Several big-name technology and communication services firms report quarterly results this week and while there are concerns earnings per share and profit margins will disappoint, there are also potential glimmers of hope from the high-growth sector.
While the current economic environment may not be conducive to sizable earnings beats, some holdings in the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM) could potentially share more upbeat news than markets are currently pricing in.
Take the cases of Google parent Alphabet (GOOG) and Facebook parent Meta Platforms (META) — the two largest communication services holdings in the two Invesco exchange traded funds. Some the weakness incurred by those stocks in 2022 was attributable to concerns of a slowdown in digital advertising spending. However, Deutsche Bank analyst Benjamin Black says related sentiment is perking up.
“Heading into 1Q earnings season, sentiment has begun to improve for the digital ad industry as the economic data and our ad channel check data points have proven more resilient than feared. Ad spend levels in March and April appear to be growing better than expected with performance advertising platforms benefiting the most,” wrote Black in a Monday note to clients.
The analyst identifies Meta as a beneficiary of internal efforts to streamline its digital ad unit and enhance related technology.
“We think investors are cautiously optimistic on an improving digital ad market, while META has improved its cost structure and have given investors more confidence in management’s commitment to profitability. Recent ad checks indicated March ad spend was higher than anticipated and engagement data with Facebook and Instagram has been positive relative to peer,” according to Black.
In addition to likely gleaning some benefit from improved digital ad spending, Alphabet has been gain ample adulation due to its artificial intelligence technology inroads — a topic highlighted by Deutsche’s Black.
“Positioning is attractive as ChatGPT continues to be an overhang on the stock, and recent reports around Samsung considering Bing for its Search contract seem to be overblown, although it could have a modest impact on Search gross margins longer term. Importantly, we are not seeing share shifts to MSFT’s Bing and PMAX continues to be a very efficient source of incremental spend for advertisers,” observed the analyst.
Speaking of artificial intelligence winners, QQQ and QQQM are home to plenty of those names beyond Alphabet and Meta. Those include Microsoft (MSFT) and semiconductor maker Nvidia (NVDA), which is seen as an AI chip leader.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
