The tech industry has had a strong 2023 so far, as many of the biggest players in the sector surprised market watchers with stronger-than-expected earnings results in the most recent quarter.

The FANGMA stocks—Facebook, Apple, Netflix, Google, Microsoft, and Amazon—are not only performing well but are now “the sustainable bedrock of the modern economy,” as well as where the ‘next big thing’ in the digital world is set to happen.¹

With ongoing economic uncertainty, many investors are looking to the strength of FANGMA stocks to help them weather whatever storms may be on the horizon.

Facebook

Meta Platforms Inc. (the parent company of Facebook) reported its first sales increase in four quarters in April and issued optimistic guidance for the rest of the year. Meta’s Q1 sales were up 3% year over year to $28.6 billion, and for Q2 Meta now expects revenue of between $29.5 billion and $32 billion against analyst expectations of $29.5 billion.²

On the April earnings call, CEO Mark Zuckerberg emphasized the role generative AI will play in Meta’s future. Promising that generative AI will soon “touch every single one of our products,” Zuckerberg highlighted plans to introduce “AI agents” like chatbots or digital assistants like Siri and Alexa to billions of users—businesses and regular people alike—for tasks including business messaging, customer support, the creation of metaverse avatars, and the writing of code.³

Amazon

Amazon.com Inc. showed a stronger-than-expected quarterly profit thanks to cost-cutting measures and sales growth in Amazon Web Services (AWS), its cloud-computing division. Revenue was up 9.4% from the previous year to $127.4 billion, beating expectations of $124.7 billion.⁴

AWS, a key profit center for Amazon for nearly a decade, also experienced stronger-than-expected growth in Q1, with revenue up 16% to $21.35 billion. While AWS maintains a sizeable lead in the global cloud infrastructure market, the division is adopting a different growth strategy from competitors (who are investing in outside AI companies or consumer-facing tools). Instead, AWS is focused on becoming a “neutral platform” providing businesses access to generative AI products without tying them to a single model. AWS will sell access to language models on a new service called Bedrock, which will enable access to models by Anthropic, Stability AI and AI21 Labs, as well as Amazon’s own language model, Titan, which can be trained on a customer’s data and avoid mingling public and private data in model.⁵

Netflix

In Q1, Netflix generated over $2 billion in free cash flow and reported a net income of $1.31 billion. Although the company fell short of analyst projections for new subscribers, with 1.75 million new customers instead of the expected 2.04 million, it remains optimistic about future growth. The introduction of new strategies, such as cracking down on password sharing and expanding the availability of an ads-supported membership tier, is expected to fuel growth in the second half of 2023.

This quarter, Netflix plans to implement its password crackdown in the United States. It anticipates this will encourage growth in the latter part of the year by charging U.S. viewers who share accounts with others. This approach has already yielded positive results in Canada, where the crackdown has resulted in increased paid memberships.⁶

Google

Alphabet Inc., the parent company of Google, posted impressive first-quarter earnings, primarily driven by a robust performance in search advertising. The company’s sales for the quarter reached $58.07 billion, exceeding the $56.98 billion average estimate of industry analysts. To combat the impact of reduced spending by advertisers, Alphabet has been implementing measures to reduce costs. In January, the company downsized its workforce by approximately 12,000 employees. Additionally, Alphabet has authorized share buybacks of up to $70 billion. The company’s shares have gained more than 17% since the beginning of the year.⁷

Alphabet’s Google Cloud also generated a profit for the first time in April. Although Google’s cloud unit is much smaller than competitors Microsoft and Amazon, it reported a profit of $191 million in Q1. As its core search advertising business matures, Google anticipates that growth will continue in its cloud services and become more critical to overall company revenue.⁸

Microsoft

Microsoft reported revenue of $52.86 billion, beating expectations of $51.02 billion. Net income was $18.3 billion (up 9%), while revenue grew 7% year-over-year. Microsoft’s cloud-based offerings, such as Azure and Office 365, continued attracting new customers with sales up 22% to $28.5 billion. Microsoft also plans to increase spending to reinforce its cloud data centers in response to the growing customer demand for new AI tools.⁹

It wasn’t all good news for Microsoft in April, however. UK antitrust regulators blocked Microsoft’s $69 billion purchase of Activision Blizzard, one of the world’s largest video game developers, over concerns the deal would threaten competition in cloud gaming. Despite Microsoft’s proposed remedies to ensure continued competition, such as deals to allow Activision Blizzard games such as “Call of Duty” and “Overwatch” to appear on rival cloud gaming platforms, the UK Competition and Markets Authority still felt the deal would make Microsoft (which already holds a 60%-70% global market share in cloud gaming) too dominant in the space and lead to “reduced innovation and less choice for UK gamers over the years to come.” ¹⁰

While Microsoft and Activision Blizzard plan to appeal the ruling, even if they are successful the deal isn’t out of the woods yet. Both the US Federal Trade Commission and the European Union are evaluating the proposed takeover based on similar competition concerns.¹¹

Apple

And work continues on Apple’s long-rumoured mixed reality headset, which is reportedly set to debut at Apple’s Worldwide Developers’ Conference in June. Reporting in April suggests the mixed reality headset can switch between virtual reality (VR) and augmented reality (AR) and that the device will focus heavily on gaming, sports, and collaborative tools, as well as run Apple Fitness+ workouts in VR. Customers will be able to use “millions” of other existing apps on the headset’s 3D interface “with slight modifications” from developers.¹²

The device will also allow Apple to leverage its streaming rights for Major League Soccer and Major League Baseball by enabling “immersive sports viewing,” as well as “immersive video” which will let users watch videos in virtual environments like a desert or the sky.¹³

Investing in FANGMA: TECH ETF

It would be difficult to talk about today’s stock market without dealing in some way with one or more of the FANGMA tech giants. Odds are you use one (or more) of the advanced technologies or popular consumer services these six companies are responsible for—as do billions of other people each day. But high share prices may deter investors from adding all of these companies individually to a portfolio.

With the Evolve FANGMA Index ETF (TECH ETF), investors gain exposure to all six companies – Facebook, Amazon, Netflix, Google, Microsoft, and Apple – for a reasonable unit price.

For more information about the Evolve FANGMA Index ETF (TECH ETF) or any of Evolve ETF’s lineup of exchange-traded funds, please visit our website or contact us.

 

Sources:

1. Dolan, M., “Mega tech stocks lure back investors for all seasons,” The Globe and Mail, April 28, 2023; https://www.theglobeandmail.com/investing/investment-ideas/article-mega-tech-stocks-lure-back-investors-for-all-seasons/
2. Vanian, J., “Meta shares pop 12% after company reports first sales increase in four quarters, issues optimistic guidance,” CNBC, April 26, 2023; https://www.cnbc.com/2023/04/26/facebook-meta-q1-earnings-report.html
3. Heath, A., “Mark Zuckerberg says Meta wants to ‘introduce AI agents to billions of people’,” The Verge, April 26, 2023; https://www.theverge.com/2023/4/26/23699633/mark-zuckerberg-meta-generative-ai-chatbots-instagram-facebook-whatsapp
4. Palmer, A., “Amazon stock dips as uncertain cloud outlook overshadows revenue beat,” CNBC, April 27, 2023; https://www.cnbc.com/2023/04/27/amazon-amzn-q1-earnings-report-2023.html
5. Day, M., “Amazon Joins Generative AI Race, Targets Tech at Cloud Customers,” BNN Bloomberg, April 13, 2023; https://www.bnnbloomberg.ca/amazon-joins-generative-ai-race-targets-tech-at-cloud-customers-1.1907298
6. Shaw, L., “Netflix Sees Stronger Second Half With Account-Sharing Curbs,” Bloomberg, April 18, 2023; https://www.bloomberg.com/news/articles/2023-04-18/netflix-gets-off-to-another-slow-start-with-disappointing-growth
7. Love, J., “Alphabet Shares Rise on Revenue Beat as Ad Sales Recover,” Bloomberg, April 25, 2023; https://www.bloomberg.com/news/articles/2023-04-25/alphabet-shares-rise-on-revenue-beat-as-ad-sales-recover
8. Love, J., “Alphabet Shares Rise on Revenue Beat as Ad Sales Recover,” Bloomberg, April 25, 2023; https://www.bloomberg.com/news/articles/2023-04-25/alphabet-shares-rise-on-revenue-beat-as-ad-sales-recover
9. Bass, D., “Microsoft Profit, Sales Top Estimates on Strong Cloud Demand,” Bloomberg, April 25, 2023; https://www.bloomberg.com/news/articles/2023-04-25/microsoft-profit-sales-top-estimates-as-cloud-growth-endures
10. Ziady, H., “UK blocks Microsoft takeover of Activision Blizzard,” CNN Business, April 26, 2023; https://www.cnn.com/2023/04/26/tech/microsoft-activision-blizzard/index.html
11. Ibid
12. Shanklin, W., “Latest Apple headset rumors say it’ll include VR workouts and sports,” Engadget, April 18, 2023; https://www.engadget.com/latest-apple-headset-rumors-say-itll-include-vr-workouts-and-sports-192316389.html
13. Gurman, M., “Apple’s AR/VR Headset to Feature Sports, Gaming, iPad Apps and Workouts,” Bloomberg, April 18, 2023; https://www.bloomberg.com/news/articles/2023-04-18/apple-vr-ar-headset-apps-sports-tv-fitness-gaming-wellness-ipad-features

 

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