Big tech results weren’t so bad after all: That’s the main takeaway from the busiest week of earnings season.
Facebook (FB), Apple (AAPL), Advanced Micro Devices (AMD) and Alibaba (BABA) rallied 7 to 16 percent after reporting. Not all beat estimates, but each performed better than investors had feared in the wake of last year’s growth-stock meltdown.
AAPL was a case in point, squeaking past consensus on its profit but missing on almost everything else. Guidance was weak, iPhone shipments and Chinese sales fell double digits. Still, countless negative headlines over the previous three months had thoroughly prepared investors for the news. The big question now is whether a new reporting framework will let CEO Tim Cook reposition AAPL as a margin-based service provider rather than a unit-pushing gadget maker.
FB, the Nasdaq-100’s second-bigger gainer in the last week, seemed further along the road of reinvention. Investors had punished the social-media giant since last summer because of slowing traffic and higher costs, but then it announced record earnings and revenue. The key focus now is Mark Zuckerberg’s transition from the old news feed to the newer Stories format.
If FB is No. 2 in the Nasdaq, who’s No. 1? AMD, that’s who. The chip maker’s results weren’t much to write home about in terms of beating estimates. But, like AAPL, a lot of bad news was priced in and investors celebrated progress. In particular, bulls are looking for AMD’s Epyc chips to keep benefiting from the growth in cloud computing.
BABA also fit into the category of “it could have been worse.” Revenue at the Chinese e-commerce giant missed estimates but earnings beat analysts’ expectations. Weakness in the Asian economy had less impact than feared, and now attention is turning to the company’s efforts to sell cloud-computing services to businesses.
More Upside in Tech
Several other technology companies surprised to the upside. Credit-card heavyweights MasterCard (MA) and Visa (V) both beat estimates across the board thanks to a strong holiday shopping season. KLA-Tencor (KLAC), a provider of semiconductor manufacturing gear, also had positive numbers.
You also had positive surprises from Xerox (XRX), another technology name in the midst of a long-term refocus on business services, and electronics manufacturer Sanmina (SANM).
But not every tech stock was so lucky. Just look at Microsoft (MSFT), Intel (INTC), Nvidia (NVDA), PayPal (PYPL) and Juniper Networks (JNPR).
MSFT, which had enjoyed strong growth in its Azure cloud-computing business, missed on the top line. NVDA crumbled on weak data centers and gaming revenue. PYPL fumbled on revenue. INTC spun a similar tale of “earnings good, sales bad, guidance not so hot.” Ditto for JNPR.
There were other big surprises in the industrial space. General Electric (GE), one of the market’s biggest losers in 2017 and 2018, surged as better-than-expected revenue was viewed as sign of a turnaround. Boeing (BA) crushed estimates on record plane deliveries. Smaller aerospace firm Textron (TXT) also rallied on positive numbers.
Caterpillar (CAT) staggered on weak earnings, although revenue was better than expected. Cost pressures, including higher taxes, appeared to squeeze margins.
3M (MMM), United Technologies (UTX) and General Dynamics (GD) also came in ahead of consensus, but didn’t move much. Defense contractors Lockheed Martin (LMT) and Raytheon (RTN) stumbled on weak results.
Health Care Sickly
Health care was another area with disappointments. Device maker ResMed (RMD) cratered after missing revenue estimates and halting share buybacks. AbbVie (ABBV) warned of slowing sales for its key Humira drug. Pfizer (PFE) and Amgen (AMGN) took hits from increased competition. Suddenly Big Pharma’s “patent cliff” is back in play. Keep reading Market Insights for an upcoming breakdown of the pipeline innovators and struggling dinosaurs in the health-care space.
Speaking of dinosaurs, Tupperware (TUP) fell to its lowest level this decade after revenue missed estimates.
In conclusion, we just finished the busiest part of earnings season. Some companies clearly struggled. But a lot of bad news was priced in — especially for tech. Investors have responded by giving those stocks the benefit of the doubt.