Earnings season continues with several of the Magnificent Seven big tech stocks, including Amazon (AMZN) and Alphabet (GOOG, GOOGL), reporting their next week. Investors eagerly await these reports as a potential beacon of hope during so many economic headwinds. Daniel Flax, Neuberger Berman Senior Research Analyst, joins Yahoo Finance to discuss what investors can look forward to and how they can weigh the results of these earnings versus the current developments in the Treasury bond market.
“What I believe is more important for these companies, if we look ahead to next week… [it’s] really their ability to innovate and execute on their product cycles, that I think will matter most to their growth and ultimately their share price over the next 12 to 24 months,” Flax states. “If we step back, interest rates have moved up significantly, but by historical standards, they’re reasonable levels in my view.”
Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.
Video Transcript
JULIE HYMAN: Big tech is gearing up to report their latest quarterly results next week. Investors waiting to hear from Microsoft, Alphabet, Meta, and Amazon. As the Magnificent Seven have made the S&P 500 gains more concentrated, the pressure is on for Big Tech to deliver.
Here to discuss is Daniel Flax, Neuberger Berman Senior Research Analyst. Dan, it’s always good to catch up with you about big tech, and especially it feels like right now because you have sort of the individual Big Tech. And then you have the macro factors right now and namely higher rates that have proven problematic for these stocks. How are we investors to weigh, say, a 5% 10-year against the earnings that we’re gonna be getting?
DANIEL FLAX: Good to see you. I think interest rates will continue to play a factor. But what I believe is more important for these companies if we look ahead to next week– Microsoft, Alphabet, Meta, Amazon– is really their ability to innovate and execute on their product cycles. That, I think, will matter most to their growth and ultimately their share price over the next 12 to 24 months.
If we step back, interest rates have moved up significantly. But by historical standards, they’re at reasonable levels, in my view. And so, for example, we’ll look at the cloud growth from Amazon Web Services, Microsoft, and Google. I think that will remain healthy even in the face of some cyclical pressure. And of course, I think search and this move to infuse artificial intelligence is really in its early stages. So we’re focused most on the product cycles and how that translates to growth.
JOSH LIPTON: And so, Dan, let’s dig into some specific names here, maybe beginning with Amazon. I’m interested in that name. Obviously, the focus there, Dan, is gonna be on– you mentioned AWS, the cloud computing business. That’s the profit engine. You know, investors got used to 30%-plus growth rates, now 12%. What are you looking for from AWS, Dan, in this quarter? Do you think they can start reaccelerating there?
DANIEL FLAX: I think what we’ll see this quarter and the quarter beyond is low double-digit growth. I think as we move into next year, computers will get easier, which will contribute to a reacceleration. I think what we’re most focused on, though, when we speak to customers, a lot of the new workloads in areas like artificial intelligence are in their very early stages.
And so what’s interesting and really exciting is that a lot of these new technologies have still yet to find their way into the enterprise, into academic environments, really across the spectrum. And so I think that will contribute to reacceleration for Amazon Web Services next year. And I think the setup is very interesting at current levels.
JULIE HYMAN: I guess you really have to look longer term, though, Dan, if you’re– you know, you’re not looking to next week’s earnings, for example, to necessarily get more concrete evidence of how some of those newer technologies are playing out. Are there names within the space where you say right now you’re seeing monetization of some of that?
DANIEL FLAX: What’s interesting is that with Google, with Amazon, they are currently monetizing a lot of these newer technologies. If we step back and think about Google and search, they’ve been infusing artificial intelligence to drive recommendations, results, value for users on one side, and then value for advertisers on the other.
Amazon has been doing the same with machine learning. And so today and over the past several years and most importantly, as we think about the next several years, these companies are monetizing artificial intelligence and the technologies associated with it.
What we see, though, is that they’re investing tens of billions a year annually in capital expenditures and R&D. And they’re doing that because of the demand for these new capabilities both internally and then from their own customers. And so we will closely see what the data presents next week. But we like them both short and medium term.
