'Fast Money' traders look ahead to next week's big tech earnings

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.