It doesn't matter what the technology may be. It matters who uses it, who is the customer.
We are learning that this quarter -- and it's pretty jarring, because typically what we care about is how winning a technology is. If it's helpful, it increases speed and accuracy and power, and it will be successful. If it's clunky and a big waste, it's dead on arrival.
Not these days, though. That's because a dichotomy exists among customers that's unusual, astounding, and integral to successful stock picking.
The stock of Roku has been a horse, just an amazing runner, up an astronomical 387%. Why? It's a company that offers streaming audio and video wireless devices. Every time you hear of a new video package, a bundle, a streaming entertainment channel, you need to think of Roku, because it's the easiest way to be connected.
So when Disney (DIS) launches the most successful streaming service in history, who do you go to? Roku. If you go to Roku site, your welcome page is "Stream Disney+ on your Roku device." That's become the de facto way to play all of these streaming services, a classic arms dealer for the consumer to get every channel she wants. When you think of it that way, even as the stock has more than tripled, you could still make a case that $17 billion is too little a market cap for that.
Now let's go to the other extreme: Cisco. Here's a company that sells networking equipment to gigantic enterprises. You don't hire Cisco to install Sonos in your home. You hire the company for your far-flung enterprise on the Web and guard it with the best security.
Cisco reported Wednesday night, and it offered a downbeat view of the world, so downbeat that it clobbered its own stock. Listen to what the straight-shooting chief executive, Chuck Robbins, had to say about the world:
"Over the last year, many of you have heard me talk about the resilience of the global macro environment. However, on our last earnings call ... we indicated that we had begun to see some weakness, and that weakness continued throughout Q1 and was more broad-based. While the main challenges continue to be the service provider and emerging markets, this quarter we also saw relative weakness in enterprise and commercial."
Hmm, that's pretty much everything.
Total production orders were actually down 4%, divvied up everywhere. The Americas as well as Europe, Middle East and Africa were down 3%. Asia Pacific, China and Japan were off 5%. Emerging markets were down 13%. Those are staggering numbers. No wonder the stock dropped almost 10%.
How about semiconductors? Advanced Micro Devices (AMD) -- the company with about the highest percentage of chips used for consumer-oriented products -- is seeing its stock soar here. Relentlessly. You know we have been big fans of Lisa Su, the CEO. When that last quarter was reported, the stock started trading in the low $30s. I knew the company has a very red hot personal computer and gaming business, besides a very robust corporate data center line. That's how it can scream higher.
But Texas Instruments (TXN) has a business heavily skewed to the enterprise, especially the Internet of Things. It's not going to outperform on a day like today; too much industry.
For the longest time we liked companies that sold into rapacious big business, believing that they couldn't do without the internet if they are to stay competitive. This was the quarter those illusions ended. Whether it be Brexit, weakness in China or a worldwide decline in business, you need to know that the stocks of the companies in your portfolio might end up being punching bags.
The toughest ones may be in no man's land. When I think of a halting or pause in worldwide growth, and wonder how Nvidia (NVDA) is really doing, as it has a lot of enterprise, but is largely gaming, but maybe not enough.
The whole space can be fraught. Next week is Deamforce, the extravaganza that showcases all sorts of ways to use software as a service, cloud-based aids to do more business via treating the customer right. Big companies use Salesforce.com (CRM) to improve service and build trust with the customer. Maybe it's who you hire when you see a worldwide slowdown? Same with ServiceNow (NOW) , Adobe (ADBE) and Workday (WDAY) . These actually save your enterprise money through digitization. To me that means you can buy Salesforce, although it is running right into unique convention.
Then you have the hybrids: HP (HPQ) under assault by Carl Icahn to merge with Xerox (XRX) . You may have bought an HP computer as I have, but it has gigantic corporate orders. Given that those orders can be cut back as they have with Cisco, if it weren't for the takeover talk I think this stock would be dramatically lower. Micron Technology's (MU) a bit of a hybrid, too. CEO Sanjay Mehrotra said a lot of good things about the need for storage in consumer products. These are backbone chips for all sorts of devices. Some end up with the consumer making the stock fetching. But the large company orders? They could be smothered in the same way that Chuck Robbins talked about the halting portion of his business at Cisco.
Finally, you have Apple (AAPL) , which, even as it has some enterprise work, is literally the classic consumer product in a market where the consumer's buying, at least in this country and China -- yep, think of that huge Singles Day number. I know that it seems a little counter-intuitive that the largest company -- with a stock up 66% -- is a tech company that's not trading in sync with the stocks of so many enterprise-oriented companies. But this is strictly a "know your customer" market.
What would make things reverse? What would restore growth to Cisco? We asked CEO Robbins that question and it's pretty clear that a trade deal resolution could improve things. The completion of Brexit would mean great things for Europe, too. Until then, however, the stock of Cisco and its colleagues could be stuck in neutral or have a few more down days or even weeks, as long as the trade talks seem illusory. It may take too long to matter.