'Fast Money' traders look ahead to next week's big tech earnings
By CNBC Television
Key Concepts:
- Tariff impact on earnings
- Big Tech earnings (Google, Microsoft)
- Google's underperformance relative to other "Magnificent Seven" stocks
- Ad spend and cloud business performance
- YouTube's potential as a bright spot for Google
- Earnings expectations and market caution
- Fundamentals vs. macro picture
- AI-driven search and Google's response
- CapEx spend and its implications
- Monetization of AI investments
- Margin expansion
- Google's valuation and concerns about its search business
1. Earnings Season Outlook and Tariff Impact:
- The market is positioned as if the tariff impact is less of a headwind than initially anticipated for Q1 earnings.
- This sets the stage for potential caution as earnings season progresses.
- Reads across various sectors, including Big Tech (Google), Coca-Cola, and General Motors, are expected.
2. Google's Potential and Underperformance:
- Google has underperformed compared to other "Magnificent Seven" stocks, specifically Microsoft, over the last three months.
- This underperformance creates a potentially favorable setup for Google.
- Factors supporting Google include easier comps, improved ad spend due to tariff clarity, and a decent cloud business.
- YouTube is highlighted as a potential bright spot for Google.
- Google's valuation is considered attractive, even relative to itself, given concerns about multiples.
3. Fundamentals vs. Macro and Google's Strategy:
- There's a desire for a focus on company fundamentals rather than just the macro picture.
- Google needs to demonstrate a legitimate plan for transitioning to AI-driven search and defending its position.
- It's not crucial for Google to get it right this quarter, but investors want to see a clear strategy.
4. CapEx Spend and AI Monetization:
- Insight into CapEx spend is crucial. A pullback in CapEx plans could raise concerns.
- The earnings from tech players, especially mega-caps and AI-adjacent companies, have driven the market higher.
- The key question is when the significant CapEx investments in AI will translate into margin expansion.
- It's not necessarily expected this quarter, but it needs to happen at some point.
5. Google's Valuation and Search Business Concerns:
- Google's valuation is cheaper than some of its peers, likely due to concerns about its search business.
- There's a worry that AI search could cannibalize Google's traditional ad revenue.
- The prominence of AI search on Google's platform could diminish ad revenue.
- Upcoming earnings reports need to address these concerns.
6. Notable Quotes:
- "The market is certainly positioned that that the tariff impact is, is less than a headwind than we thought going into Q1" - Tim
- "...investors are really going to be looking under the hood to see whether or not they have, you know, a legitimate answer to what their plans are going forward."
- "Anytime you go to Google, the first thing that comes up is that I search. A lot of people are using that, and that's going to diminish their ad revenue."
7. Technical Terms and Concepts:
- Magnificent Seven: Refers to a group of seven highly influential tech companies (likely including Google, Microsoft, etc.).
- Comps: Short for "comparables," referring to the financial performance of similar companies or periods.
- CapEx: Capital expenditure, referring to investments in fixed assets like property, plant, and equipment.
- AI-driven search: Search technology powered by artificial intelligence.
- Margin expansion: An increase in profit margin, indicating improved profitability.
8. Logical Connections:
- The discussion starts with the broader market outlook, then narrows down to Big Tech earnings, specifically focusing on Google.
- Google's underperformance is linked to concerns about its search business and the potential impact of AI.
- CapEx spend is connected to the need for AI monetization and margin expansion.
9. Synthesis/Conclusion:
The upcoming earnings season, particularly for Google, is crucial. While the market anticipates a reduced tariff impact, Google faces pressure to demonstrate a clear strategy for AI-driven search, address concerns about its core search business, and show a path towards monetizing its AI investments and achieving margin expansion. Google's underperformance relative to its peers has created a situation where investors will be closely scrutinizing its earnings and future plans.
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