What went down last week

Once in a while a week comes along which allows the Tech-Heavy’s biggest names to show us what they can do.

This is one of those weeks.

The Nasdaq Composite ended a fairly exciting previous week of business on a fizzler, weighed down by the ill-will inspired by an imperfect Tesla (TSLA) and an uninspired set of Netflix (NFLX) quarterlies which were studied jealously by all portfolios, everywhere.

This week, with moderating inflation and some impressive runs on Wall Street, bumping into expected rate hikes in Europe and in the US, we may get one of the clearest pictures yet of how much  three or four ludicrously large tech businesses can call the shots on how global markets fare.

Meta (META), Microsoft (MSFT), Alphabet (GOOGL) , Amazon (AMZN) — the major tech players are set to report earnings this week.

(…for more on this see below, but in the meantime I really like this pic)

IN short US Earnings this week:

(Sources: Nasdaq, S&P, Zachs, Amazon, Earings Whisperer. Dates may change without notice)

Monday:
Logitech, Dominos, Ryanair, Philips and 2x smaller banks which I know nothing about yet sound like they might not be somewhere to out money: Hawaii Bank and The (sweet Jesus) Bank of Hope.

Tuesday:
3M, General Electric, General Motors, Spotify, Alphabet, Microsoft, Snap, Visa, Verizon Communications.

Wednesday:
AT&T, Boeing, Coca-Cola, Meta Platforms, eBay and Mattell (I’m quite curious this last one!)

Thursday:
AbbVie, Mastercard, McDonald’s, Amazon*, Ford, Intel, Mondelez (read: Vegemite, Krafts PB pre and aft Bega).

Friday:
Astra Zeneca, Chevron, ExxonMobil, Procter & Gamble. Just the goodies on Friday, apparently.

There’s some debate – AMZN Q2 could drop in early August – I’m pretty uncommitted tbh…

That’s four of the So-called ‘Magnificent Seven Tech players in about 72 hours.

Alphabet and Microsoft report after the market’s close on Tuesday (7/25), and Insta-Facebook-Threads Daddy Meta Platforms  reports after the close on Wednesday (7/26). Of the remaining four members of this ‘club,’ Tesla has reported already, and Amazon, Apple, and Nvidia are not reporting this week.

The chart below shows the year-to-date stock market performance of the Zacks Technology sector (third from the bottom; up +38.7%), the S&P 500 index (bottom line; up +18.9%), Alphabet (second from the bottom; up +36.3%), Microsoft (second from the top; up +44.6%), and Meta (top line; up +147.2%).

Via Zacks

Meantime, a lack of conviction saw the three big US indices all mixed on Friday. That’s something the Dow Jones in particular has not lacked these last two weeks. All three major averages logged new 52-week highs at various moments across the previous five sessions.

All of the major averages ended the week boasting further gains. The Dow Jones Industrial Average and the S&P 500 found + 2.3% and +1%, respectively.

The home of heavyweight tech companies, the Gnarly Nasdaq gained 0.4%.

A gaggle of better-than financial results – particularly from US banks this past week has added a surprise source of optimisim stateside, offering an unpredicted indicator of unexpected health.

So far – and it’d early days – FactSet reckons three out of every four S&P 500 companies which have dropped Q2 earnings thus far have beaten analyst expectations. Goodly numbers.

The DJ on Friday extended its consecutive run of wins to 10 straight — something the US blue chip index has not done in almost six years, when “Despacito” by Luis Fonsi and Daddy Yankee (featuring Justin Bieber) was Number One and enjoyed its own 16 straight weeks at the top.

Clearly Wall Street is no Luis Fonsi and Daddy Yankee (featuring Justin Bieber)  but there’s been some fine moments in 2023 much to the chagrin of global central banks trying to clear the dance floor.

Wall Street is largely banking on the Federal Reserve to raise interest rates by yet another 25 basis points at its next policy meet on Wednesday, the fine print will be in the fastidious ornithological nature of the language which Fed boss J. Powell et al will use to point out where the monetary policy will nest going forward.

‘Thou hast described a hot friend, cooling’

Last week there were some – we could even suggest – consistent signs of global inflation moderating.

The economists at Barclay’s even suggest that inflation – the very cause of all the last 12 months of volatility, uncertainty and eating of poorly chosen words – ‘has started to turn more decisively’.

This, they say, could result in the Fed and the European Central Bank, (which we’re just going to go ahead and call the Bank of Lagarde) calling it quits on raising more rates from this week.

“Though they will likely maintain a tightening bias and push back against cuts. Resilient data made us postpone our US recession call, while we revised China growth lower and expect limited policy stimulus,” the bank added in an early morning note on Monday.

US Earnings

On the earnings front in the US, those heinous US  lenders have been boosting loans rates far more enthusiastically than they’ve been boosting rewards for savers, and that made for better-than-expected net interest incomes last quarter. That game is done, however. Any politician worth his or her salt should be piling on the pressure to wayward lenders to start passing on higher interest rates to depositors – missing out on the circa around 5-5.4% returns punched in on money market funds.

Nevertheless US banks have shown improved profitability, and rolled the dice on offering some strong forward guidance for FY profit and revenue numbers.

Netflix says it added some 6 million new subscribers in Q2 – more than 2x what analysts were expecting – apparently its  password sharing police team is helping it round up new users.

And yet, crappy telly has ensured, Netflix revenue last quarter and its forecast for the current quarter both came in like an episode of (insert well-known TV show name) of subpar expectations. Netflix’s push toward lower-priced, ad-backed services and price reductions in over 100 countries earlier this year both played a role.

Tesla reported record deliveries and revenue for the second quarter, but the gross margin at its auto division sank to a four-year low after months of price reductions. Investors, already on edge, sent the firm’s shares lower after Elon Musk warned of more price cuts to come. That sent ripples through the industry, with stocks of other EV makers falling last Thursday too.

No week for the weak

As Josh Gilbert, market analyst and reasonable Englishman told Stockhead earnings weeks simply don’t get much bigger than this, with Microsoft, Alphabet, Amazon and Meta all on the hock and the four companies making up over 10% of the S&P500 market cap between them.

That’s not hard. Apple is worth more than the German Dax alone.

“After a poor start from Tesla and Netflix this week, investors will be eagerly awaiting more upbeat numbers from some of the world’s biggest names to ensure the tech rally doesn’t fade. (Last) week has taught us that anything but a near-perfect report will be punished, given tech’s colossal rally and higher valuations.

“AI will most likely take centre stage once again, with Microsoft set to be front-and-centre as a leader in the AI space, thanks to its stake in ChatGPT creator OpenAI.

“However, Wall Street will want to see the tech giants starting to convert this innovative technology into revenue.”

 

Meta may be the standout, with earnings expected to grow year-over-year for the first time since Q3 2021.

This, combined with the Q3 2023 launch of its new ‘Threads’ platform, which earned 100 million new users in five days, making it the fastest-growing app of all time, could boost Q3 guidance for Meta. This level of success bodes well for the company as it seeks to turn around public sentiment following its patchy foray into the VR app space with the ill-fated ‘Horizon Worlds’.

Alphabet (GOOG, GOOGL) – Reports after the close, Tuesday, July 25

Wall Street expects Alphabet to earn $1.34 per share on revenue of $72.8 billion. This compares to the year-ago quarter when earnings came to $1.21 per share on revenue of $69.69 billion.

What to watch: The stabilisation of its advertising segment, combined with favorable AI trends, could be a boon for Alphabet in this coming earnings release. Investors are expecting this to be the case, among other growth developments evidenced the stock’s strong run in the first half of the year.

Shares of the Google and YouTube parent have risen 35% year to date, besting the 18% rise in the S&P 500 index. The stock has risen close to 22% over the past six months, driven by optimism that a slowdown in digital advertising could be over.

For that matter, the slowdown in advertising so far in 2023 has not been as bad as expected. The US digital advertising spending is expected to rise from $244.78 billion in 2022 to $263.89 billion in 2023, marking 8% year over year growth, according to Insider Intelligence.

The stock has also risen on the assumption that Google’s strong cloud growth will provide an offsetting factor for any weakness in its core business. Elsewhere, the rapid adoption of OpenAI’s ChatGPT, in partnership with Microsoft, has a cohort of the stock market questioning whether Google’s decades-long dominance in online search might be coming to an end.

In response, the company launched its ChatGPT rival Bard, which has received positive reviews. Investors will look for the company to provide details about way it plans to monetization Bard’s capabilities.

In the meantime, while Google’s advertising business may continue to experience some weakness, the company has plenty of other drivers to achieve its growth objectives for higher free cash flows on an annualized basis. On Tuesday, investors will want more details on these initiatives and how soon they can deliver results.

Microsoft (MSFT) – Reports after the close, Tuesday, July 25

Microsoft to earn US$2.55 EPSon revenue of US$55.47 billion vs last Q2 of EPS US $2.23 per share and revenue US$51.87

Shares of Gatesy’s software and cloud giant just slapped a new all-time high and the stock closed at a record US$359.49 on Tuesday last.

The catalyst was the unveiling of Microsoft 365 Copilot, an AI-powered version of its productivity platform.

With the company’s Nvidia love-in – as “multi-year, multi-billion dollar” investment in ChatGPT developer OpenAI, Microsoft had made no secret that AI would be a key source of its future growth.

Microsoft 365 Copilot, which will be offered for US$30 per month for Microsoft 365 customers on different plans, is a direct response to that. Already ranging from $12.50 per month to $36 per month for each user, Microsoft said the Copilot subscription will be added on top of existing Microsoft 365 plans.

Wall Street analysts went nutes, saying at circa an extra US$30 per user, per month, Copilot could boost Microsoft’s fiscal 2025 revenue by as much as US$9bn.

And that’s just going on assuming 20% of users signing-up for the voluntary add-on, or $19 billion if 40% of them do.

Mizuho Securities analyst Gregg Moskowitz boosted his Microsoft price target to $420 from $390 following the news. With a gain of 44% over the past six months, while climbing 45% year to date, Microsoft’s AI investments are already being rewarded.

Coupled with its fast-growing Azure cloud platform, Microsoft stock remains one to own in 2023 and beyond. On Tuesday, the company’s guidance will gauge how confident the management feels about its growth potential.

Meta Platforms (META) – Reports after the close, Wednesday, Jul. 26

Wall Street expects the Facebook parent to earn US$2.91 per share on revenue of $31.12 billion. This compares to the year-ago quarter when earnings came to $2.46 per share on revenue of $28.82 billion.

Amid the recent surge in tech stocks, Meta stock has been on an absolute ripsnorter, ridiculously growing 120% over the past 6 months, crushing the 14% rise in the S&P 500 index.

META stock is up a breathtaking 151% year to date, and given the Cage-fighting initiatives of late, investors want to know how much better can things get. Its management has pushed all of the right buttons, including various cost optimisation initiatives, many of which have enabled Meta to lower its 2023 expense guidance on two occasions, most recently lowering it to $86 to $92 billion from the prior $89 to $95 billion.

These initiatives not only puts the company in a much stronger financial standing in the near term, it is poised to improve in the long term as cost efficiencies are further realised.

Then there is the recent launch of Threads, the company’s new social media app which has already surpassed a 100 million users, ranking it as the fasted adopted app of all time. The question investors want to know is whether Meta can monetise Threads given that so many people are already using it.

Analysts are taking a wait-and-see attitude, with some predicting Threads could potentially add between US$2 to $3bn in revenue for Meta in 2024.

In the near term, however, Meta must continue to flex its growth muscle within its core digital advertising business given that it boasts an estimated 3 billion monthly active users on its family of products.

Digital ad improvements will be the key driver of the stock. As such, Zucker on Wednesday said META must continue to ‘show gradual improvements in that area,’ while demonstrating its prominence among big tech for the quarter and full year.

 

US-related Economic Calendar
Monday July 24 – Friday July 28

MONDAY
Japan Jibun Bank Flash Manufacturing PMI
UK S&P Global/CIPS Flash PMI, Manufacturing & Services
Germany HBOB Flash PMI, Manufacturing & Services
France HCOB Flash PMI, Manufacturing & Services
Eurozone HCOB Flash PMI, Manufacturing & Services
US S&P Global Flash PMI, Manufacturing & Services
Taiwan Industrial Production, Retail Sales (Jun)

TUESDAY
United States House Price Index (May)
United States Consumer Confidence (Jul)
Hong Kong Trade (Jun)
Germany Ifo Business Climate (Jul)

WEDNESDAY
United States New Home Sales and Building Permits (Jul)
United States FOMC Interest Rate Decision

THURSDAY
United States GDP (Q2, advance)
United States Durable Goods (Jun)
United States Initial Jobless Claims
United States Wholesale Inventories (Jun, advance)
United States Goods Trade Balance (Jun, advance)
United States Pending Home Sales (Jun)
China (mainland) Industrial Profits (Jun)
Hong Kong HKMA Interest Rate Decision
Taiwan Consumer Confidence (Jul)
Eurozone ECB Interest Rate Decision

FRIDAY
United States Personal Income and Spending (Jun)
United States Core PCE Index (Jun)
United States UoM Sentiment (Jul, final)
Japan BOJ Interest Rate Decision
Eurozone Economic Sentiment (Jul)
Germany Inflation (Jul, prelim)
Germany PPI (Jul)
Taiwan GDP (Q2, advance)
Canada GDP (May, prelim)