourth-quarter profit missed Wall Street’s estimates as the company grappled with higher costs -- both to market its gadgets and to pay websites and phone makers like Apple to run Google search and ads. Alphabet fell as much as 6.9 percent in extended trading before paring losses.

But even Alphabet’s less-than-rosy numbers did little to change an overriding, fundamental expectation that big tech has room to keep growing and that the rally that has lifted the Nasdaq to a record as recently as last month will continue. IPhone demand is buoyant, if not through the roof, and Apple CEO Tim Cook is directing a lot of energy into new areas, including augmented reality and wearable gizmos.

Aside from dominating e-commerce and taking the lead in cloud computing, Amazon’s Bezos is expanding into health care by forging a new company with JPMorgan Chase & Co. and Berkshire Hathaway Inc. He’s also infiltrating the grocery industry with last year’s acquisition of the Whole Foods 460-store chain. Alphabet dominates the growing digital-advertising market and it, too, is tackling new businesses, including driverless cars and the connected home.

“These companies delivered,” said Ross Gerber, chief executive officer of Gerber Kawasaki Wealth and Investment Management, which owns Facebook Inc. and Apple shares. “These are businesses that we see generating hundreds of billions of dollars over the next decade.”

To contact the reporters on this story: Tom Giles in San Francisco at tgiles5@bloomberg.net, Jeran Wittenstein in San Francisco at jwittenstei1@bloomberg.net.

To contact the editors responsible for this story: Jillian Ward at jward56@bloomberg.net, Nate Lanxon

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