Nicholas Colas, co-founder of DataTrek Research
Everyone beat. All Big Tech companies are beating. And by a fairly wide margin. The low end was Microsoft at just over 10%. But we got 20 and 30, and even 40% of everyone’s beats. Basic incomes were therefore solid. And that’s what the market was telling you, with most of these stocks on the rise and in profits through July. In Microsoft’s case, the directions were a bit hazy. What has upset investors is that the companies have been very honest in saying that they have had a good quarter, but they do not have 100% clarity on what is happening in the third quarter of the calendar.
I think the sale was really caused by this kind of fuzzy advice. You go through all of these companies, and it was very clear that all but Microsoft face unique challenges. Amazon, for example, only has very difficult comparisons to last year, and they don’t really know how consumers will shop in the third quarter. Will they return to physical stores? Will they do less shopping because they are on vacation, and so on. And yet Apple, speaking of chip shortages, is a very valid concern that could potentially hurt Mac and iPad sales. So there’s a lot of vagueness about the third trimester, which we’ll just have to go through.
We are personally quite confident in Q3 for Big Tech. So it’s not a big concern for us. But the other thing, and it’s more broadly macro, is that there’s a lot of concern that we’ve reached some sort of maximum earnings power, maximum earnings growth, particularly over year. last, which was obviously a very easy quarter to compare for most companies. . And how does all of this play out through technological demand? We have seen so much demand for technology services for technology products over the past year. Can it continue? We believe so. We think the back to school is going to be great for Apple, and the holidays will be great too. We believe companies will advertise on Facebook and Google. And it will be all good. But it is a legitimate concern. We’re running into increasingly difficult comparisons with the very easy comparisons we had in the second quarter and investors are taking a step back.