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John Treadway has worked with large enterprises considering both private and public cloud implementations, first at Cloud Technology Partners, which was acquired by HPE, and now at Symphony Solutions, where he is CEO. Although hyperscaler revenue growth is moderating, he argues it is mostly due to tough comparisons as cloud approaches $70bn of revenue. He says AWS’s Andy Jassy might be right that only 3% of workloads are in the cloud by dollars.
In addition to tracking the five major tech sectors—Hardware, Semis, Software, Internet, and Services—we have added 2-3 subsectors for each for greater granularity. We show their performance in our weekly Wolfebytes.
AWS gains decelerated from 41% in 1Q to 37% in 2Q and Microsoft from 73% to 64%, still solid results that suggest workloads continue to move to public clouds and capex should improve in the second half. Google Cloud’s stated $2bn includes G Suite. We don’t have history from the company, but our estimates suggest a doubling YoY as Thomas Kurian begins to triple its salesforce. Full-year growth for the top four should be about 40%. We are hosting cloud consultant John Treadway Tues at 2pm.
Tech was strong last week during the first wave of earnings. The Wolfe Tech Universe rose 2.9%, outpacing the S&P 500’s 1.7%. Despite trade issues and weakening auto/industrial demand, Semi stocks jumped 5.4% and passed Software in three-month performance (Exhibit 1). Top stocks this week included Snap (+28%), AMS AG (+27%), Teradyne (+23%), Flex (+15%), and Twitter (+13%). Laggards were PTC (-17%), Computershare (-7%), LG Display (-6%), Citrix (-6%), and Atos (-5%).
With baseball season in full swing, let’s use the national pastime to discuss portfolio performance. The geeks not only own Silicon Valley but have taken over baseball. Sabermetrics, the application of statistical analysis to baseball, has contributed to the dominance of walks/strikeouts/home runs that plagues baseball today. The takeaway from Moneyball (especially the movie) was that on-base percentage is more important than batting average since a walk is almost as good as a single. More important, though, is slugging percentage, which gives more credit for a home run than a double or a walk. Batting average is quantity; slugging percentage is quality. All hits were not created equal.
Semiconductor stocks have shown remarkable resilience. Despite trade issues and weakening cloud and industrial end demand, the SOX is up 32% year-to-date. Last week distributor Arrow missed guidance for the first time in ten years, blaming component softness and continued inventory build. The chip stocks traded off slightly the next day then resumed their rise. Are stocks discounting a now 2020 recovery or is comeuppance still ahead?
The Wolfe Tech Universe declined by 0.7% the past week, better than the S&P 500’s 1.2% fall. Semis were the only sector to post a positive result despite Arrow’s warning of weak demand and inventory build. Top weekly performers included Infinera (+19%), CrowdStrike (+14%), ASML Holdings (+8%), Cloudera (+8%), and KLA-Tencor (+7%). Laggards were Symantec (-13%), Snap (-10%), Zebra Tech (-9%), Nutanix (-9%), and SAP (-9%). IBM, ASML, Elastic, and PagSeguro are overbought while Slack, Micro Focus, Rightmove, and Pivotal are oversold (p4).
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