BIG TECH EARNINGS
📉 Amazon and Apple Fall Over -5% After Earnings

😰 The week started great with Microsoft and Meta’s stellar earnings (which we covered on Thursday), but took a turn on Thursday/Friday, with all the major indexes falling this week:

• Both S&P 500 and the Nasdaq-100 fell -2.5%, with the S&P having it’s worst trading day yesterday since May 21st

• The TSX fell -1.7%

• And even Bitcoin fell -4.5% since Monday

👷 Now, Apple and Amazon weren’t to blame for the overall market, with most experts pinning that on a poor jobs report showing signs of a weakening economy.

❌ And this wasn’t just a ‘bad’ jobs report. According to CNN, it was the “worst major economic report since the end of the pandemic” with US jobs growing by only 73,000 this month (compared to forecasts of about ~100,000).

😅 In fact, they were so bad that in a rare move, Trump fired the Bureau of Labor Statistics Commissioner, saying “I think their numbers are wrong” and “were RIGGED to make the Republicans, and ME, look bad”.

📉 But while the market fell, Apple and Amazon fell harder:

• Amazon ($AMZN) plummeted -8%

• Apple ($AAPL) fell -5.4%

🔍 So, following up on our coverage of Microsoft and Meta, let’s look at what’s going on with Amazon and Apple and why they crashed while the others soared…

📉 Amazon Crashes -8% Despite Earnings and Revenue Beats

🤔 Ok, so what went wrong with Amazon? Well, let’s look at the high-level numbers:

• ✅ Revenue was $167.7B, up 13% from last year and 3.5% higher than expected

• ✅ Earnings per Share was $1.68, 26% higher than expected

🔍 Looking at the specific business lines:

• 🛍️ Online shopping revenue was $61.5B, up 11% from last year

• 📣 Advertising revenue was $15.7B, up 23% from last year

• 🤖 And AI-driven Amazon Web Services was $30.9B, up 17% from last year

🎯 Now with those numbers, you wouldn’t expect to see such a massive stock drop, but with earnings the forecasts are often more important than the quarterly results themselves… and for the upcoming quarter, Amazon said it expects operating income to land between $15.5 billion and $20.5 billion, with the low end falling well below analysts expectations of $19.5 billion.

🔴 But that wasn’t the only red spot for Amazon…

👎 AWS Growth ‘Weak’ Compared to Microsoft Azure and Google Cloud

Josh Schafer, a Senior Markets Reporter, summed up Amazon’s problem:

📊 With Microsoft Azure up +26% from last year, and Google Cloud up +32%, AWS’s +17% revenue growth pales in comparison.

💡 And while AWS is only 18% of Amazon’s total revenues, it makes up 53% of its Operating Income and is the core element to Amazon’s AI story.

☁️ We’ve been covering the ‘Cloud Wars’ for over a year now, and this quarter, the cracks are really starting to show in Amazon’s moat. While they were once the dominant player, they’ve been steadily losing market share to Google and Microsoft over the past few years, with growth falling flat as Google and Microsoft see accelerated growth:

^{(P.S. The above chart is from Fiscal AI, an awesome AI-powered fundamental research tool. Check it out here)}

🤖💰 AI Spending Galore

💰 Carrying on the pattern set by Meta and Microsoft, Amazon also recorded a massive capex expense of $31.4B, up 31% from last quarter and more than Meta, Microsoft, and Google.

✨ While Amazon CEO Andy Jassy didn’t offer many specifics, he said that AI has improved operational efficiency and business growth, and that generative AI has contributed multiple billions of dollars to AWS.

👀 While the impact seems to still be small in comparison to the massive spending on data centres and Nvidia GPUs, Jassy says it’s still “very early days” in AI development and adoption, indicating that the company has no plans to slow down spending anytime soon.

🍎 Speaking of AI spending, there’s been one tech giant that’s been largely on the sidelines as Microsoft, Meta, Google, and Amazon dump billions into AI Infrastructure: Apple…

So let’s take a look at Apple’s earnings and then take a step back and look at the common themes among Big Tech earnings this week, but first, a quick note about some of the exciting events we have coming to New York, Chicago, and LA!

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BIG TECH EARNINGS
🍎 Apple Falls -5.4% Despite Biggest Revenue Growth Since 2021

⭐️ Similar to Amazon, despite the stock drop, Apple recorded pretty stellar numbers this quarter:

• ✅ Revenue was $94B, up 10% from last year and 5% better than analysts expected

• ✅ Earnings per Share was $1.57, 9.8% better than expected

And most notably:

• 📱 iPhone Revenue was $44.6B, up 13% from last year and a massive 11% better than analysts expected.

• 🇨🇳 China sales also grew 4% to $15.4B

Both of these points reversed trends from last quarter when iPhone growth was mostly flat and China sales fell -2.3%… In Tim Cook’s words:

👍 Tariffs Not As Bad As Expected

☀️ Another bright spot this quarter was tariff losses, with only a $800M hit this quarter compared to the $900M expected. However, Apple is still getting hit hard by tariffs, with a $1.1B cost expected for 2025.

🤖 The Big AI Question…

🤔 So with such a great quarter why is the stock falling?

🤑 Well everyone in Big Tech’s been spending big at the AI party… except Apple… and investors are starting to grow inpatient.

With Microsoft and Amazon ramping up capex to over $30B a quarter, Apple spent a measly $3.5B. As one commentator puts it:

👀 Tim Cook’s Pep Talk

Apple CEO Tim Cook clearly knows this is a major issue, saying previously that “AI is one of the most profound technologies of our lifetime”.

In fact, just Friday, Apple held a rare all-hands meeting, gathering staff and telling them the AI revolution is “as big or bigger” than the internet, smartphones, cloud computing and apps. Referring to AI, Tim Cook said:

Many beleive Apple will have to acquire its way to catch up to its peers, and Tim Cook confirmed that Apple is “very open to M&A that accelerates our AI roadmap.”

💡 My Thoughts on Apple & Big Tech Earnings overall

🐝 This will be my 82nd Weekly Buzz, with now over 160,000 words written and over 400 hours spent covering primarily the Big Tech companies.

💡 So as we wrap up earnings week, I feel I’m in a good position to observe the common themes both over this quarter and over the past ~2 years.

🔍 Here are some of my observations:

• One obvious winner of the week, although they didn’t record earnings, was Nvidia ($NVDA). Microsoft, Alphabet, Amazon, and Meta are all rapidly increasing capex as the AI arms race continues to heat up (spending $95B this quarter compared to <$30B in 2021). As long as this continues, Nvidia will continue to benefit big.

• Meta, Microsoft, Alphabet, and Amazon have all solidified and doubled down on their AI strategies (see image below) while Apple is still struggling to find its place in the race. All companies beleive AI is still in the early stages.

• Personally, I own Nvidia, Meta, and Microsoft (making up 21% of my portfolio). For the past 6 months, these have significantly outperformed the rest of Mag 7 and I continue to beleive these 3 are the strongest of the 7 after this quarter. Over the past 6 months:

  • Nvidia is up +49%

  • Microsoft is up +28%

  • Meta is up +8%

  • Google is down -6%

  • Amazon is down -10%

  • Apple is down -11%

  • Tesla is down -21%

• Can the good times continue? While AI has certainly driven significant profit growth, it still hasn’t been enough to keep pace with the spending spree. Despite this, investors have rewarded the spending with higher valuations, so to some, it has created a bit of a ‘speculative frenzy’ in the market.

• I also worry that, while AI definitely seems to be transformative, the hype and ‘spend at all costs’ mentality do seem to resemble the dot-com bubble era, and so even though I beleive in the long-term potential, I worry the market will continue to be very volatile in the near term.

• The challenge with a ‘speculative frenzy’ is that if you’re in one, it’s nearly impossible to know how long it could last. Many commentators were saying the market was in a bubble 2 years ago.

• A very interesting dynamic of the current markets (that makes it a bit different than dot-com) is that when there is a dip, retail investors (like you and me) rush to buy, which has softened many of the pullbacks from institutional investors dumping stock.

• As for me, I plan to stay the course and continue holding some of my favourite tech stocks while increasing my portfolio diversification to hedge against the volatility (i.e., with my recent buy of ZEA to boost my international exposure).

🌼 But as always, I’m very curious to hear what you all have to say! I just made a post on Blossom about my thoughts above, so feel free to comment there to share your thoughts and join the discussion!

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FROM THE BLOSSOM COMMUNITY
⭐️ Featured Discussions this Week

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