Big Tech Earnings Sparkled. There’s Reason to Worry About What Comes Next.

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Updated July 31, 2021 1:47 p.m. ET / Original July 30, 2021 5:23 p.m. ET

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Krisztian Bocsi/Bloomberg

Big tech stocks support getting bigger. Their marketplace caps, not truthful much.

This past week, the world’s 5 largest tech companies— Apple (ticker: AAPL), Microsoft (MSFT), Amazon.com (AMZN), Alphabet (GOOGL), and Facebook (FB)—all reported quarterly results. Their corporate show was astonishing. As a group, their gross accrued 36%, to $332 billion. These companies spent the pandemic making gobs of money.

But investors were unimpressed. While Alphabet inched 1.3% higher for the week, the others were each down. Amazon got the worst reception; its banal fell 7.6% connected Friday. With each 5 hovering adjacent all-time highs, investors are taking profits, disquieted that maturation rates are going to dilatory from here. Beneath the surface, the concerns are good founded. Here are the cardinal takeaways from Big Tech’s immense earnings:

The pandemic roar is over. That’s not to accidental the pandemic itself is over—the Delta variant is wreaking havoc—but Americans person already made changes successful their behavior, and those adjustments are having a large interaction connected the tech giants.

It starts with e-commerce. Amazon Chief Financial Officer Brian Olsavsky said connected the company’s net telephone that starting successful mid-May, maturation successful e-commerce income dropped into the midteens from the 30%-to-40% range. People are getting vaccines and leaving the location to bargain things that conscionable a fewer months agone they would person bought online. They’re besides shifting immoderate disposable income from online buying to travel, restaurants, and adjacent events. Olsavsky sees continued pugnacious comparisons for Amazon—and midteens maturation rates—for the adjacent fewer quarters.

Apple beat expectations successful each of its segments, but maturation is slowing there, too. Mac income were up 16% successful the June quarter, down from 70% maturation 3 months earlier. iPad income were up 12%, versus 79% successful the March period. This is each inactive amended than earlier the pandemic, but it suggests that the furious buying spree for location offices and virtual schooling is coming to an end. Logitech (LOGI), which makes PC peripherals similar mice and webcams, had 66% gross maturation successful the June quarter, but it sees level gross for its fiscal twelvemonth ending successful March 2022.

Component shortages continue. The market’s biggest contented with Apple’s 4th was its informing that the spot proviso shortage has worsened since the extremity of June—and that the contented volition impact the availability of iPads and, adjacent worse, iPhones. In September, Apple is expected to release the iPhone 13—and there’s a hazard that Apple mightiness not beryllium capable to conscionable demand. Qualcomm (QCOM) this past week warned that the spot shortage could resistance into 2022. This could instrumentality a portion to fix.

Meanwhile, Apple CEO Tim Cook said connected the company’s net telephone that shipping costs are higher, too. I saw grounds of that from my spot astatine a San Francisco Giants crippled this past week. Looking past McCovey Cove toward San Francisco Bay, determination were astatine slightest a twelve instrumentality ships lined up to get into the Port of Oakland, which saw an 11% summation successful cargo measurement successful the archetypal half. The larboard is backed up successful portion owed to a shortage of dockworkers. Freight rates are astatine grounds levels, and the vacation merchandising play is accelerated approaching, adding to request for freight capacity.

Online advertizing is blazing hot. On a brighter enactment for investors, Alphabet’s ad concern grew 68% successful the latest quarter, including an 84% leap successful advertizing astatine YouTube. Facebook’s ad concern grew 56%, driven by a 47% year-over-year summation successful advertisement pricing. Amazon’s “other” gross category, mostly ads, was up 87%, to $7.9 billion, astir $1 cardinal amended than Wall Street estimates. Apple doesn’t interruption retired advertising, but advertisement spot contributed to the 33% maturation successful the company’s services business. Microsoft saw a 53% leap successful hunt ads (remember Bing?) and a 97% leap successful advertizing astatine LinkedIn. It each stems from the reopening of the economy. Alphabet told analysts that the biggest operator of advertisement maturation was retail, with beardown contributions from travel, fiscal services, and media and entertainment. People are shopping, eating out, and going connected vacation, and that’s driving ads.

Cloud adoption is accelerating. The integer translation inclination that everyone successful endeavor computing talks astir is the existent deal. For Amazon, the slowdown successful e-commerce maturation overshadowed a fantastic 4th for its Amazon Web Services unreality unit, which grew 37%—accelerating from 32% successful the March quarter— to $14.8 billion. That was $500 cardinal amended than estimates. Microsoft Azure gross was up 51%, beating the Wall Street statement by 9 percent points. Alphabet posted 54% maturation successful its Google Cloud business, accelerating from 46% maturation successful the March quarter. Google Cloud is rapidly approaching a $20 cardinal yearly gross tally rate. Give it a cloud-like income aggregate of 20 times and the concern is worthy $400 billion, constituting much than 20% of Alphabet’s existent marketplace value.

The chaotic card. Regulators and legislators scrutinizing Big Tech are surely looking astatine the latest results and uncovering a caller consciousness of purpose. The large are getting bigger. And the regulatory risks are getting riskier.

Write to Eric J. Savitz astatine eric.savitz@barrons.com

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