Judging by the price action this week, you’d think third-quarter tech earnings have been awful. After all, the tech-heavy Nasdaq plunged into correction territory just a few days ago, after Alphabet (GOOGL) and Microsoft (MSFT) reported earnings.
But this week’s tech earnings weren’t awful.
I rarely say the market is wrong. That’s because I largely subscribe to the efficient market hypothesis, which posits that stocks always trade at their fair value on exchanges. However, the market has been dead wrong in its response to this week’s tech earnings. And that is creating a uniquely compelling buying opportunity.
Breaking Down Q3 Tech Earnings
Six major tech firms reported earnings this week. Over the past few days, Alphabet and Microsoft joined Meta (META), Amazon (AMZN), ServiceNow (NOW), and Intel (INTC) in reporting quarterly numbers.
The market’s reaction was mixed. Some stocks, like MSFT, rallied. Others, like GOOGL, plunged.
But, frankly, all of those stocks should have rallied. In fact, the entire market should have rallied.
Across the board, there was one very clear theme in this week’s earnings: Things are getting better.
More specifically, the core businesses at each of these tech firms slowed throughout 2022 and into 2023. Now, though, all are regaining momentum.
Alphabet (GOOGL)
Alphabet is best-known for its advertising business. And this quarter, for the first time since mid-2022, that business returned to double-digit revenue growth. Furthermore, that continues a multi-quarter uptrend in Alphabet’s advertising growth rates.
Alphabet’s ad business is back.
Meta (META)
Like Alphabet, Meta is all about ads. The vast majority of its revenues are generated from selling ad space on Facebook, Instagram, and its other platforms.
And recently, Meta’s ad business has fallen on dark times. It used to regularly grow more than 20% every quarter. But it hasn’t had a 20%-plus growth quarter since late 2021…
Until this past quarter – Meta’s ad revenues rose nearly 25% year-over-year.
Meta’s ad business is back.
Microsoft (MSFT)
Microsoft, meanwhile, is best-known for its cloud business. That business consistently slowed from late 2021 through mid-2022.
But this quarter, Microsoft’s cloud business experienced accelerating revenue growth for the first time in almost two years.
Microsoft’s cloud business is back.
Amazon (AMZN)
Amazon is also known for its cloud business, as well as its e-commerce business.
And just like Microsoft’s cloud business, Amazon’s has experienced slowing growth for several quarters. But this quarter, revenues finally stabilized for the first time since late 2021.
Meanwhile, its e-commerce business continues to rebound from its post-COVID growth slump. This past quarter, Amazon’s e-commerce revenues rose by more than 8%. That’s its strongest growth rate since the middle of 2021.
Amazon’s cloud and e-commerce businesses are back.
The Final Word on Tech Earnings
Over at ServiceNow, the company’s most important business metric is remaining performance obligations. Those rose by 26% in Q3 – the strongest growth rate since early 2022.
And at Intel, management is calling for positive revenue growth in Q4 for the first time since late 2021.
Across the board, the theme is clear. Business is back.
So, while I don’t like to argue with Mr. Market, I’ll take the counter here.
This week’s tech earnings were good. Stocks should’ve rallied. But instead, they crashed. This disconnect creates an opportunity. And we think you should capitalize on it.
