Tech Newsround – Report week

Semis should fare the best this week.

• Most of the big tech names will report their results over the next four days and while I expect most to have had a good Q4, China’s Zero Covid policy may well have continued to constrain the economy meaning another tough quarter for Chinese companies.
• Alphabet (Google) reports on Tuesday with Meta, Qualcomm, Sony & Alibaba on Wednesday and Nokia, Amazon & Snap on Thursday.
• This represents a reasonable spread across the technology spectrum, and I suspect that it will be Qualcomm that reports the strongest numbers and is the most optimistic on its 12-month outlook.
• This is because the component shortage means that semiconductor companies can sell everything that they make and suffer no real pricing pressure.
• This should lead to rising margins which is why I have found Intel’s short-term performance to be quite disappointing (see here).
• Alphabet and Meta are likely to grab most of the headlines this week in spite of the fact that I am not expecting much in the way of excitement.
• Instead, one should look at how Meta’s new segment, Reality Labs, is faring because this will give a first indication of the progress that Meta is making with its strategy to dominate the Metaverse.
• In the short-term, this is all about gaming and will be dominated by hardware sales as I suspect that Meta has sold well over 1m units in Q4 2021 and maybe on course to sell over 10m Quest 2s during 2022.
• While this is a tiny rounding error in terms of smartphone shipments and usage, it is by far the leader in VR products giving Meta an early head start in the race to the Metaverse.
• One should also keep an eye on Snap which guided badly for Q4 2021 back in October 2021 as Apple’s privacy changes made it hard for advertisers to see how well their advertisements were performing.
• This made them less valuable, but Snap has been trying to figure out a workaround and the outlook for Q1 and 2022 may depend on how well it has managed to mitigate this problem.
• The big tech sector has sold off pretty hard in 2022 given that many of its names trade on high multiples which has left them open to big corrections when the sentiment towards growth sours.
• Many of these companies still do not look cheap or defensive but Nokia, Qualcomm and Alibaba look the most defensive of all.
• Alibaba is now trading at a tiny fraction of the multiples of Amazon and so I think there will be a good recovery to be had once China accepts that Zero Covid is an impossible dream and allows the economy to reopen fully.
• Until then I think it bumps along the bottom making it pretty defensive should the rotation from growth to value continue.
• I continue to hold both Alibaba and Nokia.