TMTB EOD Wrap

QQQs +65bps as MegaCap Tech (META -44bps, GOOGL -70bps, AMZN -1%, NVDA -2%) weighed down the index, but outside of those names, plenty of strength to go around as non-profitable tech led the way higher. Our friend K. Rippey at ISI sent around this chart over the weekend showing Megacap TMT is trading at smallest premium to non-Tech Megacap outside of ‘22 recession:

We don’t have a particularly strong view on the matter at the moment although Rippey mentioned the pushback he got was Hyperscaler Megacaps more expensive on FCF. Fair.

We get Jensen tomorrow at 1pm est.

On the macro front, all eyes on Powell on Wednesday. 2 year yields rose 4bps while 10 year was flat. Fed expects now pricing in only 60bps worth of cuts down from recent peak of 80bps.

Let’s get to the recap…

Internet

• RDDT -2% as Redburn initiated at sell. Then the stock spiked 10% as Bloomberg captured a headline about RDDT and GOOGL inking a deal with Vertex AI, but they then retracted it as that deal was done in Feb 2024. So stock gave back all of its gain. Fun. Stock was -6% before the Reuters article hit as Redburn said they are 16% below street on 2027 DAUs as they think the strong growth over the last 18 months bc of the GOOGL algorithm change is hitting a ceiling. Their ‘26 and ‘27 EBITDA forecasts are 19% and 32% below street. I thought the Redburn report made a compelling case for more potential GOOGL algo volatility and slowing DAU growth, the issue which has plagued the stock since the last report. Basically they argue recent net add growth has been mainly driven by logged out users which come from Google. They also said that even though RDDT visibility improved in early Jan following the volatility in Q4’24, they have seen evidence of more volatility in late Jan/ and mid February. Key quote:

However, third-party data also shows subsequent larger and more prolonged dents in late January and mid-February…Reddit appears to have mitigated these in the same way (SEO related adjustments to improve ranking), with mid-March visibility now recovered to new highs, but, in some ways, we believe this is just delaying the inevitable. Ultimately, Google makes algorithm changes to shape its SERPs intentionally, and the more Reddit pushes against them the more likely Google is to come down harder next time.

• NFLX +3.5% as Moffet Nathanson upgraded saying they see significant margin upside vs street (40% in 2030) and think NFLX is still underearning relative to the engagement it drives - they think NFLX can generate $6B in advertising revenue by ‘27. Margins and ad revenues will take a front seat driver in terms of key KPIs now that NFLX won’t report net adds any more. Investors like the clean set up here: no regulatory/tariffs/capex/fcf concerns vs. the other Megacaps.

• Megacap weak: AMZN -1%; GOOG -75bps; META -45bps. A TMTB reader passed along some UBS checks from a call in the morning in that chat: