Covid-19’s rapid shift towards digitization has benefited some of the most important tech companies in the world. They still managed to make record amounts of money, despite the ease of the pandemic.
What’s the latest: Yesterday’s “Before the Bell”, focused on Tesla’s (TSLA), a celebration of earning more than $1 million last quarter. Amazon (AMZN), Google parent Alphabet GOOGL, and Microsoft (MSFT), just announced that their combined profit for the same period was $57 billion.
Bespoke Investment Group stated that Apple’s $21.7 Billion hauls were difficult to understand in a note to its clients.
Google, which earned $18.5 billion, continued to be fueled by the massive demand for online advertising as consumers spent more time shopping on their phones and laptops.
Core search advertising revenue at the company grew 69% over the previous year to $50.4 billion. YouTube’s video platform saw an 84% increase in ad revenue to $7 billion.
Apple, meanwhile, trumped Wall Street’s expectations when it reported that iPhone sales jumped 50% year-over-year to $39.6 billion. This is especially important considering that Apple’s June quarter is usually the slowest. A global shortage of computer chip chips also forced Apple to make some adjustments.
Microsoft was for its part bolstered in part by the increasing number of companies that have built out remote work infrastructure. Azure, Microsoft’s cloud company, saw a 51% increase in revenue. Satya Nadella, CEO of Microsoft’s cloud business Azure, stated that the company’s Teams communication platform is “never been more popular” with over 250 million active users monthly.
Wedbush Securities analyst Dan Ives stated in a research paper that 40% of cloud-based workloads are expected to reach 55% by 2022. He said that Microsoft is “firmly positioned” to increase its market share.
Investor insight: These companies’ shares have so soared over the past 18 months that there isn’t much room for error. Apple stock fell more than 1% premarket trading after the company declined to give revenue guidance for the current quarter. This was due to supply chain problems that have impacted the iPhone and iPad.
Alphabet’s shares are doing better than expected, rising nearly 4% in premarket trades. Microsoft shares are about 1% higher.
On the radar: Regulators around the world are putting more pressure on top tech companies. However, so far this has not affected their businesses.
The Fed debate is getting louder
The Federal Reserve will report its latest policy decision on Wednesday. It is expected to say that it will continue to support the US economy through its easy-money policy.
However, this course of action is becoming more controversial.
Peter Boockvar (chief investment officer at Bleakley Advisory Group), told me that they are still running 2020 monetary policies in 2021, even though the economy is very different.
Boockvar highlighted clear signs of inflation. Tuesday’s news that US home prices increased almost 17% in May compared to a year ago was a record. Meanwhile, the Fed continues to prop up the housing market by buying up $40 billion of mortgage bonds each month, part of a broader $120 billion asset purchase program.
Boockvar stated, “They should be announcing the taper.”
Analysts believe the Fed could set the groundwork Wednesday to decide if it wants to step back.
“While we are not sure that the Fed is ready for the start of the tapering, we do expect the committee will announce that those talks are taking place with an official tapering plan coming in next few months,” Lawrence Gillum (fixed-income strategist at LPL Financial) stated in a note to clients.
Boockvar believes that the Fed is moving too slowly.
He said, “Let’s assume the Fed is wrong and inflation is not transitory — then they have a lot to catch up to,”
Counterpoint: Mark Zandi (chief economist at Moody’s Analytics) argued that it is wrong to be upset about today’s high inflation. He said that the “soon abating” inflation will stop. The Fed’s approach to inflation is correct if that’s the case.
Is there a pandemic? The mask sales have fallen
Covid-19’s Delta variant continues to create uncertainty over the course of the pandemic. If mask sales are any indication, people are racing to get rid of the coronavirus.
The latest: When reporting earnings this week, 3M (MMM) said that sales of disposable respirators like N95 masks had fallen and that it would start cutting back output. According to the company, demand reached its peak in the first three months due to stockpiling by hospitals and governments.
CEO Michael Roman stated Tuesday that he was seeing a slowdown in overall health care demand. He also said that he is adjusting production. “We have the capacity to quickly increase production to meet future emergencies or Covid-19-related demands, if necessary.”
Inflation is not expected to decrease at 3M, at least not in this year. According to the company, earnings per share fell by $0.17 last quarter due to price increases.
Monish Patolawala, Chief Financial Officer, stated that this headwind was more severe than expected. He noted that there were broad-based increases in the cost of chemicals, resins, and outsourced manufacturing as the quarter progressed.
3M now predicts a $0.65-$0.80 per share inflation for the full year.