TMTB Weekly
Software and Semis - how the narrative has shifted and where we go from here
Happy Sunday. We have a busy week coming up with Earnings from AVGO, CRWD, CRDO, HPE, GTLB, PANW, CIEN, DOCU and more. Computex start tomorrow with keynotes from Jensen, Lip Bu Tan, and MRVL/QCOM CEOs and a likely release of NVDA’s long-awaited N1/N1X chip. BAML’s and ISI’s TMT conferences start Tuesday as well as the William Blair Growth conf. We get SNOW and Kioxia Investor Days on Tuesday.
Let’s dive straight into the question most tech investors talking about over the weekend: does this software rally have legs?
First, let’s rewind for a bit. Software bottomed in early April but most of the group — outside a few names like ORCL (helped by the AI bid) and U (positively pre announced in late March) — just chopped around or meandered up, lagging the strength in semis. Names like FIG failed to see follow through on a good print. We saw some pretty horrid misses from HUBS, NOW and INTU. It wasn’t until early May that some outsized strength began to show up. First, it was the cyber group catalyzed by the news around Anthropic’s Mythos release, where the read-through was that enterprise security budgets were likely to take a big step up. Around that same time DDOG crushed their quarter, finishing up 30% and setting themselves up for accelerating growth into the back half of the year. These two events were extremely important as it showed that buyers were back in software in a real albeit very selective way, and that’s when we first began feeling sentiment truly begin to turn in software. In our May 10th weekly we said “we think it’s likely a good time to selectively increase software exposure here” but struggled to gain confidence in putting money to work outside of Cyber, DDOG, and ORCL.
Sentiment continued to increase the following week and price action got better as DDOG and Cyber names continued to follow through to the upside. In our May 17th weekly we wrote: “Last week we were staying away from the MDB/SNOW catch up trade, but we think with the better sw backdrop now, those names can continue to work again and hear of more interest from investors re-engaging given NT checks are positive.”
Fast forward until the beginning of this last week, and strength had broadened a bit but generally stayed pretty silo’d among the aforementioned names. That all changed after SNOW’s stunning print. The print did a couple things: for SNOW specifically, it flipped the script on 3 bear points: deceleration, Cortex pressuring margins, and some concern around where SNOW fits in the AI picture.
This was the key quote for us from SNOW mgmt: