Hey all, here's a recent post from my new substack recapping TMT news flow for the week.
What happened this week in TMT:
Lots of interesting news and movers in TMT this week. Overall, very good week for Tech with QQQs up 4% and ARKK up 6.5%. We saw some weakness in large-cap tech on Friday as growthier names played catch up and now ARKK YTD (up 40%) barely trades QQQ YTD (up 42%).
$DELL absolutely crushed earnings – stock opened up 7% on Friday and finished up 21% with its biggest move in over a decade as stock is being re-rated for several reasons, including being an AI play. MS laid out clearly in their note: “With signs of hardware spend stabilizing, AI server emerging as a driver of revenue/profit upside, stepped-up capital return commitments and S&P inclusion still ahead of us, and solid execution/cost mgmt driving profitability upside, we are moving DELL to our Top IT Hardware Pick, with new $70 price target.” This is another data point that confirms PC market rebound many have been harping on about. $DELL called out faster than expected demand improvement driven by US and EMEA. MS saying their checks showing 15-25k AI servers being built in 23+24 (or $5B), means street estimates at $2B of server revenue in FY25 look way too low. We are looking at potentially $7+ earnings power in CY24 and $8+ in CY25. With top line and eps inflecting positive this year, we think 10x is too low. Their AI server story + PC refresh are two very powerful narratives that should continue to drive a re-rating higher (despite it trading at higher end of its range), especially with $DELL being one of the few companies already showing meaningful signs of positive benefit from AI. Right tail optionality from AI at the edge driving PC refresh cycle down the line. Laterals: $HPE, $IBM, $HPQ, $INTC, $AMD
Media names were demolished on Friday as $CHTR and $DIS continue their fight – $WBD down 12%, $PARA down 10%, $FOX down 6%. Key quote from CHTR presentation: “We have already reached the point of economic indifference with the current model…We are at a crossroads that requires us to either: Create a new path to a new economic and distribution model, or largely exit the traditional video business.”
Software back in vogue… Strong week in software as we had good reports from $NTNX, $ESTC, $S, $MDB, $VEEV, $OKTA, $CRWD and $CRM. Reading through the transcripts, it seems software spend is on the mend heading into the 2H of the year – we should hear more datapts this week from the companies at Citi and GS TMT conferences.
$SHOP/$AMZN….Big move from $SHOP on Thursday as they announced they came to an agreement with $AMZN around Buy with Prime – this had been an overhang on the stock and not only was it lifted but the new agreement provided new incremental positives for $SHOP particularly merchants can still use $SHOP payments. The integration allows $SHOP merchants to offer Buy with Prime on $SHOP stores, simplyfying the merchants' experience, automatically synching orders, promotions, etc. Prime members get the benefit of access to fast delivery and free returns through $AMZN. MS think every 10% penetration of SHOP US GMV will add 1% to '25 $AMZN EBIT and thinks this integration is one step of a large ideas $AMZN has: “Stepping back, AMZN's efforts to extend its logistics network into non-$AMZN volumes and monetize incremental purchasing behavior will only further its ability to improve its logistics offerings and drive incremental throughput efficiencies. Additionally, further share capture of non-$AMZN retail volumes (via Buy with Prime integrations) increases AMZN's access to unique consumer purchase data. We believe both of these factors, (unique physical infrastructure and consumer data) will be key in building capabilities like a next-gen personal shopping assistant”…for $SHOP: The standard Shopify partner agreement charges partners 15% of revenue >$1 million, but we believe Amazon was likely able to negotiate this down to ~5-10% as a concession for allowing Shopify to retain control of Checkout/Payments. Assuming a Shopify app store fee in the range of 5-10% on Buy With Prime revenues and 10% penetration of Shopify 2025 US order volumes, we assume this could add ~$150-300 million (1-3%) to FY25 Shopify revenue (high margin, largely pass-through economics.”
$INTC had a strong week and chart looks like it wants to breakout on the back of CEO talking up early FAB customers + $DELL comments on PC refresh. MS also put out some positive pricing commentary on $WDC for NAND and Mizuho called out more Samsung DRAM cuts benefitting $MU. These are the better names in Semis, while AI-exposed stuff is taking a breather after $AVGO's inline-ish report while analogs doing the worst out of the bunch on recent commentary from $ADI and $MCHP. If PC names going up, maybe we get another leg higher for $AMD, which should also benefit if AI Semi names reverse this last week's lagging. Other laterals: $LOGI, $CDW
China internet had a nice bounce lead by $PDD. If $PDD isn't on your radar, get it on there…Temu(which $PDD owns) is getting more interest from investors and Bernstein wrote a good note detailing the rise of Temu's market share and increasing traction into the U.S. :”Our two most important takeaways from recent channel checks include (1) very high user retention and repeat purchase rates on Temu — higher than Shein, and within touching distance of Amazon; (2) the realisation that Temu has more or less achieved variable breakeven among US repeat buyers, after the first handful of orders….Google Trends data pointed to Temu recently overtaking Etsy in terms of public awareness, and approaching Shein levels… Compared with average order value of US$35 across the platform, and lower outside the US, industry contacts we spoke with pointed to AOV north of US$40 among repeat shoppers…, we show the implied multiple on PDD's domestic business assuming Temu is valued between zero (the bull case among onshore believers) and negative US$20bn. This range implies 13-15x domestic PE in 2023E, but just 11-12x 2024E on our above-consensus estimate..”
I personally liked $TSLA's Model 3 refresh and am just amazed how low Model S, Model 3, and Model X prices have gotten. Hard to deny TSLA is the best value in the car market right now across the board. You can get a car that goes 0-60 in 2s for $86K w 400mile range (Model S Plaid)! I still love the sound of a straight 6, but as an overall car lover, I love it! If this new new model 3 refresh + price cuts + if Elon gets AI self-driving right, then I think the narrative strongly favors the bulls.
What TMT Investors are focused on this upcoming week:
Main thing everyone will be paying attention to is the Citi and GS TMT conferences. Remember that if you don't have a bloomberg or relationship with Citi/GS, the streaming link for mostof these can be found on the company's IR pages.
From GS: “Broadly, we expect investors to be focused on three key themes into and out of the conference: 1) consumer/enterprise end demand trends given the current shifting macroeconomic environment; 2) resource allocation (opex/capex) against key growth initiatives for 2024 and beyond as a balance of growth and margin expansion is achieved into the next fiscal year; and 3) how shifting/changing compute platforms might impact business models over the short to long term (AI, mature mobile computing trends, automation of labor, robotoaxis, metaverse/augmented reality etc.)…As an output of those debates (& how companies might frame the narratives heading into 2H 2023 & FY 24), we still find that many investors now have a much more mixed view of recession probabilities (especially when compared with a year ago) but that most investors (based on our conversations in the past 4-6 weeks) still remain much more defensive than offensive in nature with respect to the industry (even despite some of the rising medium/long term narratives around AI as a leading force for computing shifts in the coming years).”
Here are the schedules:
GS Internet:
Citi:
Earnings calendar next week:
* Tue (9/5): Post: ASAN, GTLB, ZS;
* Wed (9/6): Post: AI, BASE, CXM, PATH, VRNT, YEXT;
* Thur (9/7): Pre: SCWX; Post: BRZE, DOCU, GWRE, SMTC, SMAR;
Feedback always welcome…Good luck trading out there!
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