What I want from Apple, Meta and Microsoft in their key earnings reports

CNBC Finance

15 min read

I like the setup this week, especially for Big Tech, barring another intrusion by our intrusive president. Apologies to people who wish I would call his fits of pique more offensive. These injudicious, blunt-force tariffs do get undone almost as quickly as they are slapped on, thank heavens. How is it possible, ahead of a week of landmine earnings reports, to be positive? Most of the negatives are seared in, and the constructive narratives are being ignored. Right now, this market seems possessed by pessimism. The bears are sick of hearing about the long-term fundamentals. They are hyper-focused on the short term, which I define as coveting momentum-shortage plays that would normally be sniffed at: Western Digital , SanDisk , and Seagate . I leave out Micron because of its high-bandwidth memory, a robust business chock-full of intellectual property â unlike the other three, which are largely devoid of anything but commodity thought. All four companies have benefited from the flood of money pouring out of the Magnificent Seven ( Apple , Alphabet , Amazon , Meta , Microsoft , Nvidia , and Tesla ). The donors just can't stop giving, and the recipients can't contain their newfound wealth. Buyers have eyes for the Russell 2000 , which has somehow become the go-to standard-bearer of defensive money. That's a fatuous vision if you bother to look under the hood of the small-cap index. Most investors couldn't name a dozen components, and the Russell panoply is full of companies with little to no earnings and not much revenue. This index is the first to go in a tough tape created by a pernicious bond market; higher rates are a small-cap anathema. Those placing these short-term bets â doesn't everything right now have a DraftKings feel? â seem addicted to gold and silver. The first is a perennially hard-to-find, shiny currency with a store of value, the second is an easier-to-find, less beautiful industrial metal with some jewelry use. The buyers can't get enough of them and seem to have no limits to what they will pay. Two reasons explain the greed. One is momentum: there seems to be no other set of "securities" with no top insight whatsoever. Second is the defrocking of crypto, which suddenly feels both heavy and propped up by those trying to fool us into thinking we are headed much higher than we have already gone. In a world where inflation is persnickety and hazards abound, it's not playing any serious role at all. It's much more of a plaything held up by all sorts of promoters determined to keep Bitcoin above $82,000. Pierce that level, and there seems to be a Katie-bar-the-door feel, with Strategy (formerly Microstrategy) serving as a sort of weird, heavily levered Federal Reserve of crypto, with its redoubtable founder Michael Saylor holding court as chairman. Crypto of all varieties seems to be malfunctioning compared to the shiny stuff. Doesn't it feel like the precious metals complex wants to catch up to the youthful, momentum-boosted, somewhat chimerical, blockchain-promoted Bitcoin? I have always been a believer in gold; I still am. I am much more worried that the dollar seems to be fanciful itself. Why not? It is backed by the full faith and credit of a Treasury on the hook for a $38 trillion federal deficit. Don't worry, we will grow out of it (sic). So those two precious metals garner an outsized share of hot cash. They are easily moved because we replace gold at a rate of 1% a year, and silver can only be mined so fast. Still, the rally in silver and gold is beginning to scare people, as it has become too monumental to ignore. One challenge to my positive setup this week might be the strength in the consumer goods cohort. The State Street Consumer Staples Select Sector SPDR ETF (XLP) is up 6% over the past two weeks. IT is exemplified by the move last week in Procter & Gamble , which I hope you caught. There are fewer of these kinds of stocks than in the old days because the food group has been destroyed by the GLP-1 movement. I think the rally is one-off, though, and won't interrupt my rosy roadmap for tech, and therefore for the S & P 500 , given tech's dominance in the index. The hot money is going only to precious metals, the thinly traded Russell 2000, and consumer goods, which provide the constructive setup we need for the week, as they are easily reversed from these exalted levels. They are so overbought that they seem vulnerable even as the rest of the market is overbought, too, at least as suggested by the trusty S & P Oscillator. What is there to look forward to? When you have a host of non-data-center industrials reporting along with the oversold Apple â eight straight weeks down, egad â and the anemic Microsoft and Meta, you aren't set up for a magnificent fall. That seems to have happened already. Let's pull them apart. We know the industrials like Dover , Danaher , and Honeywell are overextended and vulnerable. We have been in trim mode. But they all offer a positive outlook, which will keep them from falling too far. The data center industrials feel more vulnerable, but there aren't enough of them reporting this week to put real downward pressure on much of anything. Which leaves us to discuss the trajectories of Meta and Microsoft, which report on Wednesday, and Apple, which reports on Thursday. All three now have their own characteristics, with the Magnificent Seven having fractured since their underperformance began four months ago. What's so positive about these three? First, they are set up for serious short squeezes because the surrounding verbiage is so toxic. The stocks are big and not prone to shorts, but I think there is a huge amount of money now betting against them. Second, they are regarded as broken, and it's difficult to get more broken. A broken stock does not yield to further breaking, no more than a broken leg can be more broken. Sure, compound fractures could await us, but let's save those for a market-led crash. I don't see one of those happening, even if the president acts like he wants a crash, if only to show he can reverse it, as he did last October. Third, the scorn for this trio now seems priced in at these low levels relative to their highs. All three trade like they are pitiful, helpless giants. But the companies aren't led by fools. The firepower at the top in each case knows the stakes. The CEOs are seasoned beyond all others. No one doubts that their businesses have strength, but you always need to hear it. You also need to hear the outlooks and the buyback sizes. Let's go one at a time. Apple's AI solution Apple's been considered the most crimped of the Seven because it is a buyer of the same commodity components that are in short supply. There is no special stockpile built for Apple. That commodity tax narrative has been baked into our heads by the analyst-jackals who won't stop talking about it. They aren't sated in their bile even after Intel 's Friday debacle. The semiconductor giant had the temerity to miss numbers because it didn't cash in on the shortage. If you don't know that Apple's being hurt by the lack of supply of memory chips, then you aren't a professional. What's not baked in? How about the continued love for what turned out to be a breakout product â the iPhone 17 â that few saw coming? Or how about the sudden emergence of Apple at the top of the Chinese heap. That's new. When something is well-known, mainly that margins will be hurt by a well-documented short-term supply issue, can it really be part of a downside surprise? Is a tick down in gross margins because of a component supply problem equal to a tick down because of a demand problem? I don't think so. Does no slack in sales volume, despite higher DRAM prices, hurt the case? The opposite. It shows even more strength if they had to raise the price of their product and it didn't slake demand. To me, that's common sense, and common sense still matters. How about the extension of the deal with Alphabet to include Gemini, a story I broke after a matter-of-fact chat with Apple a couple of weeks ago? This one's tougher. I was the chief progenitor of the idea that whoever Apple chose to be its partner for a robust AI offering would have to pay Apple at least $20 billion a year, like Google had to pay to be Apple's sole source of search, something that won the battle for the consumer. If Bing had only paid that toll. The stakes were so high for this gem, the Apple user base, that I thought the effervescent OpenAI would spring for it. How could the maker of ChatGPT not want it to cement their business-to-consumer efforts? Or perhaps a challenger like Perplexity that has nothing going for it save its ability to scrape more than others? Or maybe even a Grok, given its consumer-oriented nature. They would all seem to be willing to pay a king's ransom to earn the coveted imprimatur of being Apple's sole source. You could argue that it would catapult whoever chose to pay Apple into the number one spot in the chatbot race. But it did not happen. What did happen is still miraculous. Apple never touted its AI strengths. The media flagged and flogged it for AI incompetence. The storyline has been that Apple can't shoot straight; the antipathy of the Apple-using/hating commentators runs so deep that the critics dredged up the canard that Apple's done nothing since former CEO Steve Jobs died. Oh, let's throw in, for the ultimate measure, that when OpenAI introduces its space-aged phone, developed and designed by the only other genius who has ever worked at Apple, Jony Ive, Apple is done. Stick a Bowie knife in it. Apple CEO Tim Cook is the antithesis of the Silicon Valley promoter. Don't expect him to use his podium as an opportunity to say, "It's better to be lucky than good," the tagline of "Confessions of a Street Addict," to be viciously self-referential. He won't say that its failure to develop extraordinary AI left it in the catbird seat, allowing it to pick a chat engine superior to one of its own making. He will matter-of-factly say, "We are partnered with the best AI engine, Gemini, just as we were partnered with the best search engine, Google." He doesn't have to say, "This time we aren't being paid for the selection of Google." Remember that $20 billion figure for the right to serve Apple came up in the antitrust case against Google, not because of a press release from either side. I goofed on the idea that Apple would be paid because I didn't understand the robust nature of the offering and didn't account for the annual upkeep Alphabet would have to pay to keep Gemini at the top of the heap. Okay, so Apple didn't get $20 billion, a fraction of what it could have gotten from OpenAI, which needed the blessing that Google didn't. Apple didn't have to worry about Google's survival, and it still got a superior GPT. Gemini is just so much better than OpenAI right now. Plus, Gemini knows a great deal about you from your Google searches. Knowledge about you can help form a more effective response to your inquiries. The Apple-Gemini combination makes for an unbeatable Siri, replacing one that's been a total drag. So Apple gets to put behind it the failure to develop its own AI, but has the bragging rights that it wouldn't offer Gemini if it weren't the best. Moreover, did we ever think less of Apple, in retrospect, because we don't have Apple search? I think the doubters will have to eat a plate of Siri. I always disliked those analysts who actually thought Apple's stock should trade down because it didn't have an effective AI offering. It has the best one now. With Apple AI now known to be the solution, with no need to spend $100 billion on data centers and Nvidia chips, with no limit to how much they might have had to spend going forward, are we really supposed to regard Western Digital and Seagate's tab as a butcher bill? Did Apple get the wrong end of the AI stick? I don't think so. Maybe we need to hear it from Tim Cook's mouth? Perhaps, simply because Apple's stock has become hated even as everyone loves the phones more than ever. What can Meta and Microsoft do? Meta trades as if a near-worldwide advertising monopoly is suddenly worth nothing. It presumes that CEO Mark Zuckerberg is out of bullets. But I believe Mark likes his underdog status, kind of like the Mixed Martial Arts (MMA) milieu he now hails from. You want to head to Kalshi to see if there's a line that states, "Is Zuckerberg a loser?" I'll take the other side of that one. I accept that the idea of eyeglasses rather than phones may not be as effective a delivery system for AI. However, I also hate disagreeing with his guy. Does he have something else up his sleeve? Monetizing WhatsApp, perhaps? How about a walkback of AI spend? That could be huge. Why not? He's shelling out billions of dollars, mostly to defeat OpenAI, and he certainly has the horses to beat them. What's more likely, however, is the inability to spend what he would like. The men and material costs of the energy and data center build-outs are just too costly; they are impossible to overcome, even if he tethers himself to, say, a CoreWeave . He can't spend the money even if he tried because it won't buy him what he says he needs. It's just a fact. So why not signal that the big spend might not happen? Sure, it might hurt Nvidia's stock, but what can we do? That's another company with a stock that acts dreadfully. I write knowing that some will be disappointed in my ability to draw any conclusions from a stock chart. Any sign of spending discipline, and this stock jumps 10% overnight. Microsoft somehow, overnight, became perceived as a loser in the AI race. The reason? Perhaps a universal disdain for Copilot? But isn't there a universal disdain for how Windows works? That sure hasn't hurt the stock. Nor have the endless, self-serving changes it makes without notice or client satisfaction. I am not buying that Copilot is a failure just because I hate it and don't use it. I like Apple much more than anything Microsoft, but so what? Go tell IT that. Microsoft will praise what it has. That's what Microsoft does. There's more hubris here than anyone save an Oracle led by Safra Catz. That's going to be perceived as very positive. It always is. So will numbers from its Azure cloud business, although the skeptics will say they are pumped up by Microsoft's affiliation with AI. We are still in a world where we hang on CFO Amy Hood's analysis and her outlook either guides up and the stock blasts off, or keeps it the same, which I think just causes the stock to languish, given how far it has fallen. There are some other positives ahead, beyond these three companies. Continued signs of AI demand should pervade the week. Lots of companies will talk about how they have embraced it and saved money by cutting out coders and entry-level personnel. At the same time, this might be the week when the enterprise software empire strikes back when ServiceNow reports. CEO Bill McDermott is itching to show that AI still improves numbers. Big Tech is so beleaguered that perhaps all it needs is hardware and software oars rowing together at the same time. In the end, my optimism stems from the market's desire not to be led by just Micron, Seagate, Western Digital, SanDisk, and the semiconductor capital equipment stocks, even as the latter are still too cheap. The market lost confidence in Intel last week due to some missteps. It was odd to see how easily the whole shortage complex was derailed after Intel's missteps, despite no sign of a let-up in demand. Alas, I don't see any relief from the supply shortage. Perhaps that cuts against the entire thesis I am offering here, but I stand by what I have written, or else I wouldn't have written it â even as there's not much else to do this snowy Sunday, especially if you are a fan of the Philadelphia Eagles. (See here for a full list of the stocks in Jim Cramer's Charitable Trust.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has discussed a stock on CNBC, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

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What I want from Apple, Meta and Microsoft in their key earnings reports

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