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Alibaba company logo on office building Robert Way
This week, several of America’s biggest tech companies reported their earnings. More will be reporting next week. In a series of articles I wrote this week, I discussed my opinions on individual tech companies’ earnings releases. In this article I will reveal all five of the tech stocks I personally am holding through big tech earnings–starting with one foreign stock that may seem out of left field (but really isn’t), then moving on to the U.S. names you’d expect to see on this list.
Alibaba
Alibaba Group Holding (BABA) is a name you might be surprised to see on this list. It’s not part of the list of companies reporting this week or next week, and it isn’t a U.S. tech company at all. Rather, it’s a Chinese tech company that shares some similarities with the U.S. tech companies that have been reporting lately. We may use the reactions to the ongoing tech earnings releases to determine how Alibaba stock may trade after its next earnings release comes out.
Broadly, U.S. tech stocks gained after they released earnings last week, with most of the big ones beating estimates. Many of them rallied despite earnings declining, because the results were ahead of estimates. In recent quarters, Alibaba has been not only beating estimates, but actively growing its earnings. For example, in the December quarter, it beat on EPS by $0.82 and grew its free cash flow by 15%. Despite this, the stock is relatively cheap, trading at the following multiples:
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11.24 times adjusted earnings.
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1.78 times sales.
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1.54 times book value.
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9.34 times operating cash flow.
Pretty solid for a tech stock, and with China’s economic re-opening well underway, the next quarter could be much better.
Apple
Apple Inc (NASDAQ:AAPL) is another tech stock I’m holding through earnings season. It’s about to report for May 4, and investors appear to have high hopes. While the latest news reports about Apple, such as a rumored 40% crash in Macbook sales, have not been great, AAPL’s trading has been upbeat. At $169.68, AAPL is only 5% off an all-time high.
Unlike Alibaba, Apple is no ‘value’ play. Trading at 28.5 times earnings, it scores an ‘F’ on valuation in Seeking Alpha’s Quant system. It’s true that Apple is getting pricey, but what it lacks in cheapness it makes up for in quality. Apple has the world’s second most valuable brand and an ecosystem of products that connect with each other, incentivizing multiple purchases per customer. It’s a powerful business model that justifies a premium valuation.
Alphabet Inc (NASDAQ:GOOG), hereafter referred to as “Google” is a stock that has already reported earnings. Its release beat estimates on revenue as well as earnings, and it rallied after hours when the release came out. That rally faded on the first day of trading after the release came out, but GOOG stock picked up steam when the whole tech sector rallied on Meta Platforms’ (META) large beat.
I was fairly content with what I saw in Google’s most recent quarterly release. The release showed, among other things:
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Positive revenue growth.
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A shrinking rate of decline in earnings.
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Profits in the cloud segment for the first time ever.
It was a good quarter all-around. Earnings growth was still negative, but much improved from the prior quarter. At 15.2 times operating cash flow, I’d say Google is still a reasonably good buy here, though maybe not quite the buy it was at $85.
TSMC
Taiwan Semiconductor Manufacturing (TSM) is another foreign name like Alibaba that is technically not part of the current crop of earnings releases, but is very much part of the conversation. All of the numbers you’re seeing being reported by companies like Apple and Google have bearing on TSM’s sales figures. Why? Because TSM is a supplier to all of them. TSMC controls nearly 60% of the chip foundry market, and is a major supplier to every big tech company. Among other things, TSMC is:
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A major supplier to Apple.
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Tapped to make NVIDIA’s (NVDA) next gen chips.
That’s a powerful collection of relationships right there, and some of them are exclusive or near-exclusive. Yet still we’ve got TSM trading at 12.93 times earnings, which is much lower than the same multiple for NVIDIA, whose earnings are declining.
PDD Holdings
Finally, we have PDD Holdings (NASDAQ:PDD), a Chinese e-commerce company similar to Alibaba. This is the smallest and most ‘atypical’ tech stock in my portfolio. It is known for its rapid growth, particularly in its U.S. subsidiary, Temu. Temu launched just last September and quickly rose to the top of the U.S. app store charts. That growth in usage is translating into financial growth, too. In its most recent quarter, PDD delivered:
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46% growth in sales.
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32% growth in EBIT.
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43% growth in net income.
Despite all that growth, PDD Holdings stock is fairly cheap, trading at just 16.7 times earnings and 12.5 times operating cash flow. For a true high growth stock, that’s not bad.
The Bottom Line
Big tech earnings season is almost over, and for the most part what we’ve seen has been received well. In my opinion, the continued negative earnings growth at many of the big tech giants is alarming, but on the other hand, the revenue growth is picking up. If these companies can keep costs under control, they’ll eventually prove to have been good buys. Personally, I’m quite comfortable holding the five stocks mentioned in this article.
