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This could be the height of the tech boom – here’s what to look for

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With tech companies starting to report more massive profits and sales totals this week, the question to ask is how long the rapid growth can continue.

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Investors have seen unprecedented growth in mature tech companies during the pandemic, with the five largest tech giants – the parent company of Google Alphabet Inc. GOOG GOOGL and Inc. AMZN and Apple Inc. AAPL and Facebook Inc. FB and Microsoft Corp. MSFT – Rolling out a staggering $1.2 trillion in revenue and $244 billion in net profit in the first 12 months of the COVID-19 attack on the world. Expected to continue, with IT companies in the S&P 500 SPX,
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It is expected to see earnings growth of about 30%, and revenue growth of 17% for the quarter ended June 30, according to FactSet, even as many global economies slowly reopen from pandemic lockdowns.

Read more about Big Tech’s $1 trillion pandemic year

This growth from last year isn’t as strong as it might sound, though: This quarter will be an easy comparison to last year’s period, which was the first full quarter of the COVID-19 pandemic, and the start of the shutdown across the U.S.

“We have to remember that the numbers are going to look and sound amazing, but they have to be compared to a quarter that was the worst of the year,” said Brendan Connaughton, founder and managing partner of Catalyst Private Wealth in San Francisco.

While this quarter’s numbers are likely to be huge, there are some signs that the tech boom is shrinking: like recent warnings from Netflix Inc. NFLX,
+ 0.20%And
Slowing revenue growth at Amazon, signs of a slowdown in PCs, persistent chip shortages and some early signs of impacts on online advertising from Apple’s campaign.

Biggest Earning Week: Apple, Microsoft, Google, Facebook, Amazon and Tesla are the main attractions

At the end of June when the second quarter ended, many cities reopened, some with even small numbers of office workers beginning to return in part to the office in the hybrid business model many companies are embracing. Some movie theaters, restaurants and parks have begun to reopen, affecting streaming companies such as Netflix and other online entertainment sites.

“The pandemic has created extraordinary volatility in our growth and distorts year-over-year comparisons as acquisition and sharing per family member rose in the early months of COVID,” Netflix executives said in their quarterly shareholder letter last Tuesday. Participation in the second quarter is down from “those unprecedented levels” but is still up 17% compared to the most comparable second quarter of 2019.

See: More about Netflix earnings and the complex entry into video games

That would also include Amazon, which a New York University professor described as built for the pandemic, and which is expected to see a slowdown in its huge revenue growth. The consensus among analysts is that Amazon will see $115.3 billion in revenue in the second quarter, with annual growth of about 30%, slowing from a high of 43% in the first quarter, and 43.5% in the fourth.

“We expect strong earnings growth in year 21, albeit slowing versus the outbreak of the 20th pandemic,” John Blackledge, an analyst at Cowen & Co., said in a recent note.

Another pandemic boom that is now beginning to fade is computer sales, which experienced unexpected growth when consumers and businesses bought new devices, services, and tools for employees who suddenly needed an office in their home. The current fluctuations in supply/demand in chips continue to drive strong semiconductor sales, but PC and chip makers are expected to start seeing some slowing in demand from huge sales fueled by work from home.

Learn more: Computers thrive during a pandemic

While Intel Corp. INTC,
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The company posted a better-than-expected second quarter, its report also marred by lower-than-expected average selling prices, and a slightly disappointing outlook for the third quarter, even as CEO Pat Gelsinger predicted further growth in PCs next year. But analysts have warned of a possible correction in the PC market in the second half of the year.

“We believe that some of the computers purchased during COVID have been recalled and may affect future periods (which the Intel team doesn’t seem to be considering),” Christopher Rowland, an analyst at Susquehanna Financial Group, wrote in a note to clients.

For the most part, though, software, cloud computing providers and applications, and semiconductor makers are still expected to see continued strong gains, as cloud computing takes stronger control and the need for security services and software continues unabated. Overall the highest year-over-year revenue growth among the S&P 500 IT segment, according to FactSet.

Electronic Equipment, which includes some little-known but fast-growing companies, is expected to see mixed revenue growth of 27%. Zebra Technologies Inc. ZBRA,
Expect second-quarter adjusted revenue growth from 38% to 42%. Zebra, which makes tracking and inventory management equipment, said it expects strong demand due to pent-up customer demand from the pandemic. Its shares are up 95% in the past year and Barron’s reports that its customers range from Amazon to brick-and-mortar retailers like Home Depot Inc. HD,

Semiconductors come right after electronic equipment with high revenue growth expectations of 24% Two of the top companies in the semi-finals are competitor Intel Advanced Micro Devices Inc. and AMD and
Which is expected to see 89% revenue growth compared to the second quarter of last year, as it continues to take market share from Intel.

More Information: See AMD Earnings Preview of MarketWatch

Nvidia Corp. NVDA,
It’s another high figure in the semi-group, with revenue growth expected of about 64% in the second quarter, as game sales and additional revenue from cards focused on crypto mining like icing.

Software, on average, isn’t growing at the same pace as the semis this quarter, but will have higher growth anomalies, mostly in the cloud computing space. On average, software companies will see hybrid revenue growth of around 16%, with cloud companies in the lead. CRM,
ServiceNow Inc. right Now ,
and payroll provider Paycom Software Inc. PAYC,
All are expected to exceed the revenue growth rate of Microsoft Corp. MSFT,
Which is expected to see total revenue of $44 billion, up 16%, while its Azure cloud business is growing about 45%.

Dan Ives, a Wedbush Securities analyst, believes Microsoft could exceed its $44 billion revenue forecast, thanks to massive growth in Azure.

“We expect another strong cloud performer like Giannis from Microsoft,” Ives said in a recent note, referring to Giannis Antetokounmpo, the Milwaukee Bucks star striker who won the NBA Finals MVP earlier this month. Ives said Microsoft’s cloud deals are increasing in volume, as more large companies accelerate the enterprise-wide transition to a cloud-based architecture.

But many companies that are still seeing strong results will face tough questions. After Snap Inc. SNAP,
and Twitter Inc. TWTR,
The ad sales boom was reported last week, and investors are counting on solid results from other companies in the digital advertising space. But antitrust lawsuits and potential regulatory crackdowns still loom, and Apple’s major change remains worrisome.

See also: Facebook earnings preview and Alphabet earnings preview

The Identifier for Advertisers, or IDFA, has led to a dispute between Facebook and Apple. So far, Wall Street isn’t concerned about any slowdown in ad revenue at Facebook or other social media companies as a result of IDFA, a random device identifier assigned by Apple that discourages large social media giants from being tracked. to users and offer them specific and targeted advertisements, but perhaps they should be.

More From Therese: Apple’s privacy changes affect more than just Facebook

“All eyes are on IDFA,” said Beth Kendig, independent technology investment analyst. “I think that’s why you see some weakness in the ad technology.” Facebook, Snap, and Pinterest have all talked about it in their calls, this is the moment.”

FactSet ranks Facebook, Google’s parent alphabet, and Twitter among interactive media services, which are expected to see average revenue growth of 48%, while Twitter posted better-than-expected results earlier this week. Analysts aren’t concerned about the results on Facebook, despite the company’s continued warnings of the potential impact from various miscellaneous issues, including IDFA. Alphabet and Facebook are expected to see revenue growth of approximately 48%

Expectations from company executives and the color in conference calls should provide clues to investors about how long this growth can continue. But as everyone has already learned from the pandemic, change can happen quickly and is beyond our control.


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