What Have Big Tech Earnings Told Us So Far?

What Have Big Tech Earnings Told Us So Far?

This particular quarter has been one of the most unique in some time. Heading into this quarter's reporting we had a massive geopolitical unrest and a Y2K level IT outage. Debates about a looming recession, and if we are already in a recession are butting up against a continuum of opinions as to whether or not AI is a bubble. With the Nasdaq in a correction, the focus turned to the Mag 7 and Capex Spending.

All of the biggest names underwent a capex colonoscopy with Meta playing its hand the best--by Zuck simply being Zuck and indicating there was no choice but to spend big suggesting what many of us have been saying. The risk of overspending early and being there for the AI trend is a better one to take than waiting and missing the boat entirely. Then of course the lion's share of the tech earnings wave ended with the market having a 2-day market meltdown driven largely by the unwinding of the Carry Trade in Japan, which sent the Nasdaq into correction and brought scrutiny to the Fed and whether it missed the moment to cut as unemployment jumped and inflation dropped while other alarms in credit markets, mortgages, loan defaults, savings rates and more set off trip wires that a recession may have already arrived. With that--A few take aways on the overall results

Cloud Results Looked Good: The cloud number from Amazon, Google, and Microsoft were all in focus. The growth rates of ~ 19%, 29%, 29% respectively were noted as a beat, beat, miss on expectations. But the cloud spending numbers were robust, and I believe all 3 showed resilience into tougher macro and market headwinds. The companies didn't do enough to remove all the doubt around AI's unmet potential, but these numbers didn't really warrant sharp selling--but that didn't stop it. The cloud battle is on though, and AI has been a great reset. Revenue alone doesn't dictate the best cloud anymore and IaaS is less critical than AI and PaaS is becoming more important as well. Don't blink here.

AI Chip Demand: The long-term signals for AI demand remain strong. TSMC showed this in both its results and comments. Its most prominent "AI Chip Node" 3nm and its CoWoS packaging are both sold out with NVIDIA and others accounting for all of that demand. The strength of AI Chip demand could be further highlighted in the triple digit growth of AMD's Datacenter business, which had a good result, but probably wasn't bullish enough in its guidance for its Instinct product. Qualcomm and AMD both had numbers in their handset and PC businesses that indicated strong interest in AI PC and AI Smartphones, but there is more opaqueness on whether a super cycle exists there. I think strength here will shine in 2025. Anything before is premature. Arm also came up with a good, not great quarter, but gave no reason to think AI interest is waning.

Enterprise Software + AI: SaaS and Enterprise software have been beaten up quite a bit this year with many names off the pace. I remain optimistic that SaaS + Software is where the big AI value proposition problem will be solved. ServiceNow, IBM, and Palantir all come to mind. All three companies delivered very strong results and are demonstrating quantifiable AI value in their solutions for business. IBM has seen its revenue double Q/Q for AI (Watsonx). Palantir and ServiceNow are showing incremental growth from Generative AI. This is what the market is looking for, but it hasn't been evident in many results--such AI washing has been a source of concern or fodder for the bears that don't think AI is meeting expectations. They will be proven wrong.

Overall Tech: Tesla numbers were a bit meh, but that was expected, I still think that whole story is a tale between those that believe it solves autonomy and robotics and those that see it as a car company. I think it is the former on a different timetable. Apple also had a good, not great, and mostly forgettable quarter. Which was expected. And, Buffett sold a boat load of Apple stock, but I don't think he knows anything about a fall for Apple--he's just looking at the market in its entirety. And taking profits and arming the war chest for the inevitable fall.

Now, tech more widely remains incredibly deflationary, and the AI shine may be wearing after so many mentions on earnings call and so little incremental value--But I think this is a perfect example of slow at first and then all at once. (or a lot at once) The proof points are coming and the software and implementations that enables enterprises to quickly implement enterprise AI in complex environments will deliver efficiency and productivity scale that will deliver earnings growth and provide enterprise value to the builders and consumers of this technology. AI is not cyclical, it is exponential. Traders will always suffer the ebbs and flows, but investors have a lot to be excited about as it pertains to growth as AI proliferates.

Great summary-easy to digest, thanks Dan!

Vijay Sundaram

Chief Strategy Officer at Zoho Corporation

4mo

Daniel Newman, thanks for your tight assessment across multiple sectors.

Jim Hunt

COO at 223_Agency

4mo

Moves and happenings in Big Tech often bring impact far beyond the individual entities. Big Tech leaders impact industries, workforce, and economies. Stability in the tech industry appears to be more like a dodge ball game with global stakes. Daniel Newman - thank you for being a trusted source of reputable data during turbulent times.

Ron Westfall

Futurum Group Research Director specializing in Digital Transformation, 5G, AI, Security, Cloud Computing, IoT and Data Center. Host of 5G Factor Webcast.

4mo

AI is a journey and not a sprint - the unfolding benefits of AI technology will also become increasingly apparent across the ecosystem in places such as the hybrid AI/private AI propositions offered by Dell, HPE, and Lenovo, and VMware by Broadcom. And that is only one additional example - fully agree that AI/GenAI is staying on the trajectory to drive more investment and ecosystem-wide innovation.

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