R "Ray" Wang
R "Ray" Wang
Monday's Musings: Q1 Earnings Benefit From The Great Big Tech Reset
Big Tech and Market Reset Bring Optimism To Markets
While many in the market are still psyching others into a recession, the fears are subsiding and the NASDAQ appears to be where the optimists are. Five factors have led to the mini rebound in this market of lowered expectations as watchers await the fed rate decision.:
- Slowing growth warnings set expectations to the street
- Culling the herd is needed to meet financial projections
- Tech talent still in demand despite the headline job cuts
- Critical infrastructure in cybersecurity, cloud, analytics, automation, and AI outperform
- Digital giants still rule the world with new asset classes created.
These factors have led to the NASDAQ up almost 9% as of this post.
Slowing growth warnings.
Every CFO has decided to warn the street and reset expectations. Valuations have been cut since Fall of 2022. Recently, Microsoft talked about slowing cloud growth, IBM shared insight into a slowing in services revenue. SAP talked about shifts in spending to core and sustainability in Europe. Tesla forcasted lower numbers than 50% growth and put in a price cut.
Culling the herd.
The tech market has had over 1400 rounds of layoffs with 220,000 jobs cut in 2022. As of 2023, over 57,000 job positions have been cut to date. After minimal job cuts amidst a labor shortage, tech companies failed to cut their bottom 5% since 2019. The companies have often hired lower quality talent at higher wages. Leaders are taking this time to rebalance their workforce and reduce low performers. If one's keeping score, Microsoft cut 10,000, IBM cut 3900, SAP cut 2800, Amazon Cut 18,00, Meta announced 11,000.
Despite these cuts, there remains a huge demand for tech talent. Consulting and services drove IBM's growth in the past quarter. Most IT services vendors can not hire enough new talent and still face massive attrition in the 20 to 30 percent range. Many workers who have been let go have been able to find a new position in less than 60 to 90 days.
Critical infrastructure outperforms.
From Constellation's Q4 2022 Business Confidence Survey, digital leaders continue to increase investments in analytics, automation, AI, and cloud. Few folks are reducing investment in cyber security. ServiceNow's performance in the latest quarter showed how these factors come together for outperformance. In fact, SevrviceNow outperformed the Rule of 40 and achieved the Rule of 58%. CEO Bill McDermott also vowed not to fire anyone in 2023.
Digital giants still rule the world.
The MATANA class of stocks (Microsoft, Apple, Tesla, Alphabet, Nvidia, Amazon) and other digital giants are still doing well due to strong fundamentals. These enterprise win because they:
- have large networks
- disintermediate markets
- compete on data
- apply multiple digital monetization models
- operate with a long term mind set
The Bottom Line: Watch For An Emerging Asset Class In Data Driven Digital Networks
A new asset class will emerge from data driven digital networks or the DDDN's as featured in Everybody Wants To Rule The World. These networks of 100s of millions and even billions of connected people, devices, and their data will create a new asset class exponentially bigger than existing big tech categories. The signals on pricing, supplier availability, demand, consumer preferences, regulatory impact, and risk will create new business models in every industry. The organizations can bring the content, distribution network, technology platform, and multi-sided markets will dominate the next decade and beyond.
Your POV
Where will you put your money in 2023? Do you see big tech and digital giants coming back? How do you see the Q1 earnings season playing out for the economy?
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