Alphabet, Meta, and Amazon earnings; How Nvidia Got Huge – and Almost Invincible; Winning investment themes by decade; New Shokz
1) The big three tech stocks, Alphabet (GOOGL), Meta Platforms (META), and Amazon (AMZN) – which have been original core holdings in our flagship newsletters, Empire Investment Report and Empire Stock Investor – all reported earnings on Tuesday, Wednesday, and yesterday, respectively.
Overall, it was more of the same: three of the greatest companies of all time reported amazing quarters...
Let's start with Alphabet: Revenues rose 11%, operating margin expanded to 28%, and share repurchases reduced the diluted share count by 3.1%, which combined to drive earnings per share ("EPS") up a remarkable 46% – all of which crushed expectations.
So why was the stock down nearly 10% the next day?
Because Alphabet's cloud division "only" showed revenue growth of 22.5%, slightly missing expectations and raising fears that it's losing ground to Microsoft's (MSFT) Azure and Amazon Web Services in this area.
These fears are overblown. With the stock trading at less than 19 times next year's earnings estimates, it looks like a buy at these levels.
Moving on, Meta's results were even more impressive... Revenue grew 23% while expenses fell, resulting in operating margin doubling from 20% to 40% and EPS soaring 168%.
Meanwhile, operating cash flow more than doubled while capital expenditures fell by a third, such that free cash flow went from near zero to almost $14 billion.
And despite reaching a staggering 3 billion people worldwide every day and 4 billion every month, Meta still reached 7% more people during the quarter than the same quarter last year.
Yet, like Alphabet, META shares fell nearly 4% yesterday on concerns that future growth will be difficult after such an incredible quarter.
While this is no doubt true, less than 19 times next year's earnings is a bargain for a company of this quality... so Meta also looks like a buy.
Lastly, Amazon also reported fabulous earnings after the close yesterday, but unlike its peers, its stock is up big this morning.
Revenue grew 13% (11% adjusted for currency fluctuations) and net income soared 244% to nearly $10 billion. Amazon Web Services showed 12% and 29% growth in revenue and operating income, respectively, while free cash flow reversed from negative $5 billion to positive territory of $9 billion.
Trading at 42 times next year's earnings doesn't appear cheap, but the stock looks like a buy because profits and free cash flow have been depressed due to big investments in warehouses, the cloud, and AI – all of which are starting to pay off in a big way.
2) Speaking of tech giants, Nvidia (NVDA) has come out of nowhere to become one of the most highly valued companies in the world – joining the rarified $1 trillion club.
Here's an insightful Wall Street Journal article about how this happened: How Nvidia Got Huge – and Almost Invincible. Excerpt:
Nvidia is hardly the first success story to arise from the industry that gave Silicon Valley its name, but it has entered a league of its own. In just a few years, Nvidia went from being a company that got most of its business from chips designed for high-end videogaming to an AI powerhouse valued at more than $1 trillion, joining tech titans Apple, Microsoft, Amazon, and Alphabet, the parent of Google.
The first semiconductor company to hit that milestone, Nvidia sports more than twice the market value of at least four chip peers that have more annual revenue. For now. Analysts project Nvidia will more than double its sales to $54.5 billion for this fiscal year, likely overtaking Intel, Qualcomm, and Broadcom – an unheard-of pace for a company of Nvidia's size.
In our flagship Empire Stock Investor newsletter, we recommended buying NVDA shares on February 5, 2020 as part of our Transportation as a Service ("TaaS") thesis. Despite nearly top-ticking the market right before the COVID crash, the stock is up a phenomenal 540% since then.
We took half our money off the table that August after it quickly doubled, and we're currently sitting on a gain of 321% on the combined position.
3) Tech giants have been the investment theme this year and were for the decade of the 2010s, as this chart shows. The question is, what will this decade's winning theme be?
4) In my October 5 e-mail, I wrote about three customer service experiences I had with companies recently, including Shokz, which makes my favorite headphones I use when running:
As I said then:
I paid $130 for a new pair in April. When the speaker in one ear stopped working in mid-August, I e-mailed customer service at hello@shokz.com and quickly got a reply telling me to mail in my broken unit and the company would immediately send out a replacement.
This would have been an "A+" experience... except six weeks later, they still haven't sent the replacement and haven't responded to a half-dozen follow-up e-mails I've sent. Jeers to Shokz for ghosting me!
A quick follow-up: maybe someone at Shokz is one of my readers... but soon after publishing that, my replacement headphones arrived, so I take back my jeers!
Best regards,
Whitney
P.S. I welcome your feedback at WTDfeedback@empirefinancialresearch.com.