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Big Tech Bonanza: Investing in the World's Largest Tech Companies
Retail investors chase high-growth, innovative tech firms, seeking businesses that revolutionize for a chance at lucrative returns.
Hi, and welcome to another edition of Investing Intel from the team at ValueTheMarkets! As always, the newsletter is packed with stock picks and investing insights we think you’ll enjoy, including:
👉 Three stock insights
👉 Investing signals
👉 Fear & Greed Index
👉 Key dates for your diary
👉 Some fun facts!
This week, Big Tech is in our crosshairs.
Big tech earnings surprised to the upside last month following a big Hedge Fund sell-off. The unexpected strength in results from Amazon.com Inc (NASDAQ: AMZN), Alphabet Inc (NASDAQ: GOOGL), Meta Platforms Inc (NASDAQ: META), and Microsoft Corp (NASDAQ: MSFT) bolstered growth prospect potential, triggering a collective sigh of relief from investors.
For investors here, there’s reason to remain optimistic because this recent earnings beat provides reassurance. Plus, the seemingly endless pots of cash these companies have, provide a serious buffer as they weather an economic storm. It’s unlikely that these top players would suffer too badly in a recession because their entire ecosystem means so many smaller businesses are reliant on them.
But which Big Tech stocks do we think are poised for success?
Innovative Tech Titan – Apple (NASDAQ: AAPL)
Love it or hate it, Apple (NASDAQ: AAPL) is a force to be reckoned with. Pretty much everyone has used or will own an Apple product at some time, whether that be iPhone, iPad, MacBook or AirPods. Way back, you might have owned an iPod. And considering Apple has been around since the late seventies, few could have predicted the power it would eventually wield.
So, why do we like AAPL stock?
Innovation, brand loyalty, wads of cash, dividends and buybacks, growth, and outstanding leadership.
Time and again, the company has disproved naysayers by launching innovative products, achieving record-breaking sales, and maintaining its position as a market leader in the technology industry.
Apple’s Q2 EPS and revenue beat analyst expectations, while iPhone sales grew 2% despite a 15% contraction in the smartphone industry. The company authorized $90bn in share buybacks and dividends, leading to a 4% dividend hike.
It’s not all plain sailing. Fears of slowing growth are emerging as iPad, Mac, and services revenue experienced declines. Nevertheless, Apple is optimistic about its potential in the Indian market and does not plan to implement layoffs in the near future.
All-in-all, Apple remains a favorite among investors, with 60.35% institutional ownership.
Strong Cash Position
Dividends and Share Buybacks
Core Industry Driver – Broadcom (NASDAQ: AVGO)
Now the Big Tech boom wouldn’t be possible without computer chips, and Broadcom Inc. (NASDAQ: AVGO) is a powerhouse in this regard.
Established in 1961, the company has continuously expanded its footprint, delivering a wide array of products and solutions spanning data center, networking, software, broadband, wireless, and storage markets.
Broadcom's unwavering commitment to R&D and innovation has helped it stay ahead of the curve and capitalize on emerging tech trends.
So, what makes AVGO stock appealing?
Broadcom’s wide appeal lies in its dominant market position, diverse product lineup, dedication to innovation and R&D, robust financial health, strategic acquisitions, and fair valuation.
Broadcom has consistently demonstrated its ability to navigate the ever-changing technology sector, delivering state-of-the-art products and solutions that cater to the evolving needs of the market. This adaptability has translated into impressive revenue growth, healthy profit margins, and stable cash flow generation.
The company also offers a 3% dividend yield.
Nonetheless, the journey ahead may not be entirely smooth. As the technology landscape continues to shift, Broadcom must remain agile and responsive to stay ahead of competitors and capitalize on emerging opportunities.
Something for your radar is Broadcom's proposed acquisition of VMware. In light of the recent Microsoft/Activision Blizzard deal facing regulatory hurdles, investors are speculating whether Broadcom could face similar challenges.
In summary, Broadcom is well-regarded by investors due to its solid market standing, diverse offerings, and strong financial performance. And it has 82% institutional ownership.
Diversified Product Portfolio
Commitment to Innovation and R&D
Robust Financial Health
AI-Fuelled Innovator - Microsoft (NASDAQ: MSFT)
The company is undeniably a leader in the tech sector. Everyone’s familiar with Microsoft products such as Windows, Office, and even Xbox.
So, why do we like MSFT stock?
In its most recent earnings update, Microsoft beat analyst estimates on profit and revenue, while its cloud-product revenue growth proved businesses are still willing to spend on services.
The company continues to demonstrate strength in its PC segment, maintains steady cloud growth, and reports solid commercial bookings, reflecting the company's resilience and adaptability in the market.
Meanwhile, Microsoft's Bing AI chatbot, powered by OpenAI's GPT-4, has revitalized Bing's presence in the search engine market and served as a wake-up call for Google, showcasing the potential of advanced AI technology in reshaping the industry.
We also think Microsoft's gaming and AI divisions are poised for impressive growth, with the expanding gaming industry and innovative AI investments driving the creation of new products and services to meet emerging market needs.
Microsoft's success stems from its cutting-edge innovation, diversified product portfolio, and commitment to user experience.
Growth in Gaming and AI
Diversified Product Portfolio
We’ve looked at some tech stocks we like, but what’s in store for the wider sector?
Well, the tech sector holds most of the world’s biggest companies, and for that reason, both retail and institutional investors remain invested.
Tech stocks are still very much on the radar of WallStreetBets and Reddit enthusiasts, with Apple, Microsoft and NVIDIA among the top trending stocks this week.
There are several reasons why retail investors are drawn to tech investments, including the potential for high returns, portfolio diversification, exposure to innovation and fear of missing out.
There’s no doubt that AI is leading the charge in accelerating change throughout the sector, but its unknown power is creating an element of fear as well as excitement.
Top AI execs from Microsoft, Google, and OpenAI joined White House officials to discuss AI safety and responsibility. The meeting sets the stage for upcoming draft guidelines on federal AI usage as the Biden administration focuses on managing rapid technological advances.
Elsewhere, Bank stocks dominated the headlines in the past week as the regional banking crisis continues. JPMorgan (NYSE: JPM) swept in to buy First Republic (OTC: FRCB), while PacWest (NASDAQ: PACW), First Horizon (NYSE: FHN) and Western Alliance (NYSE: WAL) continued to slide. By Friday, regulators appeared to have stymied the fallout, but the crisis may have further to run.
Short seller Hindenburg Research targeted Carl Icahn's Icahn Enterprises (NASDAQ: IEP), accusing it of being overvalued and likening its structure to a Ponzi scheme. The accusation sent the company's stock tumbling 40%. Carl Icahn’s long-time rival Bill Ackman appeared to take delight in Hindenburg’s report, tweeting that the situation had a “karmic quality”.
This is reflected in the most searched stocks on Google last week, which included:
First Republic Bank (OTC: FRCB)
Kenvue Inc (NYSE: KVUE)
Bed Bath & Beyond Inc (OTCMKTS: BBBYQ)
Icahn Enterprises (NASDAQ: IEP)
PacWest Bancorp (NASDAQ: PACW)
Kenvue Inc (NYSE: KVUE) made the grade because it launched the biggest US initial public offering (IPO) in nearly 18 months. As the consumer arm of healthcare giant Johnson & Johnson (NYSE: JNJ), Kenvue’s IPO generated significant interest selling $3.8bn of stock at $22 per share. Thus, gaining an initial equity valuation of $41bn. The stock rose to $26.90 on the NYSE on its first day of trading.
Meanwhile, Bed Bath & Beyond's stock began trading over the counter (OTC) under the ticker BBBYQ after Nasdaq initiated the delisting process for the bankrupt home-goods retailer. BBBYQ shares opened at $0.075 on Wednesday and ended the session up 30.4% at $0.098. The stock continued to rise, trading at $0.11 on Friday.
A Rising Tide Lifts All Boats
Big tech has risen to prominence in recent decades with its fast-moving growth and dominant business model, yielding high margins and legions of fans. Major players like Amazon, Alphabet, Apple, Meta, Microsoft and NVIDIA find themselves dominating the modern business landscape, but as interest rates rise, investors wonder if their dominance can hold.
Undoubtedly, the low-interest rate environment of the past decade helped fuel their exponential growth. Nevertheless, the advent of AI appears to be shaking things up once again. Amid the recent AI Investing fever, investors are asking, ‘Will AI further fuel or scupper Big Tech’s growth trajectory’?
When Big Tech gets a boost, it helps boost confidence in smaller tech stocks. For risk-taking investors, lesser-known companies operating in the tech space are often an attractive prospect.
Digital Ad Dynamo
AdTheorent Holding Company, Inc (NASDAQ: ADTH) is an innovative New York-based digital advertising provider. The company is making waves in the mobile ad network services industry as it leverages its cutting-edge machine learning technology and data analytics to optimize ad campaigns and target specific customer segments.
AdTheorent's impressive growth in sales, net income, total shareholders' equity, and free cash flow, coupled with a PE ratio of 4.39 illustrates its promising future.
Key factors supporting a bullish outlook include the rapidly expanding digital advertising market, advanced technology and machine learning capabilities, a diverse and robust client base, high scalability, strategic partnerships and acquisitions, and favorable industry trends such as AI, big data, and programmatic advertising.
AdTheorent is one to watch!
Esports Empire Rising
ESE Entertainment Inc (TSXV: ESE) is a leading gaming and esports company with world-class partners and assets across the globe. The company is diversified with physical venues, media infrastructure, teams, leagues, and international distribution partners.
ESE is perfectly positioned to capitalize on the gaming mega-trend, providing innovative technology to ensure the success of clients' games. The company's strong management team consists of world-class operators who have worked with renowned names such as Electronic Arts, Riot Games, and Ubisoft.
ESE's cutting-edge technology and data platform offer real-time player campaign analytics, advanced business intelligence, and machine learning-based campaign optimization for customers. With all these factors combined, ESE Entertainment Inc. is an exciting player in the gaming and esports landscape.
Innovative Chip Champions
Veeco Instruments Inc (NASDAQ: VECO) is a pioneering semiconductor process equipment provider offering a range of technologies crucial to advanced semiconductor device fabrication and packaging. With a focus on optimizing performance, yield, and cost of ownership, Veeco holds prominent positions in the markets it serves.
Veeco's diversified product portfolio, technological innovation, and strategic acquisitions make it an industry player to watch. And with a solid financial track record and exciting industry trends like 5G, AI, and IoT, Veeco Instruments appears to be well-positioned for future growth. The company is due to release its latest quarterly earnings results on May 8.
Meanwhile, QYOU Media (OTC: QYOUF) is revolutionizing the way we consume content by tapping into the short-form video craze that's taking the world by storm. These bite-sized videos have become immensely popular on platforms like TikTok, YouTube, Instagram, Snapchat, and more.
QYOU is also a leader in influencer marketing in both India and the US. By helping advertisers connect directly with millions of viewers through a network of social media stars, the company is redefining the advertising landscape and making a significant impact in the world of short-form video content.
Fear & Greed
The Fear and Greed Index is a measure of stock market sentiment calculated by CNN Business using seven measures, including market momentum, market volatility, and safe haven demand. It’s meant to shed light on the emotions currently driving the market, giving you insight into how traders are making decisions. Remember, traders are humans, not robots.
As you can see from the graphic below, investment sentiment appears to be back in greed mode as it was a week ago, despite being in neutral earlier in the week.
Factors such as negative bank crisis news and another increase in interest rates had led to reduced risk tolerance. However, this has been mitigated thanks to a positive outlook driven by encouraging payroll data, a rebound in struggling regional banks, and improved earnings insights.
Dates in the Diary
Monday 8th - United States Wholesale Inventories
Tuesday 9th - United States NFIB Small Business Index
Wednesday 10th – US CPI Data, US Labor Market Hourly Earnings, US Labor Market Average Workweek, US Treasury Budget
Thursday 11th - US Jobless Claims, US PPI
Friday 12th - US Export Price Index, US Import Price Index, Michigan Consumer Sentiment Survey
Wholesale Inventories: https://www.census.gov/wholesale/index.html
Labor Market: https://www.bls.gov/cps/
Jobless Claims: https://www.dol.gov/ui/data.pdf
Consumer Sentiment: http://www.sca.isr.umich.edu
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Fun Fact - Circuit Breakers
Picture this: the stock market is like a wild party, and sometimes things get a little too rowdy. That's when circuit breakers step in, playing the role of the responsible party host who decides it's time for a short "timeout" to let everyone cool off.
These nifty market tools were introduced after the infamous Black Monday stock crash of 1987 (talk about a hangover!).
In the US, when the S&P 500 index takes a 7% nosedive from the previous day's closing price, the market-wide circuit breaker kicks in, pausing trading for a 15-minute breather.
There are also two other circuit breakers for 13% and 20% declines, but they're like the fire extinguishers in the room—there if you need them, but you really hope you don't.
Now, here's the twist: new research suggests that if not properly designed, circuit breakers might actually turn up the volume on market volatility and send stock prices into a downward spiral. Talk about a buzzkill!
Holding onto stocks during a trading halt can be like playing hot potato with a ticking time bomb, especially when uncertainty is high. This makes investors less keen on holding stocks when the market reopens, causing prices to tumble further.
So, what's the solution? To keep the market party going strong without any hiccups, researchers recommend fine-tuning the circuit breaker design. They suggest setting the right "timeout" threshold based on fundamental volatility and keeping the market open as long as it's still functioning smoothly.
Regulators should be like attentive party hosts, keeping an eye on the crowd for any signs of trouble rather than simply relying on arbitrary price levels.
In a nutshell, it's all about striking the right balance to ensure the stock market remains a fun, lively, and (mostly) well-behaved party that everyone can enjoy!
Until Next Time
Many thanks for taking the time to read Investing Intel today. We hope you’ve enjoyed our insights and are looking forward to more in the week ahead.
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