Head of Equity Strategy
Summary: Yesterday's earnings from Meta and Qualcomm is the story of a cheetah at its maximum speed and a pause after an intense hunt. Based on Meta's own Q2 revenue guidance growth will go negative for the first time in the company's history as lack of tracking on iPhones is putting massive pressure on ads pricing. Qualcomm on the other hand is expected to 30% y/y in the current quarter as the company's products are in high demand with no slowdown in sight.
Meta to hit negative growth in Q2 for the first time ever
Meta shares are up 17% y/y as investors were relieved about the Q1 figures showing revenue came in line with estimates at $27.9bn and EPS at $2.72 vs est. $2.56. The investor reaction is unusual because the Q2 revenue guidance at $28-30bn was below estimates of $30.7bn something investors would typically have punished hard. It shows that sentiment was significantly worse than expressed by analysts in their estimates.
If we take Meta’s revenue guidance at the mid-point then the company will experience its first y/y decline in revenue in the company’s history which is a significant event. As the revenue growth chart shows, the declining revenue growth was already a trend before the pandemic, and the pandemic actually bought Meta a couple of years more with high growth masking the underlying structural issues. Maybe why investors and Meta themselves have surprised by the impact from TikTok? Another disturbing fact about Meta’s result was 1) the $3bn operating loss in its Reality Labs segment (metaverse/Oculus bet), and 2) that advertising pricing was -8% vs est. -4% which means that the way Meta mitigated the falling prices, likely stemming from losing tracking ability on iPhones, were to serve more ads which they did by serving 15% more ads compared to 12.8% estimated by analysts.
Qualcomm is not running out of demand anytime soon
As with Nvidia, Qualcomm is one of those companies in the semiconductor supply chain that is riding all the big trends from headsets, electric vehicles (use more semiconductors), and Internet of Things (IoT). The wireless communication and chip maker delivered revenue of $11.2bn vs est. $10.6bn and sees current quarter revenue at $10.5-11.3bn vs est. $10bn and current quarter EPS of $2.75-2.95 vs est. $2.60 with the CEO saying demand is looking strong across all end-markets and that supply is improving. Qualcomm shares are up 8% in pre-market trading.
With the earnings releases yesterday EPS growth q/q is now negative both MSCI World, S&P 500, and Nasdaq 100 suggesting rising input costs are having a real negative impact on aggregate earnings.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
