Nearly every major tech company with a calendar Q2 earnings report to share has now done so, and a few companies of note have posted their July quarter reports. With that in mind, here are some big-picture takeaways from a four-week barrage of tech earnings reports.
1) Pandemic Beneficiaries Are Seeing Demand Trends -- And Their Stock Prices -- Cool Off
U.S. tech companies that saw a big spike in consumer activity following the arrival of COVID lockdowns last year are still generally seeing activity levels that are meaningfully above pre-COVID trend lines. However, in recent months, a lot of them have seen activity cool off some as consumers go out more.
This was a message shared by everyone from e-commerce firms such as Amazon.com (AMZN) and eBay (EBAY) , to gaming firms such as Activision Blizzard (ATVI) and Take-Two Interactive (TTWO) , to streaming plays such as Netflix (NFLX) and Roku (ROKU) . And in at least a few cases, markets were caught off-guard by such disclosures, harshly punishing the shares of the companies making such disclosures.
In some cases -- for example, with Amazon -- the selling is arguably overdone in light of the long-term growth opportunities the impacted company still possesses. That in turn spells opportunities for patient investors willing to ride things out until sentiment improves.
2) Many Chip Industry Names Expect the Good Times to Last Well Into 2022
Earlier this week, Nvidia (NVDA) CEO Jensen Huang indicated his company expects gaming GPU demand to exceed supply for "the vast majority" of 2022. Likewise, analog chip and microcontroller suppliers Microchip Technology (MCHP) and ON Semiconductor (ON) said they expect to be supply-constrained at least into mid-2022, while rival STMicroelectronics (STM) said its order bookings now extend 18 months.
Foundry giant TSMC (TSM) also sees supply constraints lasting into next year. Meanwhile, major chip equipment makers such as Applied Materials (AMAT) and Lam Research (LRCX) have forecast wafer fab equipment (WFE) spend will grow by a mid-30s percentage this year and see additional growth next year, as chip equipment makers scramble to add capacity for both leading-edge and mature/specialty process nodes.
There are one or two soft spots -- for example, PC DRAM demand has softened amid cooling demand for low-end consumer notebooks and supply constraints for non-memory PC components. But by and large, the good times are expected to continue for the chip industry at least for another 12 months or so.
3) Secular Trends Continue Driving Strong Growth for Software, Internet Advertising and Payments Companies
While some of the valuations afforded to high-growth software firms make me uneasy, there's no denying that business trends are as good as ever for the group. Companies such as Atlassian (TEAM) , Datadog (DDOG) , Shopify (SHOP) and Monday.com (MNDY) all soundly beat estimates and (in the event that they guided) issued upbeat guidance.
The story was largely similar for online payments firms such as PayPal (PYPL) , Square (SQ) and Adyen. While PayPal was stung by a faster-than-expected drop-off in eBay revenue, it still reported a 40% annual increase in total payment volume (TPV) and hiked its full-year TPV growth guidance to 33%-35%. And thanks to both strong demand and favorable comps, Square reported its gross payment volume (GPV) rose 88% in Q2, while forecasting 45%-plus GPV growth for July.
Likewise, though some consumer Internet names with large ad businesses are seeing user activity cool, their ad sales generally look as strong as ever. Amazon's "Other" segment revenue, which is dominated by ads, saw revenue grow 87% annually in Q2. Roku reported its Platform (non-hardware) revenue rose 117%, while adding its monetized video ad impressions more than doubled annually.
Underscoring much of this growth: A wide variety of businesses have been rethinking how they operate over the last 18 months. Enterprises have become more eager to move important workloads to the cloud; retailers have become more eager to team with e-commerce software and online payments firms to sell online; brand advertisers have become more eager to shift video ad spending to online channels; and so on and so on.
4) Stock Buybacks Are Picking Up
Between them, Apple (AAPL) , Facebook (FB) , Microsoft (MSFT) and Alphabet (GOOGL) spent $51.3 billion on buybacks in calendar Q2, up from $40.7 billion in calendar Q1. A host of other large-cap tech companies, including Applied Materials, eBay and Netflix, also upped their buyback activity.
While elevated stock prices are a potential deterrent to increasing buybacks, this is being more than offset right now by cash-rich balance sheets, low interest rates and the diminishing of pandemic-related business uncertainty. Also, in the cases of the tech giants, the fact that regulators are closely scrutinizing any large M&A deals they ink might be making them more willing to spend heavily on their own stock.(AAPL, AMZN, FB, GOOGL, MSFT, NVDA and PYPL are holdings in Jim Cramer's Action Alerts PLUS member club . Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now. )
