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This Big Tech Triple Threat Offers Optimism Amid Recession Fears

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The bar for earnings has been set very high in past quarters. This quarter though, investors just want to see companies clear the bars they set for themselves.

Some companies have not cleared the bar – see  Snapchat (-39% after its earnings) Facebook/Meta (-5%), Twitter (-15%), and Roku (-26%) for examples. And those misses were big enough to scare investors… 

Thankfully, three tech leaders led when some couldn’t: Apple, Alphabet (Google), and Amazon offered the market some reprieve amid recession fears and hit-or-miss earnings…

Amazon Makes Money Moves After Split; Rises 11%

Amazon rose over 11% after its earnings because of an optimistic outlook for the coming quarter, something that many investors likely needed to hear. The company beat on revenue by 1.76%, delivering $121.23 billion in revenue in the quarter. Its actual profit (earnings per share) was negative, a miss of -270%, but investors mostly shrugged that off. 

Amazon could thank Amazon Web Services for a lot of its newfound success – 60% of the company’s growth has come from the cloud and IT service platform. 

Apple’s iPhone and Services Revenue Buoy Company To Record Quarter

Apple got its own boost, mostly thanks to the iPhone and its Services business. The company’s stock rose 3% after reporting record revenue – $83 billion – in the quarter. It beat analysts’ profit (earnings per share) guesses in the quarter by 3.8%. 

iPhone revenue made up more than $40 billion of that figure, up 3%. However, Apple’s real splash came from its “Services revenue”, which was up 12% YoY. Services are all the extraneous things that Apple offers alongside its product suite, such as iCloud, Apple One,  and Apple Music. It made up $19.6 billion.

The hardware leader didn’t offer guidance for Q3, but CNBC says that analysts were looking for the company to tender a strong outlook for the coming quarter – $90 billion in sales and marginally higher earnings per share.

Alphabet Continues To Eat In Spite of Ad Slowdown

Google’s parent company, Alphabet, continued to rise in the latest quarter. Its revenue amounted to $69 billion, up 23% YoY. The company did miss on its top and bottom-lines – which means that it booked narrow misses on revenue and earnings per share, at least compared to what analysts expected. It was the second consecutive quarter where it missed those estimates.

In spite of that, investors still bought the company’s story: currency fluctuations took 3.7% off revenue growth. They warned that a strong dollar would hurt the company even more in Q3. That’s because multinational companies, as their name implies, operate in dozens of countries – and when one currency rises aggressively against another, a company’s revenue can take a hit.

Advertising revenue was up 12% to $56.3 billion, an impressive figure given the wider market environment. The majority of that came from Google’s Search and Other revenue, which was largely helped by “travel and retail queries.”

And unlike Amazon’s golden child, AWS, Google’s own cloud division didn’t do too hot. It lost $858 million in the quarter.

What’s the Takeaway?

We’re being particular with tech stocks given their enormous importance to the U.S. markets. Just the five largest U.S. tech companies represent over a fifth of the S&P 500 (and nearly a third of the Nasdaq-100.)

That means that their success ultimately becomes the success of U.S. markets, at least on some level. If any of the aforementioned three companies had a negative quarter, that would have weighed heavily in the minds of risk-thoughtful investors.

At face, there’s thousands of ways to see the latest slew of earnings. Consider: Tesla, Apple, Amazon, and Alphabet (Google) all sell physical products; they all sell digital services (free and paid), and they generate a lot of direct revenue from customers.

Now consider all the companies which struggled: Snapchat, Twitter, Facebook (Meta), and Roku. Almost all of these companies rely extensively on advertising revenue – they sell advertising and other services to get their brand in front of users. These kinds of advertising-centric tech businesses are likely among the most harmed in the current environment – one where startups and large companies alike are paling back their ad spend.

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