Tech companies like AMD, Qualcomm, and NVIDIA are set to report earnings in August. Constellation Research Principal Analyst and Founder R “Ray” Wang joins Yahoo Finance Live to talk about what he calls “MATANA” stocks, also known as Microsoft, Apple, Tesla, Alphabet, NVIDIA, and Amazon. Wang explains how “AI is driving the valuation growth” and how “there was pre-Chat GPT and then post-Chat GPT,” for these tech stocks.
Video Transcript
RACHELLE AKUFFO: So still confident in the MATANA stocks here. But as we talk about generative AI, what are the key differentiators in how these companies are mentioning and using it?
R “RAY” WANG: Yeah. There’s a great difference between the folks that are actually using it, the folks that are actually producing it, and the folks that are supplying the tools to make it happen, right? And the tool makers, of course, are the Nvidia’s of the world with the GBUs and of course, Google in the future with TPUs and then Microsoft if they get into the chip game. And then of course, we’ve got the companies that are actually doing the processing, which is in the cloud.
So you see that with Google, Amazon, Microsoft leading that way, and then you’ve got companies that are using it like Adobe, Oracle, ServiceNow and C3. Those are the ones that are creating this AI empire. And we do see that. AI is driving the valuation growth. We were dead in November 2022. There was pre-ChatGPT and then post ChatGPT. You could see the tech starts starting to grow. So that’s the big thing.
But the second thing we discovered was ads are back for the few companies that are left and the ones that are actually growing, of course– here’s where Meta comes into play, Google comes into play, and what we’ll be looking for is Amazon and Apple. Apple doesn’t break out its advertising revenues, but Amazon is now the third largest digital ad player in the market.
RACHELLE AKUFFO: And we knew that there was this pull back in ad spending. Why do you think people are honing back into some of these stalwarts when it comes to eyes for consumers and ads?
R “RAY” WANG: Rachelle, it’s a great question. I think what happens is if you’ve got the network, you’ve got the power to reach out to folks, and there are very few mass marketing capabilities left. And so Amazon has amazing reach because of commerce, Google has amazing reach because of search, and of course, Alphabet or– Alphabet has amazing reach because of search.
And then of course, we’re seeing what’s going on with Facebook because of the network effects on Meta. Now that also means other companies like Spotify, who are showing some growth. Yes, music isn’t going to carry you all the way. Netflix subscriptions aren’t going to carry all the way and you need to have multiple monetization models to be able to survive.
RACHELLE AKUFFO: And of course, we have to talk about the cloud, especially as we look at what happened with Microsoft’s drop in cloud growth here. What is the story there? And how temporary is? Is this part of a new normal? A shift that we should expect when it comes to cloud.
R “RAY” WANG: Well, the reason I say it’s cloudy times ahead is because we’re seeing some interesting usage of the cloud. A lot of companies just took their stuff and put it onto the cloud and hoped it was going to get cheaper, but now a new class of CIOs are doing something different. They’re taking cloud hosting costs and cloud operating costs from maybe $1,000 a month and getting it down to $100 a month.
And so we’re about to see some rationalization and cloud usage just as of AI is picking up. And so we’ve got to see what happens if cloud contracts are coming down or if cloud usage is going to go down. And so Microsoft got through that. Amazon, we’re going to watch very carefully on what their numbers are on August 3, and that will give us an indicator of what’s going on. But Google didn’t do too bad. They are flat at 28%. It is the summer, and we’re going to see more pickup usually in the fall.
RACHELLE AKUFFO: And of course, we have to talk Apple whether it’s becoming that $3 trillion stock or whether it’s– what they’re doing with their own sort of chip making there. What are your expectations and have they really outperformed the way that you thought they would?
R “RAY” WANG: No, they’ve done really well given where the market is. There’s an expectation that revenues are going to decline again in this quarter. It’s been two quarters of decline, but we’re still in a supercycle of refresh for iPhones, and it’s not about the number of iPhone sales, and we won’t see iPhone 15 sales if they make that announcement in the future. What this is about is how much can be made per iPhone. It’s about the services revenue and Apple’s story around that is very important. It’s because they’ve been able to grow the revenue per device, and that’s an important number to look at.
RACHELLE AKUFFO: And I want to talk Amazon as well because we’ve talked about cloud, especially when it comes to Microsoft there. But what about Amazon as well and the growth story there? Because I mean, we’re hearing bits and bobs about their AI plans as well but not really as– it’s not really a big topic of conversation to the extent that we would have expected.
R “RAY” WANG: Yeah, so here’s the interesting thing. There’s been a lot of cost cutting at core Amazon. They’ve actually rejiggered their supply chains and their capacity and their warehouses, but they’ve improved the automation and what they’re able to do now is deliver at a package or deliver any kind of parcel at a cost lower than anybody else, more automated than anyone else, and more track than anyone else, which means they can start using AI machine learning internally to drive down the cost.
And then the second piece is where is AWS growth? And AWS, right now, is actually winning among partner mindshares. Large partners are actually being embraced by AWS, which wasn’t the case in the past, and they’re seeing that level of growth that’s very, very different than some of the other partnerships that we’ve seen in the cloud. So we’re looking at those two factors– core Amazon performance, and of course, what’s going on with AWS.
