Summary

In their recent earnings, big tech companies have demonstrated robust performance, showcasing strong financial health and significant growth across various segments. Common themes include the acceleration of AI and cloud services, increased user engagement, and substantial investment in infrastructure.

Revenue and Earnings Growth

Major tech companies reported impressive year-over-year revenue increases, with many surpassing analyst estimates. All of the FANGMA giants reported higher-than-expected earnings per share (EPS). Amazon was the only company that did not beat analyst expectations on revenue, as its advertising unit came in short.

Cloud and AI Services

The push towards cloud and AI continues to be a significant driver of growth. Amazon Web Services (AWS) saw a reacceleration in growth, with an 18.8% revenue increase, driven by high demand for AI and cloud services. Similarly, Alphabet’s cloud segment surpassed $10 billion in quarterly revenues for the first time, and Microsoft’s cloud business grew by 23% to over $135 billion annually. AI initiatives across these companies, such as Amazon’s SageMaker, Meta’s AI Studio, and Microsoft’s Azure AI, are becoming central to their strategies.

User Engagement and Advertising

Companies like Meta and Netflix highlighted strong user engagement and growth in their advertising businesses. Meta reported a 22% revenue increase, driven by user growth across its apps and advancements in AI that enhance content recommendations. Netflix saw a 17% revenue increase, primarily due to a rise in average paid memberships and the growth of its ad-supported tier.

Investment in Innovation and Infrastructure

Significant investments in AI and cloud infrastructure are a common trend. Amazon and Alphabet are planning substantial capital expenditures to support their growing AI and cloud businesses. Apple is focusing on AI innovations integrated into its software platforms, while Meta is investing heavily in AI research and product development with expected capital expenditures of $37 to $40 billion for 2024.

Portfolio Holdings

Amazon.com Inc (AMZN)

Portfolio weight: 17.20%

• EPS: $1.23 reported vs $1.02 estimated
• Revenue: $147.98B reported vs $148.78B estimated

“We’re continuing to make progress on a number of dimensions, but perhaps none more so than the continued reacceleration in AWS growth. As companies continue to modernize their infrastructure and move to the cloud, while also leveraging new Generative AI opportunities, AWS continues to be customers’ top choice as we have much broader functionality, superior security and operational performance, a larger partner ecosystem, and AI capabilities like SageMaker for model builders, Bedrock for those leveraging frontier models, Trainium for those where the cost of compute for training and inference matters, and Q for those wanting the most capable GenAI assistant for not just coding, but also software development and business integration.” – Andy Jassy, CEO.

Amazon reported a significant revenue increase to $148 billion in Q2 2024, marking an 11% year-over-year growth, with operating income surging 91% to $14.7 billion. The company’s free cash flow saw an explosive increase, up 664% year-over-year, indicating strong financial health. AWS’s revenue growth accelerated to 18.8% in Q2, driven by demand for AI and cloud services. Amazon’s AI business and advertising revenue both saw substantial growth, with AI services expanding and advertising revenue adding over $2 billion year-over-year. The company also highlighted its largest ever Prime Day event and plans to increase capital investments in AWS infrastructure to meet growing demand.

Netflix Inc (NFLX)

Portfolio weight: 16.80%

• EPS: $4.88 reported vs $4.73 estimated
• Revenue: $ 9.56B reported vs $ 9.53B estimated

“We’re pleased with our performance in Q2. There was strong performance across the board, good momentum across the business, strong revenue growth, member growth, and profit growth. In terms of that member growth and churn, I’d say that the kind of outsized paid net adds in the quarter was primarily driven by stronger acquisition, a little stronger than we expected, but also very healthy, continued healthy retention in the quarter, and that’s across all regions.” – Spencer Adam Neumann, CFO.

Netflix reported a strong Q2 with a 17% year-over-year revenue growth, primarily driven by a 16% increase in average paid memberships. The operating margin improved to 27% from 22% last year, and earnings per share (EPS) rose by 48% to $4.88. Operating income for the quarter was $2.6 billion, a 42% increase from Q2 2023. Consequently, Netflix updated its full-year forecast, projecting revenue growth of 14% to 15% and an operating margin of 26%. In terms of content, Netflix saw strong user engagement with hit series such as “Bridgerton S3,” “Baby Reindeer,” “Queen of Tears,” and “The Great Indian Kapil Show,” as well as popular films like “Under Paris,” “Atlas,” “Hit Man,” and “The Roast of Tom Brady.” To enhance user experience, Netflix began testing a new, more intuitive TV homepage in June. The company also made significant strides in its ads business, with ads tier membership growing 34% quarter-on-quarter. Netflix is developing an in-house ad tech platform set for testing in Canada in 2024 and a broader launch in 2025.

Meta Platforms (META)

Portfolio weight: 16.80%

• EPS: $5.16 reported vs $4.72 estimated
• Revenue: $39.07B reported vs $38.34B estimated

“We had a strong quarter, and Meta AI is on track to be the most used AI assistant in the world by the end of the year. We’ve released the first frontier-level open-source AI model, we continue to see good traction with our Ray-Ban Meta AI glasses, and we’re driving good growth across our apps.” – Mark Zuckerberg, CEO.

Meta Platforms reported a 22% increase in Q2 total revenue to $39 billion, with a notable user growth across its apps, including WhatsApp surpassing 100 million monthly active users in the U.S. and Threads nearing 200 million monthly active users. The company’s advancements in AI are enhancing content recommendations and advertiser services, with the launch of Meta AI and AI Studio positioning Meta at the forefront of AI application in social media. The release of LLaMA 3.1 and a commitment to open source are expected to foster innovation and support superior consumer and advertiser experiences. Meta plans significant investments in infrastructure to support AI research and product development, with capital expenditures expected to be in the range of $37 to $40 billion for 2024, reflecting strategic planning for sustained growth.

Apple Inc (AAPL)

Portfolio weight: 16.70%

• EPS: $1.40 reported vs $1.34 estimated
• Revenue: $85.78B reported vs $84.46B estimated

“Today Apple is reporting a new June quarter revenue record of $85.8 billion, up 5 percent from a year ago. During the quarter, we were excited to announce incredible updates to our software platforms at our Worldwide Developers Conference, including Apple Intelligence, a breakthrough personal intelligence system that puts powerful, private generative AI models at the core of iPhone, iPad, and Mac. We very much look forward to sharing these tools with our users, and we continue to invest significantly in the innovations that will enrich our customers’ lives, while leading with the values that drive our work.” – Tim Cook, CEO.

Apple reported a new June quarter revenue record of $85.78 billion, a 5% increase from the previous year, with significant contributions from services and iPad sales. Despite a slight decline in iPhone revenue, the company achieved an all-time high in services revenue, growing 14% year-over-year. Challenges were noted in the wearables, home, and accessories segment with a 2% revenue decline. However, Mac revenue increased by 2%, driven by strong demand for the MacBook Air. Apple’s forward-looking statements suggest confidence in maintaining growth, projecting similar revenue growth for the September quarter and highlighting a record operating cash flow of $28.9 billion.

Alphabet Inc (GOOGL)

Portfolio weight: 16.30%

• EPS: $1.89 reported vs $ 1.84 estimated
• Revenue: $ 71.36B reported vs $ 70.75B estimated

“Our strong performance this quarter highlights ongoing strength in Search and momentum in Cloud. We are innovating at every layer of the AI stack. Our longstanding infrastructure leadership and in-house research teams position us well as technology evolves and as we pursue the many opportunities ahead.” – Sundar Pichai, CEO.

Alphabet Inc. celebrated a significant milestone with its Cloud segment surpassing $10 billion in quarterly revenues for the first time, alongside a quarterly operating profit exceeding $1 billion, highlighting its strong position in the cloud computing market. The company’s AI initiatives have generated billions in revenues, with over 2 million developers utilizing its AI infrastructure and generative AI solutions, indicating robust growth and innovation. Alphabet’s Search segment saw excellent performance, particularly with AI overviews enhancing user engagement and satisfaction. YouTube’s advertising revenues grew by 13% year-on-year, with the platform maintaining its lead in US streaming watch time and expanding views on YouTube Shorts. Waymo, Alphabet’s autonomous driving technology company, has achieved over 2 million trips and 20 million fully autonomous miles, indicating significant progress in the autonomous driving space.

Microsoft Corporation (MSFT)

Portfolio weight: 16.20%

• EPS: $2.95 reported vs $2.94 estimated
• Revenue: $64.73B reported vs $64.52B estimated

“Our strong performance this fiscal year speaks both to our innovation and to the trust customers continue to place in Microsoft. As a platform company, we are focused on meeting the mission-critical needs of our customers across our at-scale platforms today, while also ensuring we lead the AI era.” – Satya Nadella, CEO.

Microsoft’s annual revenue reached over $245 billion, a 15% increase, with its cloud business notably growing by 23% to surpass $135 billion. Azure AI’s customer base expanded by nearly 60%, and GitHub Copilot’s adoption surged, contributing significantly to GitHub’s revenue growth. The company also reported a substantial increase in its security customer base and LinkedIn’s engagement and revenue. Additionally, Microsoft’s gaming user base exceeded 500 million monthly active users, and showed strong revenue and earnings growth. Despite these positive trends, the Activision acquisition had a mixed impact on revenue growth and operating income, and Microsoft anticipates a slight decrease in operating margins due to increased capital expenditures.

Investing in FANGMA: Canada’s best performing ETF over the past 2 years¹

Annualized performance
Ticker	1 Year	2 Year	3 Year	Since Inception*
TECH.B	40.28%	42.21%	16.23%	18.83%

*Source: Bloomberg as at July 31, 2024. Since inception of TECH.B on May 4, 2021.

For investors, 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 (Meta), 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.

 

 

Portfolio weight as at July 31, 2024. EPS and Revenue data via Bloomberg.

 

Header Image Source: Getty Images Credit: Weiquan Lin

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