00:00 Speaker A
It is a big week for Big Tech with four of the magnificent seven set to report, Microsoft and meta, they’re coming on Wednesday, Apple and Amazon scheduled for Thursday. Key themes include how Big Tech is turning AI into revenue and what it’s costing them. We navigate how to play Big Tech this earnings season with the Yahoo Finance Playbook and joining me now, we’ve got Dan Flax, Senior Research Analyst at Newberger Burman. Dan, always great to see you on the show. Uh, you call out some big themes, Dan. You say investors need to think about for Big Tech earnings. One would be, uh, advertising and engagement. Now, if you look at Alphabet earnings, Dan, I think you’d look at those results, say, hey, ad market seems to be holding in there, resilient. What do you, what do you think we’re going to hear on that front from Meta and Amazon?
01:58 Dan Flax
I think what we’ll see is that the digital, uh, advertising market is better than we feared a few months ago. There’s certainly, uh, still a number of cross currents out there. But when we speak to advertisers, they’re getting good returns from investing with Google, with Meta. I think Meta will have strong, uh, results, uh, a little bit later this week. I think user metrics will remain healthy, uh, and the focus there is continuing to to innovate to add value to users on one side and the advertisers on another on, uh, and then lastly, I’ll round it out with Amazon where they have a $60 billion digital advertising business, which I think is is somewhat underappreciated. Of course, the focus there is on e-commerce, uh, which I, I, I think they’re continuing to add value to their customers with more one-day delivery, uh, with prime and finally, of course, Amazon web services remains a big focus as well.
03:29 Speaker A
Let me ask you in that digital ad market, Dan, you got the the big, the big names. You got, and you called them out, Alphabet and Amazon and Meta. Is there room for the smaller, relatively smaller players too, Dan, like the Snaps?
04:02 Dan Flax
I think there is. The, the market, uh, the market’s growing and, and clearly users are are spending more time, uh, engaging with the digital platforms. And I think when we look out to the the world with more generative AI, a much, uh, richer level of engagement, more complex queries, I think the platforms including the smaller ones have have the ability to become even more impactful, uh, to, to the constituents. The key though is really, uh, being able to to invest, uh, to innovate, to fail, fail quickly, um, and keep testing and figuring out what works for of course users on one side and advertisers on the other. So I think the pie is growing which does present opportunity.
05:20 Speaker A
And Dan, another theme you call out here is CAPEX. Certainly, you know, big tech continues to spend, spend, spend, building out that AI infrastructure, Dan. What do you think we hear on that front from the Metas and Microsofts and Amazons?
05:52 Dan Flax
I think you’ll see the companies continuing to, to push aggressively, uh, in terms of their, their data center build outs, uh, uh, buying more chips from Nvidia amongst others. And the reason for it is they’re getting, if you look at Amazon’s AWS business, we saw this with Google Cloud last week. I think we’ll see it with Microsoft Azure. They’re seeing very strong returns from these investments in newer areas like generative AI. And so that remains early. The piece, uh, and certainly the concerned with the market and the cyclical headwinds to, to become a bigger force later this year and into 2026 is something we’re watching very, very carefully. I think these companies do have existing businesses. Uh, digital advertising is one cloud, of course, another YouTube for Google as we saw that can absorb some of this capacity, but we’re watching it very, very carefully. Beyond though this period, the key as we think about the other side of this current environment, will these platforms be able to add value in new ways? And with Meta, Microsoft, uh, uh, Amazon and Google, I think the answer is yes, they will. And that sets up for, for attractive returns from current levels.
07:54 Speaker A
Who benefits, Dan, downstream from all that CAPEX spend? Is it the name you just mentioned? Is it Nvidia front and center?
08:14 Dan Flax
Nvidia is an incredibly important partner to these companies. And the reason is because not only is it the chips, but it’s also the software, it’s the tools, it’s really empowering millions of developers, uh, to, to write to their platform and of course, uh, organizations, startups, governments, uh, enterprises are able to tap into a lot of these capabilities on the cloud platforms, uh, like an AWS, like a Microsoft Azure, uh, Oracle, that’s another cloud where we continue to expect strong growth. Other players though, for example, Broadcom have a very important role to play with chips that they’re providing to many of these same companies like Google. And so the key is can, can the chip makers like an Nvidia, like a Broadcom continue to to push their product road maps, deliver a lot of value to their customers, notably the cloud companies. And if they’re able to do that, I think it sets them up well for, for good growth as we think about the year ahead.
09:54 Speaker A
Dan, final trend I want your take on here. You call out the theme of monetizing AI, actually making money from all this. What are you looking for, Dan, on that theme? What are you listening for on the conference calls?
10:21 Dan Flax
We’re looking for, for where companies are investing in data centers, in chips on one side, and then translating that into growth into revenue and cash flow from their customers. You’ll see it, I think from Microsoft, which has been capacity constrained as all the cloud companies are. As they add more capacity, they are generating returns from these newer workloads like generative AI. I think we’ll hear a lot about that from Amazon, uh, uh, from Microsoft. We heard some of that from Google last, last week and that’s going to be a big focus through the rest of earnings and into the back half because we remain long-term owners of the shareholders of these businesses, but the key is investing and then generating the returns over time.
11:37 Speaker A
Finally, Dan, and I don’t think we even mentioned this one, so I got to get your take. What about Apple, Dan? You know, I know, listen, the stock’s been under pressure year to date. Obviously some investors are concerned about the company’s AI strategy. Your, your thoughts on the iPhone maker.
12:03 Dan Flax
So we’re in a seasonally weaker period now, but the focus in the next several weeks will be on the iPhone 17 and that launch. What’s important for Apple, and we continue to like the name, is that the iPhone install base is still growing and additionally you have more and more customers looking for the Pro and the Pro Max. And so that sets up for a durable iPhone franchise on one side. On the other side, you have the services business, which is over $100 billion, which in my view has attractive growth rates over the next one to two years. And so it’s this broadening of the revenue drivers that I think remains intact for Apple. I think Apple intelligence will get better over the next six to nine months and I think that will become an increasingly important part of the story. But for the stock, the growth in the iPhone install base and the health of services in my view sets the stock up well as we look into the back half and into 2026.