(This interview as been edited for length and clarity.)
Nicholas Colas, co-founder of DataTrek Research
Everybody beat. All the Big Tech companies beat. And by a pretty wide margin. The low end was Microsoft at just over 10%. But we had 20 and 30, and even 40% beats from everybody else. So the base earnings were solid. And that was what the market was telling you, with most of these stocks rallying and going into earnings going through July. In Microsoft’s case, the guidance was a bit fuzzy. What upset investors is that the companies were very honest that they’ve had a great quarter, but they don’t have 100% clarity on what’s happening in calendar Q3.
I think that the selling was really caused by that kind of fuzzy guidance. You’re looking through all of these companies, and it was very clear that all but Microsoft face some unique challenges. Amazon, for example, has just very difficult comparisons to last year, and they don’t really know how consumers will shop in the third quarter. Will they be back to physical stores? Will they be actually shopping less because they’re out and about on vacations, and so forth. And yet Apple, talking about chip shortages, very valid concern that could potentially hurt Mac and iPad sales. So there is just a lot of fuzziness about the third quarter, which we’re just going to have to get through.
We’re personally pretty confident in Q3 for Big Tech. So it’s not a big concern for us. But the other thing, and this is more broadly macro, is there’s a lot of worry that have we hit kind of peak earnings power, peak earnings growth, particularly versus last year, which was obviously a very easy quarter to compare against for most companies. And how does that all play through tech demand? We’ve seen so much demand for tech services for tech products over the last year. Can it keep going again? We think it will. We think back to school is going to be great for the likes of Apple, and holidays will be fine as well. We think companies will advertise on Facebook and Google. And that’ll be all good. But it’s a legitimate concern. We’re coming up against harder and harder comparisons against the very easy ones we had in Q2, and investors are taking a step back.