DA Davidson Managing Director Gil Luria joins Morning Brief to discuss some of the biggest trends sweeping the tech industry as second-quarter earnings season gets underway.
Luria points out that Microsoft’s (MSFT) AI efforts are driving the PC upgrade cycle. He explains, “The impact of AI and generative AI implementations, including in the PC space, is very widespread right now. AI PCs are being sold. These will be part of the cycle. It may not be as pronounced as the iPhone cycle, but we’re starting to see signs of growth, given that PC sales have been sluggish for the past two years.”
He believes the strong performance of tech stocks comes down to the fact that tech companies “grew earnings when others did not.” He also attributes the growth to diversification, explaining that “their businesses are well-established and diversified, so they are less risky.” He gives Amazon (AMZN) as an example, predicting it is well-positioned ahead of its earnings release. He argues, “AWS is the biggest hyperscaler and has made a lot of effort to catch up with Azure in terms of AI capabilities. But Amazon is barely valued in terms of multiples. It’s trading at an average multiple compared to historical rates. So we think when the company gets more value, the stock will perform well.”
For more expert insights and the latest market trends, click here to listen to this entire episode of Morning Brief.
This post was written by Melanie Leal
Video Transcript
Are you seeing other consumer technology companies making progress within the same geographies where Apple is really starting to step up their game?
So on the Microsoft side, the impact is now very widespread in the implementation of More AI and Generative AI, including in the PC category.
Thus, IP CS becomes another place to start using more generative I-functions.
A. More features of IP CS are being sold and will probably become part of a cycle.
While perhaps not as pronounced as the iPhone cycle, C is in a hangover state when it comes to PCs.
In recent years, they have started to show signs of growth, and it is very much an apple-adjacent category.
The Mac will also have the I feature, which could help boost Mac sales even more.
So this is another area where Apple could benefit, but don’t forget that Microsoft could benefit as well.
But for Microsoft, the benefits of AI span the entire business, from Azure to Office products and more.
G. If you have heard that investors may be expanding their holdings, trimming or reducing some positions, taking profits on some of these names if necessary, and then holding onto cash, waiting to invest, or reallocating to other sectors, most of the Magazine 7 companies would fall within your coverage.
What does it mean for these companies that were part of the famous Mag Seven?
And should they be alarmed when they hear about the expansion?
The technology companies with the largest market caps have outperformed because their fundamentals are better.
They have grown revenues while others have not.
That’s the main reason their stock prices have risen.
Also, because their businesses are so well established and diversified, there is less risk of being forced to change.
You have to see 4 92 4 94.
Other companies you may want to consider are actually experiencing revenue growth.
They haven’t had any revenue growth in a while.
If earnings growth actually accelerates outside of these mega-caps, we may see a convergence in share price performance.
So far, that hasn’t been the case.
These large companies saw the highest growth in revenue and profitability.
They contributed most of the S&P 500’s earnings growth.
And until that changes, well, we may not see convergence. Gil, just a quick note before you go.
If you had to pick one big technology company, it would be the one most favored heading into earnings season.
Who’s there?
Amazon, Microsoft, Apple are all getting huge recognition right now for what we just talked about.
They are viewed as winners, and their stock prices reflect that by trading at the high end of their historical multiple ranges.
We actually think that at the end of the day, Amazon is in the I business more than any other company.
AWS is the largest hyperscaler and is doing a lot to catch up with Azure in terms of I capabilities.
But Amazon is barely valued in terms of multiples.
It is trading at an average multiple compared to historical rates and we believe the stock will perform well if credit improves further.
Yes, Gloria D. from Davidson is the Managing Director.
Thank you for your continued participation.
thank you
