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FANG stocks lead tech sector lower after analysts worry about Alphabet costs
Leadership in the tech-heavy Nasdaq-100 index (QQQ) is under pressure, as selling in some of the most popular names -- including Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG GOOGL) -- is intensifying in afternoon trading. ANALYSTS UNEASY AFTER ALPHABET: After the close of trading Monday, Alphabet reported Q1 net profit up 73% to $9.4B for the quarter, compared to $5.4B last year. Despite Alphabet's strong Q1 report, some analysts are concerned about the tech giant's increased willingness to spend. Citing costs, Alphabet reported Q1 operating margin of 22%, missing expectations and down from the 27% in the year-ago quarter. The core takeaway is that Google continues to demonstrate "remarkable" sales strength, while heavily investing, said Piper Jaffray analyst Sam Kemp in a post-earnings research note. He sees these investments as unlikely to abate in 2018. CAP-EX SWELLING: Capital expenditures at Google spiked to $7.3B in Q1 from $2.5B in the year-ago quarter. The blames the spending in part on acquiring streaming rights for YouTube's new TV service and other marketing expenses. Deutsche Bank analyst Lloyd Walmsley told investors in a note that cost growth continues to surprise in excess of revenue. Walmsley lowered his price target for Alphabet to $1,225 but kept a Buy rating on the shares following the Q1 results. He expects the shares to be volatile in the near-term, pending more signs of stabilizing margins. WAYMO CATALYST: JPMorgan analyst Doug Anmuth reiterated an Overweight rating on shares but lowered his price target for Alphabet to $1,285 from $1,330. Anmuth said that accounting changes and higher spending may drive the bulk of near-term discussion. BMO Capital analyst Daniel Salmon kept his Market Perform rating and $1,100 price target on Alphabet after the company's Q1 results, saying that while revenues came in "solid", margins were "weak again" and could remain pressured as the company spends more to address inappropriate content on YouTube. The analyst said earlier this trend is being "increasingly embedded" in investors' expectations, requiring a notable "new story" like Maps monetization or Waymo commercialization to produce "material stock outperformance." PRICE ACTION: Shares of Alphabet Class A are near session lows, down over 5% to $1016.68 per share: OTHER FANG NAMES FALL: Also lower are Facebook, down almost 4%, and Amazon and Netflix, losing over 4%. Apple is faring slightly better, down almost 2% in afternoon trading
