Amazon, Apple & Intel Q3 2022 – More gloom

Amazon Q3 2022 – Humble pie

• Amazon reported good results, but the traditional holiday season is going to be weaker than expected further reinforcing the view that Amazon has expanded too quickly and too far.
• Q3 2023 revenues / EPS were $127.1bn / $0.28 which was in line with revenue forecasts of $126.8bn but ahead of EPS forecasts of $0.21 but the outlook was weak.
• Q4 2022 revenue / EBIT will be $140bn – $148bn / $0bn – $4bn far behind estimates of $158bn / $5bn.
• AWS was also weaker than expected with growth falling to 28% YoY, especially when compared to Microsoft which is now growing much faster than AWS.
• This is also likely to slow going into Q4 which combined with the strong US dollar and the macro environment means that growth in revenues will slow to mid-single digits.
• Amazon has promised to tighten its belt which is probably what has saved it from receiving the kind of punishment that Meta has taken.
• The company is now on 1.9x EV / Revenues which is getting into reasonable territory if only it would reliably make some money.
• Once again, these hopes have been dashed by overexpansion and so I still can’t make an argument as to why anyone would want to buy the shares here.

Apple FQ4 2022 – The exception

• Apple reported reasonable results and escaped the evisceration metered out to many of its peers, but the outlook remains difficult and the valuation uncompelling.
• FQ4 2022 revenues / EPS were $90.2bn / $1.29 just ahead of forecasts of $88.8bn / $1.27 a pretty good performance given how strong the US dollar has been.
• The dollar will continue to cause Apple problems but less than anyone else as its pricing power has meant that it has been able to pass some of the impact onto customers who buy its products in other currencies.
• Even with that, the US dollar still reduced reported revenues by almost 10% or $12bn which is set to continue into FQ1.
• Here, revenue is expected to slow considerably but should still be positive YoY.
• With slow growth for the next fiscal year, the valuation is still not exciting (2023 PER 22.0x) but this could once again become a place where investors seek refuge in the technology sector.
• Apple is the only large technology company to have outperformed the S&P500 so far this year and in that regard, it may see further support.
• Personally, I would prefer to hide in precious metals which have also handsomely outperformed the S&P500 this year and which I think offer much more upside than Apple does.

Intel Q3 2022 – Bottom in?

• Intel reported bad results but its promise to cut costs and the successful float of its Mobileye subsidiary helped the shares to rally in after-hours trading.
• Q3 2022 revenues / EPS were $15.3bn (down 20% YoY) / $0.59 in line with revenue forecasts 0f $15.3bn and ahead of EPS forecasts of $0.33.
• This is not unexpected as weakness in the PC market has been well-known for some months.
• However, there are now signs of slower growth in the cloud which combined with the economic issues in China make the outlook for data centre somewhat uncertain going into 2023.
• Intel remains locked into its promise of achieving 5 nodes in 4 years, which the rest of the industry is viewing with great incredulity.
• This should bring it back to industry leadership by 2025 where it aims to deliver $3bn of savings in the short term and $8bn – $10bn by the end of 2025.
• The short-term savings will 66% come from OPEX reductions but in the long-term, the real savings will come from improved operations delivering higher gross margins.
• Q4 2022 revenues will be $14bn – $15bn with gross margins at 45% and EPS at $0.20.
• This was significantly below forecasts of $16.3bn in revenues and $0.66 in EPS but crucially, the market did not care sending the shares up 5% in after-hours trading.
• This leads one to ask whether Intel has found a bottom. but given how the financial performance has unravelled, it is hard to make the valuation argument yet.
• Intel is on a 2022 PER of 14.0x which will probably be higher in 2023 as EPS could well be lower next year.
• This does not put Intel into deep value territory especially as the risks that exist in both the turnaround of the company and the potential obsolescence of the x86 processor remain profound.
• I find myself still on the sidelines on this one.