So far, six of the "magnificent seven" tech companies have reported their quarterly results: Apple (AAPL), Alphabet (GOOGL), Amazon (AMZN), Meta (META), Microsoft (MSFT), and Tesla (TSLA). Nvidia (NVDA) will report on August 23, after the market close. Synovus Trust Senior Portfolio Manager Daniel Morgan says he was "very pleased" with results so far, despite a low-bar being set for companies this quarter. Morgan, for example, points to online ad spend rates numbers from Meta and Google being better than expected. Morgan describes Microsoft and Apple's reports as "muted," saying the companies reported "good numbers, they weren't bad numbers, but they didn't beat hugely on the upside and didn't create a catalyst or surprise," like with Google, Meta, and Amazon.
Some of the companies Morgan says he will be watching for results from are Cisco (CSCO) on August 16, Snowflake (SNOW) on August 23, Applied Materials (AMAT) on August 17, and Salesforce (CRM), which has yet to announce its earnings release date.
Video Transcript
- Well, as the earnings season approached, many cast a wary eye on tech. The sector's been propping up the market. And given the unstable economic environment, investors have been using it to judge the health of the economy. And the majority of the so-called Magnificent Seven have all been able to beat Wall Street expectations. All have done well this earnings season.
So let's bring in Synovus Trust Senior Portfolio Manager Daniel Morgan to discuss more. Good to have you on the show, Daniel.
DANIEL MORGAN: Hi, Rachelle.
- So give us this breakdown of-- good to see you-- of how tech has been faring. Because obviously this initial rally started with tech. But where are we now when we factor in the earnings season?
DANIEL MORGAN: What's interesting, Rachelle, as you mentioned in the beginning of the conversation, the bar for the tech sector coming into this second quarter was really low. But I will have to say that I was very pleased with the way that a lot of these earnings reports go. I mean, if we just kind of kick off and we look at online ad spend rates with Meta and Google a couple of weeks ago, the expectations were they would be flat to negative. And both those companies reported an increase in revenue. So Meta was up 11%, Google was up about 3.5% in their ad revenues.
And that kind of worked itself through the reports. Amazon kind of capped things off with a very good report with revenues up 11%. And then we had Apple, which was kind of a mixed review. We knew that smartphone unit volumes were going to be very muted going into the second quarter. But overall, their guidance that they gave for the upcoming third quarter was very strong in regards to services and iPhones.
So I think overall, we'd have to take-- a takeaway from this, Rachelle, that is that numbers came in better than expected. We had a very low bar. Can we make up for these huge runs that we've had in these stocks, though? Right, Rachelle, coming into these reports. And I think that's where investors are pondering right now.
- And of these Magnificent Seven, who was the most underwhelming for you? Especially when you factored in some of the guidance and the softness that we saw.
DANIEL MORGAN: Microsoft was somewhat muted. Apple was somewhat muted. Those would be the two that kind of stood out at least at this point, to me, that were good numbers. They weren't bad numbers, but they didn't beat hugely on the upside and didn't create like a catalyst or surprise, like we saw with Google, Meta, and let's say Amazon. So those two kind of stick in my mind.
- And as we look at, of course, the chip space, NVIDIA riding high and enjoying those gains on that generative AI push that kept popping up in everybody's earnings call. But what about some of the other chipmakers? Who are you following there? And any surprises there?
DANIEL MORGAN: Well, there's other stocks in that group, Rachelle, that could turn out to take some sort of not leadership role, but market share in the AI space. If you look at-- just to name a few, Marvel Technologies has their DSP chip called PAM, which is somewhat exciting. You have Broadcom, which has their Jericho3 chip. Now these are all chips that are just being rolled out that are in that same space that can compete directly against NVIDIA.
We also know that Intel has their Falcon Shores chip that's going to come out next year. AMD, which reported last week, has their MI300, which is a AI chip that's being promoted as something that's going to compete directly against NVIDIA. So there are other companies in that space. We're going to be rolling into NVIDIA, Rachelle. About two weeks from now, we're going to get numbers from then mid week.
But those are some of the reports that have kind of rolled in. Qualcomm has their AI 100 they reported last week also. So but that's still in an infancy stage. Rachelle, as we know, we haven't had a lot of tangible evidence that AI has actually directly impacted the financials of these companies. NVIDIA's really the only company that's actually shown tangible evidence of strength in terms of their AI chips.
- And of course, a lot of these markets, these big tech names, also have a lot of exposure to China as well. And we're seeing some softness there in terms of demand. What are some of the stories that you're looking at coming out of China that you think we should be really keeping an eye on when it comes to big tech and where valuations then go from here?
DANIEL MORGAN: You're right, Rachelle. I mean, Qualcomm gets about 60% of their revenues coming out of China. And China's head of the double sword, right? You have not only the impacts of them coming off of COVID lockdowns and how overall demand for, let's say, smartphones are coming. We know that when Apple reported numbers last week, their overall demand for smartphones in China was actually much stronger than people considered. It was actually positive where people thought it was negative.
And then you also have this issue with regulators in terms of these back and forth of China no longer allowing certain chips that are produced by US companies to come into their country and vice versa. So China has got a lot of moving parts not only from the overall growth of their economy and demand for different electronics, but also in terms of what's going to happen from a regulatory perspective. How is that going to impact various companies?
We already know there was news out a couple weeks ago about Micron. We know that NVIDIA-- those are companies that China has isolated as being not allowed to bring chips into their country, various chips that they make. So a lot of things coming out of China, a lot of things to follow.
- And in terms of companies that you're going to be keeping an eye on as we continue through the thick of the earnings season, what are some of the bellwether stocks that are going to give us a better idea of how the consumer is feeling and how looking at things like business CapEx and what-- how companies are choosing to invest based on this macroeconomic environment?
DANIEL MORGAN: Well, Rachelle, we have Cisco next week. So that's going to give us a good idea of what's going on in terms of CapEx, in terms of networking. The following week, we have Snowflake, we have NVIDIA. So those are some big numbers that are going to be coming out. Snowflake, as you know, is a middleware company and the data center space. They make the tools and software that allow you to pull data off of the big data centers.
Obviously, NVIDIA, which we've already talked about in terms of AI. We also have Applied Materials reporting next week. They'll give us a good idea of how CapEx budgets are going in terms of companies spending on semiconductor equipment. And that gives us an idea of what the demand is in that space.
So we still have a lot of big numbers coming out here. We also have Salesforce, which is a big play on the software as a service in terms of the enterprise. So we have more to go than just the so-called FAANG stocks or Magnificent Seven that have mostly reported up at this point. So we'll obviously be checking in here over the next couple of weeks on those numbers.
- We appreciate you getting us up to speed on all of that and for joining us with your insights.
DANIEL MORGAN: Thank you, Rachelle.
- Synovus Trust senior portfolio manager Daniel Morgan. Good to see you.
