Is there any reason in the world that tech should bottom? Does it make any sense at all, when we see Facebook's (FB) stock being poleaxed, Apple's (AAPL) stock getting crushed, Alphabet (GOOGL) being listless, jarred by its CEO's Congressional testimony and Amazon (AMZN) seemingly treading water despite great AWS results?
I think the answer is yes -- but it is complicated, because enough is uneven in information spend that we can't simply say, "buy tech." The ETF promoters say they want us to do it so we can avoid "single-stock risk" -- which is a huge amount of hokum, because they NEVER talk about single-stock reward, so they all trade together anyway.
To understand the potential basis for a tech rally, we have to understand why we had a tech wreck to begin with.
First, we had the collapse of Apple via order cutbacks of virtually all of its suppliers, and there is no denying that sales are weaker, perhaps because of issues with China, perhaps because the company hit a price retaining wall, perhaps because of worldwide slowing.
But it wasn't just Apple that caused the problem. We too often underestimate the power of "other leaders" to color the tape. The two most obvious ones? Advanced Micro Devices (AMD) and Nvidia (NVDA) . Both of these chip companies are remarkable, Nvidia because of its incredible technological edge and AMD because of its grit and its comeback with faster, better and cheaper products for personal computers and the data center.
Both cratered.
They cratered because of a confusion that anyone could have made: End-user demand, and where it came from. I am a gigantic believer in gaming, and I know that we get numbers north of 30 million when we think of game players in this country.
The same Nvidia and AMD cards that are used for gaming are also used for crypto-mining. We -- meaning everyone -- failed to account for how many hapless souls were actually mining during the peak. There were just no good estimates. Nor was there a reason to believe that so many of the players would return the cards or put them in the channel.
The result? A giant multi-hundred million inventory bulge not of their own making that took them all by surprise and is still with us.
At the same time as we learned that flash inventory reached the tipping point, that always seems to occur where the tight supply gives way while demand stays steady. It looked like demand had all but dried up for both flash AND DRAM. We now know neither was true. The excess supply did gash everyone equally, though.
Now, when we saw the plummet in flash prices and the decline in DRAMs, with the plateau and fall of cell phones and the collapse of card prices, we figured tech as an entire cohort was rolling over.
But that simply isn't true. In fact, it's the opposite. We started realizing that first in the middle of November, when Cisco (CSCO) reported a fantastic quarter, indicating the network and security are alive and well. Then the supermarket of tech, Tech Data (TECD) , reported an outstanding quarter, with the Americas growing 13%, Europe plus 12% and Asia Pacific up 12%. The company, which I met with yesterday, called out strength in notebook, networking, storage services, cloud and mobility. Yes, it has Apple business, but it still blew its numbers away, in part because of the strength in Cisco's business and in HP Inc's (HPQ) .
On that very same day, November 29, HP Inc gave you revenue up 10%, with strong performance across all regions, with personal systems -- think PCs up an astounding 11%.
Then on December 6, Broadcom (AVGO) reported, and CEO Hock Tan told you "wired results reflect very strong year-over-year growth for our networking and computing offload businesses, driven by robust demand from the cloud, data center markets as well as traditional enterprise."
That dovetailed perfectly with the one area of tech that the bears and the scaredy-bulls tried to topple, but couldn't: the cloud kings. Salesforce (CRM) reported a pretty perfect number, and Workday (WDAY) and Splunk (SPLK) gave you an ACCELERATION of growth. VMware (VMW) delivered its classic beat and raise, which we have come to expect, and Palo Alto Networks (PANW) showed strong security growth.
Now it is true that are some disasters out there, disasters like semiconductor capital equipment. But even those are mitigated -- I think the CPU shortages and the lack of investment say it's time to buy -- and for the first time in ages, I like Lam Research (LRCX) here, maybe even Applied Materials (AMAT) .
But you can see where I am going. A perfect storm of not-so-hot numbers from AMD and Nvidia that now look like they were crypto-derived, coupled with some weakness in DRAMs and Flash and the steep slowdown in cellphones, all combined to throw us off the scent. The data center? Strong. The cloud? Super strong. The autonomous driving/electrification/infotainment, strong. The PC? Very strong. Security? On fire. ETFs obscure the good, or lump it with the bad.
Conclusion? Don't buy tech ETFs, buy winners. Yes, it is time for single-stock rewards.
