Trading Desk: Let “Little” Tech Twist

Meta (META) and Qualcomm (QCOM) missed their earnings targets and paid the price. But the tech sector and the NASDAQ are still moving higher. It’s all a matter of scale . . . and it’s a great thing for the market as a whole.

META is suffering. Revenue actively dropped for the first time ever and earnings are down 32% from last year. Mark Zuckerberg blames a downturn in advertising spending.

His stock is down 6% today, echoing what rival social CEO Evan Spiegel from SNAP endured¬† a few weeks ago after blaming the advertising environment for his company’s lack of progress.

But only two days ago, the real heavyweight of online advertising, mighty Alphabet (GOOG), announced that it managed to raise the top line 13% from last year, and while the bottom line weakened, margins remain awfully healthy.

There was no whining about the economy or the Fed. Management keeps delivering the best results it can . . . and while hiring is frozen and programmers are being urged to “think like entrepreneurs” (keep ROI in mind), morale seems pretty good.

It’s a long way from META, where Zuckerberg is berating his employees to get productive or get out. Is it any wonder GOOG is up 8.4% since Tuesday night and META has given up all the gains it initially made over the period now that its numbers are out?

Here’s the thing, though. Even if you aren’t actively invested in either company, GOOG’s triumph overcomes META’s tribulations because GOOG is a $1.5 trillion enterprise while META is at best worth $450 billion.

Every penny of good news for GOOG takes the market as a whole up 3X as much as the equivalent drag on META takes it away. And as a result, GOOG being up 8.4% and META being flat translates into a net rally for the communications sector to which both have formally been assigned . . . as well as the NASDAQ and the S&P 500 in general.

GOOG is a big deal. It moves the market. META used to be a big deal, but its 60% collapse since September takes it far away from the trillion-dollar bracket, eroding its influence as well as its weight in index funds.

I frankly don’t think it’s going to recover. Any collapse that brings GOOG back to Zuckerberg’s level will be severe . . . perhaps even fatal to META as we know it. And at this rate, by the time META aspires to trillion-dollar status again, GOOG will have moved far ahead.

Remember when we used to talk about the “FANG” stocks? There was an “N” in that group that quickly fell out when the others left it far behind . . . Netflix (NFLX) at its peak was only a $300 billion stock, barely in the same bracket as any of its Big Tech rivals and smaller than a wide swathe of “old economy” stocks like Johnson & Johnson (JNJ) and Walmart (WMT).

There’s no reason to group a $300 billion company in with real giants 2-7 times its size unless you’re going to add Berkshire Hathaway (BRK) to the list. A much better “N” would be NVIDIA (NVDA), which is truly differentiated and has endless room to keep growing.

NVDA is bigger than META now. And I think META, like NFLX, has peaked under its existing business model. If Zuckerberg can’t pull metaverse magic out of his platform, this is roughly as good as it gets for him.

But it’s not as good as it gets for the communications sector, where the giant gets bigger and everyone else scrambles for scraps of market share. GOOG can get bigger. They’re proving it, even in what feels like a recession.

And while QCOM is much, much smaller, similar logic applies. It’s a key player in the wireless networking world and apparently that’s not doing as well as Wall Street hoped.

Sales are up 37%, which should tell somebody that the phone business is doing just fine . . . handset revenue is actually soaring something like 60% on a year-over-year basis. Earnings are up 53% from last year, so there isn’t a huge inflationary fight here.

QCOM is even more efficient now than it was a year ago. But the current quarter might show a few wobbles on the trend . . . much like Microsoft (MSFT) did on Tuesday.

It hurts for QCOM shareholders but they’ll be fine. The market didn’t even flinch. MSFT is about 12X as big as QCOM. The battleship is pushing full speed ahead. If the little stock suffers, the market doesn’t even notice.

Now let’s see what AAPL and AMZN say.