rwang0 Sun, 07/31/2022 - 13:54
Not All Big Tech Companies Are Equally Created
The MATANA stocks continue to do well despite a confluence of crises. MIcrosoft, Apple, Tesla, Alphabet, Nvidia, and Amazon, collectively showed that big tech, digital giants who:
- Build the biggest networks
- Disintermediate customer account control
- Compete for data supremacy
- Maximize digital monetization
- Execute with a long term mindset
will continue to deliver on both growth and margins. These companies build data-driven digital networks (DDDNs) that serve as 100-year mulit-sided platforms.
Source: Fox Business
Digital Giants Companies Continue To Show Outsized Growth
As the NASDAQ finds a floor in 11,000, and tech company forecasts for Q3 2022 reassure investors that growth is still in play, the digital giants have shown what's required to grow both market share and margins. Five trends emerged from this quarters tech earnings:
- Not all digital advertising is created equal. Search based digital advertising is more bullet proof than social. Tech companies such as Facebook, Meta, Snap, and Twitter carry more risk while Amazon grew digital advertising revenue via commerce to 8.76B. Search based and commerce based digital advertising appear to be more recession proof
- Enterprise cloud growth continues to surprise many. The tech industry is in the 3rd inning of a 9 inning market battle for cloud dominance. The public cloud providers have shown that even amidst intense competition, growth remains in high double digits. For example, Microsoft Azure grew 46%. Google Cloud grew revenue 47% and market leader Amazon grew 33% year over year for the quarter.
- Successful digital giants build multi-sided platform businesses with data driven digital networks (DDDNs). Apple showed they were still able to grow iPhone sales and services sales. Apple added 160 million paid subscribers in the last quarter bringing its total to 860M paid subscribers for services. Services revenue grew 12% to $19.6 billion
- One-trick ponies do not fare well in a recession. Apple, Amazon, Google , and Microsoft guidance show the dichotomy of multiple digital monetization models. Digital giants have diversified busines models and multiple monetization models. Successful digital giants monetize more than one area in ads, search, goods, services, subscriptions, and memberships. One trick pony monetization models of Meta (Facebok), and Netflix show lethargy in growth.
- Enterprise tech companies remain undervalued. While much attention is focused on the mega cap digital giants, especially consumer oriented stocks, the mega cap enterprise stocks remain very attractive. Nvidia, Oracle, Adobe, Salesforce.com, Adobe, IBM, ServiceNow, Snowflake and Atlassian have positioned themselves for a lot of upside. Cybersecurity stocks such as Palo Alto Networks, Fortinet, and Crowdstrike remain recession proof as well.
The Bottom Line: MATANA Digital Giants Dominate Return To Tech Rotation
Move over FAANG, focus on the digital giants. During the world's biggest margin call (as my friend Keith Fitzgerald has proclaimed,) overall tech socks are mostly trading at 10 to 15% of historical lows. With a strong dollar, weak Europe, zero-COVID locked down China, and high interest rates, the quest for alpha will prove to be even harder. Those investors taking a longer term view of 12 to 18 months may want to buy at historic lows in the cycle. Given that the world has psyched themselves into a recession, few sectors will have the 20 to 40% growth rates of big tech and now may be a strategic time to buy back into the market.
Your POV
Do you think we hit the bottom for big tech? Are you diving back in or are you dollar cost averaging? Where do you think we will be during the recession?
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