Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

A Big Day for Tech Earnings

By Zacks Investment ResearchStock MarketsOct 27, 2021 06:10AM ET
A Big Day for Tech Earnings
By Zacks Investment Research   |  Oct 27, 2021 06:10AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

We generally think of the big tech names as growth stocks, and they are, going by the way they continue grow year upon year. But when big tech is relatively undervalued, it’s a really great time to invest. Because this segment really offers the quality of earnings that value investors are looking for.

The best thing about tech is the way it helps increase efficiencies across other sectors, meaning that it doesn’t just grow because of dynamics within the industry but also as a result of overall economic growth across industries. And that is why I have always been in favor of a tech weighting in the portfolio.

Over time, tech stocks tend to appreciate really well. In the last 20 years, the tech sector gained 545.4% compared to 383.8% for the S&P 500. It also outgrew the S&P in the last 10 years at 382.4%/310.3%. The differential only increased in recent history: 178.5% to the S&P’s 125.0% in the last five years, 118.6% to 78.2% in the last three years, and so on.

This quarter, it was Microsoft’s Nadella that also mentioned how tech tends to be “deflationary”: “Digital technology is a deflationary force in an inflationary economy. Businesses – small and large – can improve productivity and the affordability of their products and services by building tech intensity.” The idea being that since technology helps increase efficiencies, you would need less of the more expensive resources (because of inflation), so you wouldn’t need to pass on these costs to the consumer.

Another factor that’s often overlooked is the fact that tech companies tend to return a ton of cash to investors. Not all tech companies will pay dividends of course, since there is tremendous scope for higher returns by reinvesting the cash in the business.

But almost all tech companies buy back a lot of shares. That’s because they tend to hire more engineering talent that’s often paid with stock-based compensation. Since this increases the share count, most tech companies regularly buy back a ton of shares.

So there are many good reasons to invest in tech, especially the big ones that just reported earnings results-

Microsoft Corp. MSFT

Microsoft topped earnings estimates by 10.2% and revenue estimates by 3.3%.

Strength was broad-based across segments and product lines: the largest segment Intelligent Cloud grew 31% with the server side jumping 35% and Azure and other services up 50%; Productivity and Business Processes grew 22% with office commercial and consumer both up double-digits, LinkedIn up 42% and Dynamics up 31%; More Personal Computing increased 12% with the Windows side growing low double-digits, search and advertising up 40%, Xbox content and services a seasonally soft 2% while the Surface category declined.

The results display the success of the company’s cloud strategy, its clout at legacy customers who are leveraging its hybrid system to jump to the cloud, the continued strength in digitization even as markets open up, a strong job market that’s pushing LinkedIn revenue, the platform approach that continues to pull more users into its productivity ecosystem and strong AI tools that helps it create more sticky platforms and sell ads.

The Zacks Rank #2 (Buy) company looks very strong and well positioned to make the most of ongoing digitization and other trends with growth rates likely to remain elevated as it continues to take share in the cloud.


Alphabet reported a revenue beat of 3.5% and earnings beat of 21.0%.

The company’s 45% cloud revenue growth was almost as strong as Microsoft’s, albeit off a much smaller base. Alphabet continues to add to its capabilities and since this is a very big opportunity with not necessarily a single winner, we should expect continued growth here.

The company’s bread and butter is of course search advertising, which remains robust as some areas of the economy (like travel and retail) that were hit by the pandemic last year comes back online. Apple’s privacy initiative has impacted the quarter’s results, but there are many other offsetting factors, not the least of which is the fact that some ad spending likely moved to more easily measurable Google platforms from Apple (NASDAQ:AAPL) platforms.

Even YouTube, which is particularly susceptible to Apple’s changes, grew 43% on the year on the back of more than 50 million music and premium subscribers. That has to count for something!

The Zacks Rank #2 company grows like a youngster but spills cash like a granddaddy. That situation is unlikely to change at any time in the foreseeable future.

Advanced Micro Devices (NASDAQ:AMD), Inc. AMD

AMD’s revenue beat the Zacks Consensus Estimate by 4.7% while its earnings beat by 10.6%.

It was a stupendous quarter from AMD, which grew revenue 54% (the fifth quarter in a row of 50%+ increases), gross profit 70%, operating income 111% and EPS 134%. Both reporting segments grew strong double-digits: Computing and Graphics up 44% and the slightly smaller Enterprise, embedded, and semi-custom segment up 69%. Data center sales more than doubled.

AMD’s premium business is picking up across consumer, gaming and commercial markets and high-volume deployments across media and entertainment, engineering, architecture, and automotive verticals continues. The positive mix shift supports stronger margins.

The Zacks Rank #2 company should continue growing strongly as it enjoys a design edge that it wrested from Intel (NASDAQ:INTC), and that is very hard to outdo in a few years’ time. So it’s easy to see why revenue growth guidance for the year was raised from 60% to 65% with gross margin remaining at the 48% level reached in Q3.

Other tech companies that also reported yesterday were-

#2 ranked Texas Instruments Inc. TXN, which reported in-line earnings on revenue that missed by 1.1%.

#2 ranked Teradyne (NASDAQ:TER), Inc. TER, which reported an earnings beat of 9.7% on revenue that was essentially in line with the Zacks Consensus Estimate.

#3 (Hold) ranked F5 Networks (NASDAQ:FFIV), Inc. FFIV, which reported revenue that exceeded the Zacks Consensus Estimate by about 1.2% while earnings beat by 8.7%.

NCR (NYSE:NCR) Corp. NCR was another #3 ranked company with a mixed quarter. Its earnings beat of 4.6% came on revenue that missed by 4.8%.

Twitter (NYSE:TWTR) TWTR is perhaps the hottest of the #3 ranked tech stocks that reported an unexciting quarter. The social media company that prefers the Taliban to Trump missed earnings by 417.7% on revenue that missed by 0.3%.

One-Month Price Performance

Zacks Investment Research
Zacks Investment Research
Image Source: Zacks Investment Research

Breakout Biotech Stocks with Triple-Digit Profit Potential

The biotech sector is projected to surge beyond $2.4 trillion by 2028 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.

Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Recommendations from previous editions of this report have produced gains of +205%, +258% and +477%. The stocks in this report could perform even better.

See these 7 breakthrough stocks now>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Texas Instruments Incorporated (NASDAQ:TXN): Free Stock Analysis Report

Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report

Microsoft Corporation (NASDAQ:MSFT): Free Stock Analysis Report

NCR Corporation (NCR): Free Stock Analysis Report

F5 Networks, Inc. (FFIV): Free Stock Analysis Report

Teradyne, Inc. (TER): Free Stock Analysis Report

Twitter, Inc. (TWTR): Free Stock Analysis Report

Alphabet Inc. (GOOGL): Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research
A Big Day for Tech Earnings

Is Apple Undervalued?

Based on 15 different premium valuation models, we calculate whether Apple stock is undervalued or overvalued every day. If you are considering Apple for your portfolio, you need to check this out:

See Fair Value Now
Unlock Apple's unbiased fair value with InvestingPro+

Related Articles

A Big Day for Tech Earnings

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
Sign up with Email