Good Signs for Tech
It’s incredible that a 7% increase year-over-year in revenue means an extra $5 billion in just one quarter.
That’s what happens when a company is a behemoth, and the company I am talking about is Alphabet, or better known as Google (GOOGL).
Some of these tech companies are so large that growth rates don’t mean much unless they are negative.
Whether it is 3% or 6%, the nominal amount of revenue increase is gargantuan.
The law of large numbers is certainly valid in these situations so don’t expect multi-trillion dollar tech firms to grow 30% or 40% like they used to.
As I correctly predicted, Google and similar companies are doing just fine this earnings season, and I believe they could have gotten away with even 3% growth.
The 7% growth translated into a 7% bump in GOOGL shares this morning showing that investors care more about the additional $5 billion in revenue rather than the low growth rate.
For the fourth straight quarter, Google reported growth in the single digits as it reckons with a pullback in digital ad spending that reflects concerns about the economy.
Across the industry, investors will be looking for updates on cost-cutting measures implemented earlier in the year and the impact of artificial intelligence investments on profitability.
Revenue in Google’s cloud unit, which includes infrastructure and productivity apps, increased 28%.
Google’s ad revenue rose 3.3% to $58.14 billion, up from $56.29 billion last year. YouTube ads came in above analyst expectations at $7.67 billion marginally up from $7.34 billion the year before.
Google’s “search and other” revenue rose to $42.63 billion, up slightly from last year.
The only “growth” part of the business has been the cloud and even that is starting to taper off.
Up until recently, they were expanding that business around 35% year-over-year and now they are down to 28%. In a few years, they will be down to the teens.
Google is slowing down but that doesn’t mean they aren’t profitable.
The cash cow of the ad business keeps churning out the revenue and Microsoft hasn’t turned out to be the threat to Google search that investors first thought when ChatGPT came out.
Investors reacting to 7% growth by pouring money into the stock are a good omen for the rest of big tech.
It means that these other companies, like Apple, only need to marginally outperform to get rocket fuel in their stock and I will take that for all its worth.
Any worst-case scenario will not come to fruition.
Any tech analyst who is bearish this year can be described in one way – unemployed.
The fake narrative of an “earnings recession” and higher interest rates hasn’t even put a dent in the strength of tech.
It’s like throwing pebbles at the Titanic.
Even scarier for the bears, this was supposed to finally be the entry point when a dip could present itself so the bears could get into tech to try and salvage a terrible year.
Well, now, they need to chase another 7% because Google’s ship has sailed and I have conviction that Apple will jump over the low bar for its shares to have a similar effect.
As for GOOGL, I am a buyer on the next mini-dip.
