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☕ Can big tech deliver?

Oct 28, 2024

Good morning! 👋

I hope you’ve had a great weekend and are ready to get after it.

I am.

There are some monster earnings on deck.

In fact, roughly ~37% of the S&P 500 reports starting today.

The media and more than a few folks are going to use this as an excuse to focus on the negative, but I encourage you to stay on track with what we do best around here… the positive. (Watch)

Nearly 40% of the S&P 500 have reported earnings so far, 75% of which have reported positive EPS surprises while 59% have reported positive revenue surprises.
The blended earnings rate is 3.6% which, if it holds, will be the 5^th consecutive quarter of positive YoY earnings growth.

To be fair, the question on the minds of many is will there be a pullback or some volatility?

Probably a little of both, but neither is reason to abandon ship.

If that makes you nervous, try taping this tiny little chart to the back of your cell phone, to the side of your monitor or even to the bathroom mirror. Then, take a deep breath.

Keith’s Investing Tip: Earnings, particularly big, widely anticipated reports, are a short-term game despite the fact that they convey long-term investing promise. I wish they’d do away with the earnings cycle because my $0.02 is that they create unnecessary market turbulence and uncertainty, but that’s just me.

Here’s my playbook.

1 – Monster Earnings Calendar

Remember, earnings volatility is almost always an opportunity when the dust settles. ☺️

2 – Can big tech deliver?

The super savvy Stuart Varney asked me for my take just ahead of today’s opening bell. (Watch)

Key takeaways:

There are still a tremendous number of Wall Streeters offsides – meaning they’ve missed the rally and continue to underestimate the impact tech is having on our world. So, not surprisingly, they’ll want to play catch up. That’s nearly always a tailwind and great for investors who are already on board (as I hope you are with many of the worldclass names we talk about frequently).
AI – the most valuable subset of Digitalization - and the follow-through cycle is something they can’t model or stuff into a checkbox, so many analysts are pretending it doesn’t exist. An epic mistake.
Not all tech is the same. The best tech including names like Apple, Microsoft and Palantir is a world apart from the worst which includes names like Intel and Peloton just to name two that come to mind.

3 – “Too much” tech??!!!

I heard recently from a concerned investor wondering if there were other stocks to buy because the funds in her portfolio had “too much” tech.

Logical question - many investors have been conditioned for generations to think that spreading your money around willy-nilly to diversify your portfolio is the way to go.

There are two problems with this line of thinking in today’s markets:

Diversification is playing not to lose; and,
It doesn’t work anymore like it once did.

You’ve got to be “in to win… if you want to win.”

It’s not an accident that legends like Warren Buffett, Ron Baron and others concentrate on high conviction choices any more than I do.

The real problem is that most investors don’t have enough of the right kind of tech.

Digitalization – which is how I view tech - is the largest of the 5D’s guiding my research by several orders of magnitude. Which is why, of course, you want to stay with the winners and avoid the losers imho.

Source: One Bar Ahead®

Btw, if you’re interested in learning more about the 5Ds and using ‘em to help up your game, you might find it valuable to become a member of the One Bar Ahead® Family.

4 – Delta: the dog ate my homework

Delta has sued CrowdStrike alleging breach of contract and negligence. (Read)

Meanwhile, CrowdStrike has fired back saying that Delta is desperately seeking to deflect owning up to antiquated IT infrastructure coupled with a lack of understanding related to modern cybersecurity practices.

Who’s right?

I dunno but seems to me that Delta has yet to explain why its response was such a disaster when other companies were back online in a matter of hours.

My guess is that Delta execs either a) decided not to spend the money needed on cybersecurity and modernizing ancient IT infrastructure when they had the chance or b) have IT execs in place who didn’t let senior management know that they’d decided (farther down the food chain) that it wasn’t a top priority.

CrowdStrike has returned ~40% since August 2024 when it put in lows of ~$217 a share.

More glaringly, CRWD has returned nearly 500% over the past 5 years. The S&P 500 has turned in 91%.

Cybercrime in one form or another is a $10+T problem and only going to get worse, which means that investing in preventing it will likely get dramatically more profitable over time.

Investing early makes all kinds of sense.

Keith’s Investing Tip: Investors constantly focus on what might happen (like this lawsuit and the blame game) when what they should be prioritizing are the profits likely to follow as the world moves on. The CrowdStrike incident, while unfortunately, dramatically highlighted that any company not taking it seriously is at risk. And those that are, remain great investments.

5 – Forget the Chinese if you fear AI, Meta strikes again

The West lost its collective you know what when word got out a few years ago that China is using facial recognition to surveil and manage its population.

Forget the Chinese!

Fox reported over the weekend that two Harvard students, AnhPhu Nguyen and Caine Ardayfio, have created a system called I-XRAY that can identify individuals on the street using Meta’s brand-spanking new glasses. (Read)

Btw, Meta reports this week.

I don’t own it but celebrate everybody who does, especially because the newer, more adult-like El Zucko could turn in rock-star level numbers.

Any weakness is undoubtedly an opportunity meanwhile.