The Nasdaq Composite Index, home to some of the world’s largest technology companies, soared to an all-time high of 6,862.66 Tuesday, closing at 6,862.48, up 1.17%.
After multiple weeks of stagnation, investors are seemingly bullish about where they believe equities will go after the Thanksgiving holiday. Powered by tech bellwethers known as FANG, referring, of course, to Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google parent Alphabet (GOOG , GOOGL), the Nasdaq – up 27% year to date — has out-performed the 19% rise in the Dow Jones Industrial Average and the 16% gain of the S&P 500 Index.
The indexes are still reacting to the favorable earnings results released for the just-ended third quarter, particularly those coming from the FANG group, which continues to drive sentiment. Let’s start with Facebook, which crushed its EPS target by 31 cents (earning $1.59 vs. $1.29 estimated), while logging its twelfth-straight earnings beat, which dates back two years. Third quarter revenue came in at $10.3 billion, topping Street forecast of $9.88 billion.
Despite the beat, FB stock had sold off as much as 3.4% in the days after the announcement. Investors were concerned about the company’s 2018 profitability amid comments made by CEO Mark Zuckerberg regarding the investments the company is making to fight off fake news.
“We’re serious about preventing abuse on our platforms,” said Zuckerberg. “We’re investing so much in security that it will impact our profitability.”
Facebook stock — up 57% year to date — has since recovered from the decline. But while the stock is no bargain at 27 times earnings, FB will remain a winner as long as Zuckerberg and gang continue to show that there’s nowhere else on the internet that advertisers can get more bang for their buck. As such, I maintain my 2018 price target of $250.
Amazon reported its Q3 on October 26 and the stock, which has risen 52% year to date, has been on a tear ever since, gaining some 17% since the announcement. The reason for the excitement? Amazon crushed the Street’s EPS estimate by a whopping 49 cents. The company reported Q3 revenue of $43.7 billion, topping forecast of $42.7 billion.
All told, thanks to strong North American sales and continued growth in Amazon Web Services (AWS), which jumped 43%, Amazon surpassed analysts’ expectations on every metric. Amazon’s ability to drive scale continues to boost its earnings growth. This is the opposite of the strategy used by traditional retailers that are driven by stronger margins. And with the acquisition of Whole Foods beginning to pay dividends (accounted for $1.3 billion in Q3 revenue), combined with upbeat Q4 guidance, Amazon remains a strong place to be in 2018, thus boosting my 2018 price target to $1,350.
Netflix, which reported Q3 results on October 23, is next. As it has done on multiple occasions this year, the company crushed subscriber estimates, delivering net adds of 5.3 million versus Street views of 4.5 million. Third quarter revenue reached $2.98 billion, topping estimates of $2.97 billion expected, while EPS came to 37 cents per share, topping 32 cents the Street was looking for. The strength of its subscriber growth has come from its investments in content. So it makes sense for the company to double-down on that strategy.
“While we have multi-year deals in place preventing any sudden reduction in content licensing, the long-term trends are clear,” Netflix said in a letter to shareholders. “Our future largely lies in exclusive original content that drives both excitement around Netflix and enormous viewing satisfaction for our global membership and its wide variety of tastes.”
Netflix’s goal of taking over the world is in full effect. With the stock soaring 60% year to date, Wall Street is latching on to CEO Reed Hastings’ coattails and enjoying the ride. The stock is scary here at almost 90 times fiscal 2018 earnings. But becoming the world’s media company is not without risk. And Netflix is been one of those high-rewards risk investments. Avoid the stock at your own peril.
Finally, you can’t spell profits without Alphabet, which delivered a strong beat on both the top and bottom lines. Q3 EPS of $9.57 crushed estimates by a whopping $1.14, while revenue came to $27.77 billion, versus $27.2 billion expected. Not surprisingly, GOOGL stock — up 32.5% year to date — has been flying higher ever since, up 6.5% since the report. Despite softer ad prices and higher traffic costs, Google realized stronger click volume in international markets, particularly in China, which helped drive higher revenue, thus the strong earnings beat.
Among the non-FANG names, titans such as Apple (AAPL), Microsoft (MSFT) and Intel (INTC) answered some pressing questions of their own. For Apple, which issued upbeat guidance, it was that its iPhone X (pronounced ‘ten’) won’t impact the holiday quarter by rumors of delays. On the earnings call with analysts, CEO Tim Cook boasted about the impact of the company’s service revenue, which hit an all-time high during the quarter and is on track to double by 2020.
Microsoft’s major advancement was with its Azure commercial cloud business, which not only hit a important company (self-imposed) revenue benchmark during the quarter of $20 billion, the business is now on pace to account for more than 20% of the company’s total revenue by Q1 of 2018. In other words, Microsoft is now a fully-fledged cloud company.
Intel was no slouch, as the chipmaker not only beat its Q3 earnings estimates, it also raised its full-year profit outlook to $3.25 per share on $62 billion in revenue. This compares to prior guidance of $3.00 in EPS and $61.3 billion in revenue. Obviously, the company has been working to transition from the fledgling consumer PC market. It now seems Intel is ready to make a major leap from transition to sustainable growth, thanks to strong demand from its client computing group.
All told, the third quarter was one of the stronger earnings periods for techs in quite a while where the most-prominent names carried their weight equally. And as we’re now a few weeks into the fourth quarter, there is no place else investors should want to be, given their collective strong outlooks. And that’s a good thing for the Nasdaq Composite as well.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.