October 29, 2020

Yesterday a few of the most powerful people in big tech were getting grilled by the Senate.  Today they reported earnings.

If you needed more convincing that big tech is eating the world, seeing their earnings through a government-imposed "work at home world" should do it.

Google grew revenue by 14% compared to the same period a year ago.  And they grew operating earnings by 22%. 

Facebook grew revenue by 22%, with operating earnings up 12%.  

Twitter grew revenue by 14%, and grew operating earnings by 27%.  

Keep in mind, this is a quarter where most companies, while beating dialed down estimates, are still only putting up only a fraction of the revenues and earnings of a year ago. 

So, these numbers hit as Congress is mulling over ways to tame these platforms, and as the DOJ is suing Google (Alphabet) for abusing its dominant position in search. 

This only amplifies the scrutiny.  As we discussed earlier this week, this all sets up for higher regulatory costs coming down the pike, and less "wild west" in their business models.  That is a threat to the lofty multiples on these stocks.  And this comes at a time where technology, as a sector, has recently exceeded its 1999 proportion of the S&P 500.   

With all of this said, picking a top in big tech has been a fool's errand.  The billionaire investor David Einhorn, has many wounds to lick from his failed attempts at shorting his "bubble basket" of tech stocks.  But he wrote in his recent investor note that he’s convinced the bubble has finally burst – as of September 2.  We will see. 

As a key barometer of tech, remember we looked at this Apple chart earlier in the week …