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Saturday, April 28, 2018

Which Way Are Tech Stocks Going?

Earnings season kicked off with major tech companies glowing how strong business is. Macro may have bounced around the markets but tech spending is still strong.

You saw Facebook, Google, Amazon and Netflix revenues accelerate. Why does that matter for tech? Because, for one, those are the FANG stocks. FANG can lead tech.

You also saw Microsoft, Intel, and AMD all point to strong spending trends.

But back to the FANG stocks, why else is that important? Because Facebook, Google and Amazon are the leading hyperscale players where their capital expenditures (capex) are leading tech spending.

Google had a big jump in tech capex. Facebook also saw a jump in spend. Amazon also said they have a number of reasons to keep their AWS related spending higher which was up 47% in the last year.

What's interesting about Amazon is they specifically tied their tech spending to their revenue growth. Here's what they said,

"So have a couple things at play there that hopefully keeps that number [AWS tech spend] closer to the revenue growth rate."

AWS (Amazon's cloud service, Amazon Web Services) saw revenues accelerate almost 700 basis points in two quarters. They are going to keep AWS's tech spend 'closer to the revenue growth rate.'

Why that's so important for overall tech is you have the biggest tech spenders seeing accelerated revenue growth.  Amazon let you know that revenues are a key factor when deciding how much to spend.

We saw something similar with Google. Their revenues accelerated and their capex jumped. Facebook too. Revenues matter when these tech leaders plan tech spend.

So which way is tech going? That depends. Which way is tech spending going? Apparently it's going higher. Growth rates are accelerating.  That should be good for tech.




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