Weekly Brief: Big Tech Won’t Take Slow For An Answer

Weekly Brief: Big Tech Won’t Take Slow For An Answer

almost 3 years ago3 mins

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What a week for Big Tech: five of the biggest companies in the world all updated investors on their quarterly earnings, and – spoiler alert – they all completely nailed it.

🕰 Recap

  • Microsoft kicked things off on Tuesday with better-than-expected results
  • It was joined that same evening by Google-parent Alphabet, which announced expectation-beating results of its own
  • Apple – the world’s biggest company – followed up on Wednesday with better-than-expected quarterly earnings
  • … along with social media giant Facebook, whose results topped analyst expectations
  • Amazon rounded things off on Thursday with earnings that – you guessed it – were better than expected

✍️ Connecting The Dots

The five tech giants set themselves a high bar to clear after last year, when the stay-at-home world flocked to use their respective services. Trouble was, that left them with high expectations to meet this year – expectations investors might’ve been relieved to hear they dismantled with ease.

Just look at Alphabet and Facebook: the two giants – which account for over half of all digital ad spending in the States – got a boost from a digital ad market that’s bigger than ever these days. Investors might’ve seen that one coming, given that Snapchat’s better-than-expected results the week before set the scene for a surging digital ad market. The pandemic, after all, has driven an unstoppable shift toward online shopping and the ads that bring customers in.

That shift toward online shopping was also a boon to Amazon’s ecommerce business, which grew its sales by a higher-than-expected 40% in North America and 60% internationally compared to the same time a year before. The company did well out of another pandemic-fueled trend too: working from home, which helped push up sales at its cloud computing business by 32% last quarter. It was joined by the number two player in cloud computing, Microsoft, which saw sales at its cloud computing businesses grow by 23%.

Microsoft likewise benefited from a rebounding personal computer market, which last quarter recorded its fastest sales growth in two decades. Seems like people were more than happy to splash out on new computers, and on iPhones too: huge demand all over the world – particularly for 5G-enabled models – helped Apple’s iPhone revenue come in 16% higher than analysts were expecting.

🥡 Takeaways

1. If you’re an investor, you’re probably an investor in Big Tech.

Big Tech matters, whether you’re directly invested in the sector or not. See, the five tech companies mentioned above make up more than a fifth of the total value of the S&P 500 – the stock market index of the US’s 500 biggest public companies. In other words, when their stock prices move, the S&P 500 feels it. And since over $10 trillion of investments track (or is in some way tied to) the value of that index, you’re probably exposed to those companies whether you know it or not.

2. Regulators are rubbing their hands.

The US government reckons Big Tech is simply too big – that Apple, Amazon, Facebook, and Google all enjoy “monopolistic powers” over products and services, and customers don’t have enough alternatives. One way it’s thinking about fixing that is to force the companies to split their business segments into legally separate companies. The proposal is still a long way off becoming law, but it could have serious implications on Big Tech’s stocks and, in turn, on the wider stock market if it goes ahead.

🎯 Also On Our Radar

The US Food and Drug Administration announced on Thursday that it’ll propose a ban on menthol-flavored cigarettes in the States – the last type of flavored cigarettes permitted in the country. That’s a win for anti-tobacco advocates who view them as a way to introduce consumers to smoking – particularly young people and those from low-income communities. On the other hand, it’s a loss for the big cigarette companies: they’ve said they’ll challenge the proposal, sure, but that still didn’t stop their shares from falling on Thursday.

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