It could have been a lot worse. That’s the verdict after some of the most important technology companies reported earnings.
Facebook (FB) and Alphabet (GOOG) rallied more than 5 percent after first-quarter revenue beat estimates. It was a huge relief for investors worried about how coronavirus lockdowns would impact advertising revenue at the two Internet giants.
There were other positives. FB’s monthly active users surged 10 percent as millions of people sheltered in their homes. Analysts also said Mark Zuckerberg’s company did a better job resisting ad price cuts than rivals.
GOOGL had some bright spots as well, especially revenue growth from non-search operations like YouTube and cloud computing. CEO Sundar Pichai also planned cost cuts to defend profits. Earnings at both FB and GOOGL missed estimates.
Tesla’s Profit Streak Continues
Tesla (TSLA), on the other, reported better-than-expected profit after continuing to improve its margins. This has been a huge catalyst for the electric-car maker since late 2019, triggering one of the most spectacular short squeezes in history.
The executive team struck a confident tone on its conference call, saying that lower subsidies won’t hurt demand. CEO Elon Musk added that margins are widening as its Shanghai factory ramps up production.
Perhaps most important: It was TSLA’s third straight profitable quarter. That may put it on track for inclusion in the S&P 500, which requires a full year in the green. The 17-year-old disruptor is already bigger than 93 percent of the index’s members. It also trades more options volume than every company except Apple (AAPL).
Can Anything Stop Microsoft?
Microsoft (MSFT), the most valuable U.S. company by market cap, actually benefited coronavirus fueled computing demand. “Two years’ worth of digital transformation in two months.” That’s how CEO Satya Nadella put it.
Workforce services like Teams, Azure cloud computing and commercial products like Office all surged. Earnings and revenue beat estimates.
Other software companies including ServiceNow (NOW), Paycom Software (PAYC) and F5 Networks (FFIV) also rallied on strong numbers. This industry continues to emerge as one of the cornerstones of the long-term bull market in technology.
Another key firm, Mastercard (MA), also surprised to the upside. Investors worried about that lockdowns would hurt business transactions. But it wasn’t as bad as feared. Did you know that MA is actually a tech stock and not a financial?
Given their sensitivity to business activity, don’t be surprised if Wall Street views MA, GOOGL and FB as ways to position for the economy reopening.
Chip Stocks Try to Sound Cautious
Semiconductor stocks are also sensitive to the economy. Advanced Micro Devices (AMD), a big name in servers and gaming, sounded a cautious tone. Intel (INTC) also tried to paint a negative picture because of coronavirus, but analysts pointed to its rapid growth in cloud computing. They also noted that remote working boosted old-school demand.
Qualcomm (QCOM) was another chip company that tried to curb enthusiasm with soft guidance, but it still gained.
Remember that chip stocks are in the midst of a multiyear surge because of cloud computing, smart phones, the Internet of Things and 5G Networking. It’s not a surprise that investors are looking past near-term issues. That’s especially true with the economy reopening.
Streaming-audio firm Spotify Technology (SPOT) jumped after reporting a surprisingly good quarter. Not only did monthly users and premium subscribers beat projections. Its loss was also much narrower than feared after listeners tuned into content with lower costs, like podcasts.
Yum China (YUMC) was another under-the-radar winner. The parent of KFC and Pizza Hut in China reported strong numbers on both its top and bottom lines. Ninety-nine percent of its restaurants have resumed operations.
Twitter (TWTR) fell after management warned that “elevated near-term capacity needs are driving increased spend on our existing infrastructure.” That could slow expansion plans in other areas. Guidance for the current quarter was also weak.
Several manufacturing companies drifted after issuing results:
- General Electric (GE) beat on revenue, missed on earnings.
- Boeing (BA) missed on earnings, but inched higher after cutting costs.
- Ford Motor (F) missed on both, but held its current range around $5.
All three stocks lost about half their values before the reports. Investors are probably less interested in the last numbers, and more interested in their ability to rebound as the economy reopens.
In conclusion, most big technology stocks entered this week under the cloud of coronavirus. But the numbers weren’t as bad as feared and investors are starting to expect a recovery.
Attention now turns to Apple (AAPL) and Amazon.com (AMZN), the two trillion-dollar companies reporting this afternoon.