Company Interview / The good, the bad, the ugly from Big Tech's earnings

Key points:

Billy Leung emphasises that market behaviours are marked by a heightened focus on company-specific details rather than a rejection of innovative tech themesHe tips Amazon (NASDAQ: AMZN) to possibly outperform in upcoming earnings, and negates claims of tech's poor performance by alluding to larger trends of positive share price movements post-result reporting in the S&P 500Leung ends by affirming Global X ETFs' future interest in the semiconductor space, driving AI value chain, and underscored the cyclical nature of AI development

Billy Leung from Global X ETFs shares his insights on the recent tech earnings roundup, drawing attention to the augmented scrutiny of company details by investors. He notes that despite minor missteps, like Microsoft (NASDAQ: MSFT) slightly falling short on cloud and Google's slight YouTube ad revenue miss, these tech giants have returned positive outlooks. Billy further clarifies the current trending towards scrutinising individual company performances rather than a discontinuation of interest in innovative tech themes.

Discussing future earnings calls, Billy highlights Amazon as a potential key performer to look out for, due to its dominant market positioning, AI and cloud relevance, and multi-pronged beneficial metrics including revenue acceleration, margin improvement, AI theme, and improving shareholder return. He also dispels widespread notions of tech underperformance now, indicating that if a broader perspective is adopted, a significant portion of the S&P 500 companies have returned positive reactions in share prices after reporting results.

Finally, turning his focus to the future, Billy affirms a continued positive outlook for risk assets at Global X ETFs. He shares that the current interest lies in the semiconductor space, supporting the AI value chain, further validating it with the growing interest in the global semiconductor ETF. He concludes by emphasising the cyclical nature of AI development, requiring better chips for AI adoption which in turn drives improved data centre and cloud infrastructure.

Full unedited transcript below:

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Microsoft was a big win overnight and we saw mega caps getting hammered in after our trade in the United States was still some of the big tech companies in the US to report. So with that in mind, let's get an update on the reporting season scorecard. Not for here, but in the US. Quarterlies Billy Liang from global ETFs joins me now. Hey Billy. Welcome. Thank you. Nice to see you. Okay. So we can start with big tech shall we Microsoft I read some analysis saying the initial reaction was disappointment because of the question marks over AI, but that the market might warm up by tomorrow just because of some of the detail in the conference call. You're right. I think, you know, we have to take a step back and look at what's really started, this so-called tech stealth. Right. And I think it was the Google earnings that you just mentioned as well. And if you look at what the Google earnings was, it was actually quite good. You know, they made a lot of expectations, but it was just sort of one miss. It was the YouTube ad revenue missed and that was only about 10% of their revenue

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anyways. And the company actually provided a good outlook. So what I'm trying to say here is that this is not so much a disruption to this whole, I guess, the AI theme on an innovative theme. This is more about market positioning and how this is more like a more crowded trade. And I think people are reassessing this. Well, exactly. Because if you're, you know, heavily weighted to these US mega caps, they've run so hard you would be looking for any, any reason to take some profit. Exactly, exactly. So first and foremost, I don't think there's any deterrence from this I theme or I trade. We still seeing very strong advancements in computer chips, still seeing a lot of demand from data centers. And we're still seeing adoption of the AI usage as well. But what we are seeing is that investors are scrutinizing more of these company details. So going back to your Microsoft question, it's the Microsoft earnings again was very good. Um, the revenue was uh was was a was in line. Their earnings were in line as well. And you know, the outlook was also positive, but they just missed on one thing, which is the cloud. Azure cloud. Um,

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people were expecting 31 to 32% growth and then missed it by about 1 to 2%. And that caused, as you mentioned, the initial reaction of about 7% Downtick. But it actually gradually went up during the whole analyst call and the management call because management reassured that this is more a short term thing. That meant there was some risk, there were some currency differences, but the second half, they are still going to see a real acceleration in the Azure cloud. So are you expecting to see similar sort of knee jerk reaction when it comes to some of the other big tech that's still to come, like Apple, like meta. That's a good question. So yes, we are still expecting Apple results, metal results and also Amazon results and all of these three. I think Amazon is probably the key one we have to look at considering its dominance in this field and also its AI and also cloud relevance and cross rating. Looking into this name, I think it's a much more clear winner compared to the other two names we just mentioned, mainly because for Amazon we are seeing strong retail numbers in the US. We saw really strong Prime Day numbers from Amazon as

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well. And their cloud is AWS is also going through a re acceleration phase. So in terms of looking at the investment case of Amazon revenue acceleration margin improvement, we've got the AI theme. And we've also got shareholder return improving in terms of dividends and also share buybacks. So this one is probably one that I'm more excited about and potentially could repair the damage that Google and Microsoft has done. Okay. Interesting. So can we just zoom out a little bit more. So how we always do this, you know, how does this quarter compared to last quarter generally speaking how are we faring this far in. Yeah, this is an excellent question because whenever I talk to your investors and they're all looking at the big headlines saying tech hasn't done well. But if you take a step back and looked at the whole S&P 500, we've had about 260 reported so far. And if you look on average, they've reported better sales by about 80 Bips by about 80 Bips. And if you look at the earnings results, they've beaten earnings by about 4.3% on average. So we're not missing estimates on a

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whole. We're actually still beating analyst expectations. And the more I guess more relevant is the outcome of the share price movement. If you look at the companies that have actually reported in the S&P 500, about 47% of them has actually had a positive reaction in terms of the share price post results. So, yes, like you said, taking a step back, it's actually not that bad. And we might just be clouded with all this big tech headlines. But there's other complexities as well, isn't there? Because it is interest rates. It is whether or not we'll see an interest rate cut July or September. In the United States. It's geopolitics. It's US politics. It's volatility rearing its ugly head. So well not really because you get opportunities out of the volatility. So um, it just feels I think that investors are perhaps after the huge run and we know that the breadth was a real problem to start the year, that maybe investors are a little fatigued. Yes. You're correct. I think this result season it's been I wouldn't say double whammy or triple whammy. We've

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been colliding with several things. And like you mentioned, we've been colliding the results season have been colliding with a very significant FOMC meeting, which we are going to see likely holding rates, but more of a language of what we can expect in the September meeting. Um, number two is we're also seeing probably a premature election trade, which is also impacting a lot of currencies and a lot of this rotation as well. Number three is the BOJ. The Bank of Japan is also impacting the yen carry trade which is a relevant for the risky assets. And finally this is really interesting. And I don't think a lot of the people looking at this is going into the third quarter. This is when analysts actually roll for their valuations to next year. So they no longer use the 2024 estimates, but use the 2025 estimates they're also using. They're also introducing 2028 valuation and estimate as well. So all this together combine creates that variance in the outcome of the results, which doesn't really give limelight to what the actual result of fundamentals are saying. It's more

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of a combined risk like you said. Yes, sir. You guys at global X just fairly optimistic. Still on risk assets. Well what is a risk asset. But a lot of thematics I think very still intact. For example like I mentioned the whole AI theme is still very much ongoing. There's still demand and we are still seeing strong numbers that are supporting that. But we have to understand that in terms of thematic, it's not linear. You know, we don't go from computing chips to data centers to people adopting AI. It's more of a circular motion where the people using AI would require better chips, and the better chips would provide better data center and cloud infrastructure. So having said that, I think, you know, at this moment we are more positive on the semiconductor space, which is why we're getting a lot of interest in the global semiconductor ETF. And this ETF has about 30 of the global biggest semiconductor names. And this is where a lot of the growth and support to the whole AI value chain is coming from right now.