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Big Tech + big earnings = big profit potential

Aug 04, 2023

Good morning! 👋

Markets are in the green this morning after an Apple beat and Amazon blowout complete with higher guidance.

Here’s my playbook.

Apple now has 1 billion subscribers

Apple is being largely swept under the rug this morning as investors fawn over Amazon’s return to double-digit growth.

I’m not sure they’re paying attention.

Apple now has 1 billion paid subscribers and, while hardware sales were down slightly, services jumped 8.2% YoY, or 49% more than the 5.5% growth rate last quarter. (Read)

CEO Tim Cook noted that Apple set revenue records in “many categories in Services this quarter from video, to AppleCare, to cloud, to payment services, and we set June quarter records for advertising, the App Store, and Apple Music.”

That’s 150 million subscriptions more than last year and “nearly double what it was just three years ago,” he added.

I know what I’ll be doing this morning; shares are down about $5 as I type.

Amazon: Blowout profits and optimistic guidance

I didn’t think Amazon could pull this off when I took to the air on Monday and told David Asman on Varney & Co that I thought the company might have some challenges when it reported. The Put Butterflies I had in place got skunked.🤦‍♂️

Ya win some, and ya lose some, as the old saying goes.

Looking forward, I couldn’t give a dang about Amazon’s retail business.

What catches my attention is CEO Jassy’s observation that AWS growth has stabilized as customers “started shifting from cost optimization to new workload deployment.” (Read)

I’m not sure that’s reflected in the numbers yet, given that AWS sales decelerated from 16% last quarter to 12% and $22.1 billion this quarter.

But it could be.

Time to take another look!

Jobs: “Only” 187k vs. 200k expected

The unemployment rate remains 3.5%, according to the Department of Labor. (Read)

This points to slower growth in the US economy, which, of course, will have traders looking to the Fed and whether or not they think Team Powell will continue to raise rates to control inflation.

I maintain—as I have for months—that the economy is exiting a recession that’ll never be officially called that. Moreover, that the Fed lost the plot a long time ago, so looking to ‘em to fix this mess is preposterous.

From an investing perspective, there are a whole lot of people worrying about stuff they cannot control when the stuff you can—buying great stocks, managing risk, building wealth—is right in front of you.

Huawei plots a comeback, and AI’s involved

I’ve been wondering when this would happen.

Chinese phone giant Huawei is plotting a comeback after US sanctions crippled it in 2019. (Read)

Normally, I wouldn’t be concerned because competition works like that—meaning the leadership board is constantly changing.

This time around, though…

Huawei announced that the latest version of its mobile operating system HarmonyOS 4.0 will include the introduction of “giant artificial intelligence models to enhance [the] HarmonyOS ecosystem.”

Critics will point to the fact that Huawei will be largely confined to China (which accounts for 89% of the company’s handset shipments), but that’s a monster mistake.

This is a refined strategy aimed at a) reconquering the 5G premium market by creating unified software across various devices, and b) challenging Apple.

The dragon is coming to dinner (again), which means the only decision you need to make as an investor is whether you want to be at the table or on the menu.

TUP’s up 291%, but there’s a better way

Tupperware Brands Corporation (TUP) has gone full “meme,” with shares up 291% in 10 days.

Sounds great, right?

Definitely… right up until you realize the gut-wrenching volatility that’s come with it. One day, shares were down -31.78% while another day, shares were up 75.55%. Shares are up 50% plus in the pre-market as I type.

Most investors are going to lose their asteroids, thanks to something called Gamblers Ruin.

Never heard of it?

You’re not alone; here’s why you’ll want to understand the concept.

Gambler’s Ruin is an idea borrowed from probability theory and statistics that describes a situation in which a gambler with a limited amount of money, playing a game of chance against an opponent with a bigger pile of money, will eventually lose all their funds and be unable to continue playing.

The classic example of Gambler’s Ruin involves a simple betting game like flipping a fair coin or, in this case, buying a stock like TUP. Two players, A and B, start with a certain amount of money each and bet on the outcome of each coin flip. If the coin comes up heads, player A wins a dollar from player B, and if it comes up tails, player B wins a dollar from player A.

If both players have equal amounts of money to begin with, the game continues until one player wins all the money from the other. If one has a bigger pile of money at the onset, the game can accelerate. Either way, due to the random nature of the coin flips, it is inevitable that one of the players will eventually lose all their money, leading to their “ruin.”

My advice is simply not to play.

The real path to success in the financial markets has nothing to do with gambling and everything to do with buying world-class companies making must-have products and services, with massive defensible margins, that are capable of influencing consumer behaviour.

If this is the kind of thing that sounds appealing, you might enjoy a subscription to One Bar Ahead®, my premium investing journal.

The August issue drops later today via email, and there’s still time to sign up if you’re interested. Upgrade to Paid