Happy Sunday…QQQs ripped 7% while the 10-year yield slipped to 4.25% and the VIX collapsed 15%, as Trump “blinked” again and trade news got better.
Busiest week of the year with 40% of TMT market cap reporting so I’m going to dive straight into Tech and avoid Macro this week other than to say our base case is a more-choppy likely slowly upwards trending mkt as we get more positive trade news flow and macro releases support the thesis that we aren’t in recession yet. After this rapid snap back, we likely get a more grind-it-out toggle between hopes of tariff détente and fears of recession. Beyond more positive trade news deals, to get bulls more excited need some sort of fresh policy support or a turn in growth momentum.
Luckily no major developments since Friday close with minimal tariff headlines — signs we might be nudging back to a more normal investing environment and the first week of earnings last week proved that we are shifting back to a greater focus on fundamentals. We’re feeling better about putting $ to work.
A recap of what sell-siders are seeing on their desks from a flow perspective: systematic and discretionary funds were effectively “sold-out” two weeks ago and have begun to buy…long-only funds finally turned small net buyers in megacap tech, whereas hedge funds remained marginal sellers and foreign investors have dumped roughly $60 billion of U.S. equities since early March, although less in April than March.
We’ll start with a recap of earnings, some comments on Tariff Safe Haven trade, UBER and TTWO, then dive into the upcoming earnings (setups/bogeys) this week…
Let’s get to it…
Earnings - What have we learned so far?
Software has been better than expected so far. SAP said they had not seen any deterioration of conversion rates in the pipeline. NOW said demand remains strong with a healthy pipeline and called out better than expected US public sector growth. SS&C was equally calm on direct financial fallout, though it conceded that headline noise could stretch out sales cycles. This jives with Morgan Stanley’s recent software bus tour in mid April, where they said 7 out of 8 co’s (ADBE, SNOW, IOT, DOCU, ASAN, BOX, PD) had yet to see a macro slowdown though many were bracing for one. While beating, both NOW and SAP seemed to keep relatively conservative guidance to account for the uncertain macro: SAP didn’t flow their beat through and kept FY unchanged; NOW talked down q3 cRPO in way that sounded prudent and took out the high end of their subscription full year guide, essentially lowering the midpoint. They effectively laid out the playbook for other sw companies: beat, set a low bar for 2H, and talk up AI/Product cycles (NOW said that Assist NNACV beat expectations and Pro Plus deals quadrupled y/y, and SAP noted that AI was included in ~50% of its cloud deals.)
We thought the NOW price action on Thursday morning was a big tell for the rest of earnings season. Early Thursday morning I was struggling whether to buy NOW or not. I wrote in the chat:
“In normal times, no brainer you buy up: great results/call against low expects/sentiment, "de-risked" guide, AI/product momentum/tam expansion, sw sentiment in the dumps and multiple in significantly, DOGE cuts largely behind them if any, with a nice catalyst in Knowledge conference in early May...giddy up!
On the other side, its not normal times and I guess my bar for trades is higher.”
Well, we all saw what happened, with NOW rallying early off the open taking along all of sw with it. I didn’t participate, but I was v. happy with the outcome. Why? This outcome points to an environment where investors are comfortable putting money to work in macro-sensitive areas that aren’t feeling it yet. Our friend K. Rippey at ISI put it well: this week shifted the burden of proof from Bulls (needing to prove why outlooks wouldn’t suggest a macro backdrop in free fall) to the Bears (needing to prove why things deteriorate from here). After all, software names offer sticky revenue models, multiples have come in significantly, and most don’t have exposure to tariffs/China. The other outcome would have been one where investors were too scared to buy NOW up bc of future recession fears. We much prefer what happened as it means the bar for longs is not as high as it could have been.
On the flip side, we heard from IT services companies of slowing deals and Tenemos missed on deal pushouts in the last two weeks of the q given the macro uncertainty. IBM guide implied a 2H accel (didn’t lower the bar) while saying they are seeing clients delay decision making, especially in discretionary projects. CHKP billings missed slightly and while Q2 was lowered, they held FY flat, essentially implying a ramp in 2H of the year. Both stocks didn’t like that.
Bottom line: Software demand is better than feared, but macro headwinds are still affecting some companies. NOW and SAP have two great product cycles/more AI tailwinds than other enterprise sw companies and are two of the best run companies in the space. We think what we’ve seen so far will continue: companies with strong enterprise demand + exposure and good product cycles will likely continue to outperform regardless of the multiple, while we are likely to see macro headwinds show up in companies with mediocre product/demand stories and more SMB exposure. In an environment like this, we favor names like PLTR, SNOW (consumption mix now dominated by large stable enterprises vs. 2021 digital natives), NET and TEAM which we think are the 4 companies with the strongest product cycles. Cyber is also an area where checks have held up and has defensive demand characteristics (and also +ve AI tailwinds.)
In Semis, TXN sounded bullish calling out a bottom in most end-markets and we got news China pulled back on the 125% tariffs related to US semi chips. Unlike software, I heard more skepticism from investors around analogs and the cycle really bottoming with many expecting cuts (“when, not if”) given supply chain impacts haven’t been fully felt yet. TXN also saw customers stuffing extra inventory—less from collapsing end-demand than from risk-proofing supply chains. STM statements around demand mirrored those of TXN, namely that they had yet to see much change from their customers. INTC admitted Q1 strength benefited from that very pull-forward, a mirror image of Q4-2024, while SK Hynix warned that the second half could turn choppy if tariff policy keeps oscillating. TSM and LRCX, by contrast, insisted they see no behavioral shifts yet.
VRT blew out orders and we think did the best job describing how they are already pushing its supply chain out of harm’s way:
Stock sold off intraday post print, but now above the high on Wednesday. We think stock should continue to work as there seems to be no real slowdown in DC builds and has plenty of catching up to do vs. Siements Energy in Europe which is hitting 52wk highs..
TSLA re-iterated the 3 key tenets of the bull case: more affordable vehicles on track for start of production in the first half of ‘25, Robotaxi in Austin by June (Cybercab scheduled for volume production starting in 2026), and builds of Optimus beginning in 2025. Just as important - or more - Musk implied his work with DOGE was largely behind him and he would begin spending more time at TSLA next month. With the weak results behind them and Elon reputational rate-of-change improving, TSLA’s investors can now look forward to the upcoming catalysts. TSLA always does best when investor focus can shift to the long-term bull case narrative/story. Stock ripped 9% on Friday. We’re not involved, but wouldn’t be surprised to see stock continue to act well…
Tariff chatter was most explicit in hardware. TEL quantified a roughly three-point revenue haircut, partly recouped via price increases. IBM pre-loaded inventory and MBLY downplayed direct exposure because customers act as importers. ERIC credited tariff uncertainty for a burst of North-American network orders, implying policy angst can sometimes accelerate spending.
In video games, Nintendo’s Switch 2 blew through its first round of US pre-orders within hours while Nintendo admitted most accessories have crept up in price to offset new import duties. More consumer: Discover and Fidelity National both reported stable spend levels and improving delinquency trends. Discover’s charge-off rate even ticked lower, suggesting the credit cycle still has runway before turning.
GOOGL called out robust demand across finance, retail, healthcare, and travel; management volunteered no hint of consumer softness and didn’t give much in the way of Q2 color. It did, however, flag that the looming removal of de minimis exemptions for low-value imports could trim APAC advertisers’ budgets next year.
We had some thoughts on GOOGL on Friday, and here’s where we came out at:
Where do we fall out? We think r/r skews to the upside with $40-50 up and $15 down. Trading GOOGL for us over the past couple of years has been straightforward and profitable: when sentiment is bad and search is tracking above street then it’s a long because it’s an uphill battle for bears to prove that GenAI is eating at GOOGL’s core biz. When search is trending below street, then path of least resistance is down as it’s easier for bears to run with the secular/structural headwind case.
Right now we are closer to the former scenario as both Yipit and M-sci have called out better April search (yes, it’s early and macro headwinds remain and complicates thing a bit…). While we think stock might be a bit choppy and won’t run away, we think the path of least resistance for now is up (market swoon notwithstanding) and if data continues to track well, then one should feel comfortable adding 10% down which would be close to 15x $10 ‘26.
So it’s not the most exciting place to park $’s, but we think stock likely does ok: B/B- idea.
Lots of concerns/debate around the 2% paid advertising growth. We liked this post from our friend Andrew at Hedgeye digging into it: