Joel Elconin - Tech Earnings Recap: Big Revenue Growth, CapEx Spending Continues, Markets Extending All-Time-Highs

0:00Hey, everyone, welcome to the K E report in a daily editorial on Thursday, April 30th. We are chatting with Joel Alconn and Joel is the co-host of the pre market prep show. Also, the founder of the stock trader network, both of those links will be in the show notes. Joel, we got a talk earnings and big tech earnings. We had pretty much all of the major tech stocks report this week, just in the last couple days. Look, quite frankly, my biggest takeaway is that earnings growth is almost mind-boggling. We're seeing double-digit percentage gains in revenue and earnings. These companies continue to just generate a ton of cash and they're still spending a lot on AI infrastructure buildouts. So, balancing that out, it seems like if you follow just the earnings, you've got to think that these stocks are moving higher. And then you look at CapEx and which the market does care about. CapEx continues to increase. So, there's that balance there.

1:00What's your takeaway? What caught your eyes in terms of some of these big tech earnings? Good afternoon, gentlemen. Thanks for having me. I mean, the market was waiting on yesterday, right? Unprecedented having four of the mega-cap tech reporting on the same day, Microsoft, Google, Amazon, and Metta. Old major reports, all playing out a little bit differently. But our team of software versus hardware here, it's kind of playing out. Microsoft, big run, pre-run earnings. Street just not convinced that it's going to be able to keep up the earnings that it's had and needs new ways to create revenue from AI. Metta, which had a monster run in its report, it was really not convinced. It's still software, right? I mean, you're on Facebook. You do the advertising. So, Metta fell a little bit, a little bit short,

2:02at least for the pre-ernie's run. Amazon had a great quarter to see some profit taking in that. It's not big, thick, stock, like that blast, the old-time highs. And then sticking with the good Google, up 9%, very unusual move for Google. But, take about it. Google made their first attempt at AI with barred. That didn't work. They went back to the world, Gemini. And just think about Google as, of course, they're going to lose some of their ad share. But, look at the other things that they, the Gemini, look at YouTube. I mean, you can't get, like, you're on the road. You can't get a normal TV station, right? You've got to have something. And a lot of people go on to YouTube and YouTube TV. So, different things, feeding into it, a little bit more diversified commodities, or a little bit more diversified stocks,

3:02performing a little bit better. Well, Joel, let's dig on that last point you just made. We were talking about this off mic that some of the companies that are more diversified kind of being looked at in the market, a little different companies that are one trick. Ponies, not that Facebook's are met as a one trick pony. But just maybe dig into that idea. Are you seeing that plant in other companies where if they have a mix of software and hardware or a mix of products, they're more resilient? Or how are you looking at that part of it? I'm looking at it from the perspective of, you know, in the Google lines, right? Because of the, you know, the different products with the YouTube and stuff. So, pretty much, I mean, that, you know, that was pretty much specific to, you know, to the Google comment in the Amazon, as opposed to, you know, the Microsoft, which is pure software. I mean, it's in the name. And yeah, meta, it seems like meta, you know, they come out, they talk about the AI span, but like there's, you know, to the street, you know, no really clear objectives. You know, what was the grid? The metaverse, you know, people buying land in nowhere.

4:04It doesn't seem like they, at least the way the streets reacting today, that they're not totally satisfied with, you know, with the AI build-out plan for the catbacks. You know, corresponding to the catbacks that they have laid out for the street. So, Joel, look, I get that the street is worried about this constant spend. And it's a massive spend from these major tech companies. But the fact of the matter is they are funding it through impressive earnings, impressive revenue. And it does sound like it's more on the, in a way infrastructure side of things. It's not software that can be copied. I just feel like long-term, yes, they're putting a lot of money towards it now. But long-term, could these major tech companies be building in a way a moat around their business that makes other entrants a few years down the road? Or even quite frankly, now trying to enter the space too far behind because all this money is being spent now

5:05and they're actually building out something in the AI space? I mean, it's, I mean, look what Amazon did for years and years and years, right? That they were criticized for spending too much money. Right? I think that's what you're seeing. I think that the, you know, like you had the, you know, the internet, right? You had the initial pop and, you know, and many companies went to levels that you could never imagine that came back down. But the ones that, you know, stuck with that, you know, with what the resources, you put their resources to work. Obviously, what the market is trying to tell us today and this is a little bit more broad. And I know, I know that oil's down. But what the, what the market, what the price action is telling you is that AI and the benefits for AI to people, to the economy is far outweighing the potential impact

6:06of crude oil wherever it goes. And these companies, these 10 companies that are not relying on crude oil, nothing to do with crude oil are planning for this AI, you know, revolution. And that's what you're seeing. So these tech companies have made these bets before and they paid off and they're just going back to the wealth. Well, Joel, I was trying to find this article when we were talking off mic before this. I've got it pulled up now on Forbes earlier this week. They put out an article and it's a great one of people can search the web for it. And I'll put a link to it down in the show blog. But basically it says the AI build out boom is real but so are the risks. And it highlighted two made risks. The big risk is overcapacity, which we were just talking about. And they made the analogy to the dot com era where everybody built out capacity. It became overcapacity and then the price is crashed and there wasn't enough demand to fill it. And then the other one is the interconnected nature of AI and how they talked to each other and how they communicated and how webs of companies, layers of technology are interacting

7:08and that some companies may be outside of the ecosystem. Some companies may have kind of closed loop ecosystem. So those are the kind of discussions going on. Anyways, it's a great article in Forbes. But it's highlighting the risk that all of these companies could be spending too much that the demand is not there. So unless there is a true AI revolution, if it's not the same kind of revolution they're planning on, this will have all been blown capex. I mean, you can doubt what these companies are doing and you can doubt the capex spend. But as long as they're fine, they're not going into debt, you know, doing this. And that's what you said earlier. They're having strong earnings. And if they weren't seeing, you know, some kind of return on their investment, I think they'd be pulling back. But I think they must already, you know, being, you know, and I don't know how they differentiate it. But they might already be seeing, you know, we've spent acts that I return his been, you know, two acts.

8:09So we're going to spend two acts and our returns are going to be four acts. I think that we're at the point for those that are doubting the AI trade. I think you, you can keep doubting and you can keep, you know, overspending. But right now, the market's saying you're wrong and price is saying you're wrong. So that's more important than what, I mean, you can write these articles for Forbes. I'm sure while research, but they don't know what returns. These big tech companies maybe are already getting from their AI spend and maybe it's showing up in earnings and that's why, you know, you saw the decent reports. I think when you've got a worry is when they say, you know, when they have a bad report and they say, we're cut back on the catbacks, then I think that's it that I think that's when, you know, you need to be very cautious. But right now, you've seen the exact opposite.

9:10Yeah, it's so true. I feel like everyone's trying to front run saying, well, they're going to cut down catbacks. The AI isn't working. But yeah, the companies that have used AI and are building out AI are the ones that integrate it first and the tech companies, the earnings keep going up. And we're actually seeing layoffs in terms of tech companies too. So maybe they're getting that efficiency there too. But Joel, this all just begs the question in terms of again, what the market is telling us. Software stocks continue to struggle and hardware, the actual build out of this infrastructure. Those stocks are flying. We were talking about the Sandisk chart recently in a year ago. That stock was, let's just say right around 40, in around $40. It's $1100 right now. That is a crazy move. That's a parabolic move. But it's not just Sandisk. It's a lot of these hardware stocks that continue to benefit. It's a trend. Do you just ride that trend then?

10:11Yeah, I mean Sandisk reports tonight along with Apple. But what about all the times when the video was coming out with those reports and people like, oh no, you're looking at it wrong. They can't continue that growth rate. Well, they did for quite a long time. Right? So it's there. It will be there in earnings. In order to power this AI, you need the hardware. You need the chips. I mean, as much as like, I haven't looked at the P on Sandisk. But as much as Micron rallied and stuff, it's still trading at a reasonable valuation. So the demand is there. And as long as the demand's there in the growth continues, then you're still going to see this kind of appreciation in these stocks. When the growth starts to slow down, the demand starts to slow down, then these stocks will turn around. But it's possible at this point.

11:13I mean, what about if we were doing a show in late 2000s or late 1990s, early 2000s? And saw the whole tech bubble, I'm like, you know, where could this go? Like, how much can people benefit from the internet? And look at what these stocks have done. So I'm not saying we're we're in that kind of phase, but you had the initial move and you've had some pullbacks. I like those. I have a legacy position in Western digital. And from that Western digital position, I got to spin off from Sandisk. I have one to sell those stocks at every $100 increment for Sandisk, by the starting at 500. And you don't, you'll hold. And you know, it eventually will come to an end. But it's impossible, impossible to predict when and how. Yeah, boy, even Western digital has had a nice move there.

12:14It's pulling up their chart. But yeah, a lot of times people wanted to get off the roller coaster ride along the way, but it's continued higher and higher. Let's maybe broaden the discussion out even beyond tech. When you look at other segments of the market, it looks like other picks and shovel plays are doing good as well. We talked off Mike about caterpillar and John Deere. And so some of the manufacturers seem to be doing okay as well as they put out earnings. Well, the AI buildout, you're going to build these, you know, hundreds of thousand square feet facilities, right? For these data centers, people got to build them, right? And there's your cat and your deer cat. Have it a blowout report today and being reflected in the price action. So as opposed to like trying to pick the stocks or the chips or whatever, you're going to the companies that actually have to like build the factories. And then also are you looking into some eventual AI efficiency in the production of some of this heavy equipment.

13:14So double catalyst for caterpillar and streets being rewarding it for its report today. Joel, anywhere else in the markets that you're seeing is interesting. It seems like some of these more meme stocks or even Bitcoin has really been quite boring. I know the odd meme stock has gone through runs, but those always go up and come right back down. So any other areas you're seeing opportunities are quite frankly uptrends in. You know, not so. I mean, the staples are showing, you know, some life today in kind of a risk on market. So I think that, you know, that's a little bit noteworthy. But as opposed to, you know, try, I'll to go the opposite way. And I'll look at the price action. Something that in these stocks are the most directed to oil. And look at your oil Caribbean today. They're still up 12 bucks. Deep bit of downtrend opened up today selling off. I think you got to be cautious on your cruise lines.

14:16I think you got to be cautious on your airlines eventually. And like I said, just like I don't know when the AI bubble is going to pop this crude in the prices is eventually wherever it stabilizes, it's going to have an effect on these companies. So cautioning the win for the airlines, cruise lines and anything that's heavily dependent on the price of oil. All right, Joe, we'll wrap it up here. Really the main focus being on these tech stocks and how strong their earnings are. It's just crazy. The numbers that they are throwing out. And then we also had the Fed yesterday. But nothing came out of the Fed. They're pushing off rate hikes. Powles staying on and well, yeah, that was pretty much it, I think. Lots of descents and not much else from the Fed. So watch these markets continue to melt higher. I guess climbing that wall of worry, which bull markets do. And hey, S&P, it's almost at 7200 as we're chatting.

15:19So Joe will wrap it up here. Again, Joel is the co-host of the pre-market prep show. Also founder of the Stock Trader Network. Click those links to follow along with Joel. Pre-market to get a lay of the land before the markets open. Thanks for your time today, Joel. All right, thank you, gentlemen. We'll talk next week.