D.A. Davidson managing director Gil Luria joins Morning Brief to discuss some of the biggest trends dominating the tech sector as second quarter earnings season kicks off.
Luria points to Microsoft’s (MSFT) AI efforts driving a PC upgrade cycle. He explains, “the impact is so broad right now in the implementation of more AI and generative AI, including in the PC category… AI PCs have been for sale. They’ll probably be part of a cycle as well. It may not be as pronounced as the iPhone cycle, but considering PC sales have been in a hangover the last couple of years, they’ve started showing signs of growth.”
He believes that the outperformance of tech stocks boils down to the fact that tech companies have “grown earnings when others have not.” He also attributes the growth to diversification, explaining, “they present less risk because their businesses are so entrenched and diversified.” He highlights Amazon (AMZN) as an example, and expects it to be well-positioned ahead of its earnings. He argues, “AWS is the biggest hyperscaler, and it’s done a lot to catch up to Azure in terms of AI capabilities. And yet Amazon is getting very little credit in terms of multiple. It’s trading at at average multiple compared to its historical rates. And so we think that’s where when they get more credit that stock will outperform.”
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This post was written by Melanie Riehl
Video Transcript
Are there other strides that you’re seeing other consumer tech companies make within the same region where, where Apple is starting to see its efforts really ramp up?
So on Microsoft side, the impact is so broad right now in the implementation of More A I and generative A I, including in the PC category.
So the a IP CS will be another place where we start using a I capabilities more generative.
A. I capabilities more a IP CS have been for sale, and they’ll probably be part of a cycle as well.
It may not be as pronounced as the iPhone cycle, but considering PC, C have have been in a in a hangover.
The last couple of years they’ve started showing signs of growth, and that’s a category adjacent to the apple right.
The Mac is gonna have a I capabilities as well, and that could drive more sales there.
So let’s not forget that that’s another category that Apple could benefit from, but Microsoft will as well.
But for Microsoft, the benefits of A I are really across the business, starting with azure into the office products, et cetera.
G. Most of the mag seven companies are are within your coverage when investors hear about a broadening out or people perhaps reducing or trimming some of their positions, taking profits where necessary in some of these names and then either sitting on cash, waiting to deploy or reallocating to other sectors.
What does that hold for these companies that had been part of the famed Mag seven?
And and should they be weary when they hear about that broadening?
Uh, we’ll see the the biggest cap, uh, technology companies have outperformed because their fundamentals have outperformed.
They’ve grown earnings when others have not.
That’s why there’s that’s most of the reason their stocks have done better.
It’s also the fact that they present less risk because their businesses are so entrenched and diversified that would have to change.
We would have to see the, uh, the 4 92 4 94.
Whatever other companies you want to consider actually have earnings growth.
They haven’t had earnings growth for a while.
If they actually have accelerating earnings growth outside of these mega caps, we may see a convergence of, uh of, uh, stock performance.
That just hasn’t been the case so far.
It it is these biggest companies that have had the highest growth rates in revenue and profitability.
They’ve contributed most of the growth to the S and P 500 earnings.
And until that changes the there’s, uh, we we may not see a convergence and Gil real quick before we let you go.
I if you had to pick one of the big tech names, that’s best positioned tier ahead of this earnings season.
Who do you have?
Amazon, Microsoft and Apple are now getting a lot of credit for what we just talked about.
They’re seen as a I winners, and their stocks are reflecting that by trading at the high end of historical multiple ranges.
We actually think Amazon at the end of the day may have more a I business than any of these other companies.
AWS is the biggest hyper scalar, and it’s done a lot to catch up to Azure in terms of a I capabilities.
And yet Amazon is getting very little credit in terms of multiple.
It’s trading at at average, multiple compared to its historical rates, and so we think that’s where when they get more credit, that stock will outperform.
All right, Gloria D, a Davidson, is the managing director.
Thanks as always for hopping on with us.
Thank you
