Investors’ fear of big technology firms losing their earnings momentum after a powerful run during the pandemic is proving wrong as some of the biggest players exceed expectations.
Investors mostly shunned the mega-tech stocks during the past three months, moving their funds to cyclicals and small caps, hoping these companies will benefit more from the reopening of the economy after taking a devastating blow by the lockdowns.
But tech stocks suddenly look more desirable after the earning beats from at least three mega-caps during the past week. Below, we summarize the recent quarterly results of three big tech giants to show that there are possibly more gains ahead in their stock prices.
1. Microsoft
In its latest quarterly report Microsoft (NASDAQ:MSFT) showed its sales rose 17%, beating analysts’ estimates, as the giant benefits from robust demand for its cloud-computing services and software tools that support at-home workers.
Revenue in the period ended Dec. 31 rose to $43.1 billion, marking Microsoft’s fourteenth straight quarter of double-digit revenue growth. The expansion in sales has been fuelled by the company’s Azure cloud-computing division, which saw its revenues jump by 50%.
The Washington-based software behemoth has been a net beneficiary during the pandemic, as many workers were forced to stay at home and connect through devices and services that the company sells.
At the same time, Microsoft’s corporate clients have accelerated a shift to the cloud, where they can store data and run applications via the internet, and teleconferencing becomes the norm. While the company's new businesses thrive, its legacy products also show resilience. Personal-computer sales surged in the quarter, boosting the company’s flagship Windows operating-system, while gaming revenue topped $5 billion for the first time in a single quarter.
The company’s forecast for each of its three business units for the March quarter also exceeded analysts’ projections, suggesting that 2021 might be another bumper year for the tech giant, whose stock has surged 41% during the past year.
2. Netflix
The biggest surprise in the ongoing earnings season came from the video-streaming giant, Netflix (NASDAQ:NFLX), which despite the fierce competition, proved its skeptics wrong again. It blew past 200 million subscribers and said it would no longer need to borrow money. The company now generates enough cash to pay for all its TV shows and movies without taking on more debt.
Netflix’s spectacular subscriber growth came even when customers had many new streaming services available, including Walt Disney's (NYSE:DIS) Disney+, Apple's (NASDAQ:AAPL) Apple TV+, and AT&T's (NYSE:T) HBO Max. These companies are trying to capture some market share from Netflix, which had a first-mover advantage.
Some analysts believe it will be hard to challenge Netflix and its appeal in a market of mostly mediocre offerings. The company’s most feared competitors, like Walt Disney and AT&T, are struggling as their financial positions come under severe pressure due to the pandemic.
While COVID-19 continues to wreak havoc on movie and television productions, Netflix currently has more than 500 titles in post production or ready to launch on the platform, the company said. Last week, it unveiled a movie slate that will see a new release on the platform every week of 2021, according to the Wall Street Journal. Netflix shares are up 4% this year, after surging 66% last year.
3. AMD
Advanced Micro Devices (NASDAQ:AMD) again proved that it’s well on track to capture more market share while its biggest rival, Intel Corporation (NASDAQ:INTC), struggles to overcome its production challenges.
AMD reported fourth-quarter net income of $1.78 billion, or $1.45 a share, compared with $170 million, or $0.15, in the same period a year earlier. Revenue rose 53% to $3.2 billion. With strong sales numbers for the previous quarter, the California-based chip-maker also gave an upbeat forecast.
First-quarter revenue will be about $3.2 billion, plus or minus $100 million. That compares with an average analyst estimate of $2.73 billion. For 2021, the company projected a sales increase of 37%, well ahead of Wall Street expectations.
AMD struggled for years to survive in a market captured by Intel, the world’s largest chip-maker. What made AMD a power brand is the company’s strategy to outsource its production and bring the newer and fastest chips to market earlier than Intel. That has spurred early market share gains and a surge in AMD shares in recent years. AMD stock has soared about 90% during the past year, while Intel has plunged 20% during the same period.