With big tech names set to report earnings in the coming weeks, investors are wondering where to place their bets for a bounce. For Gene Munster, managing partner of technology-focused venture capital firm Loup Ventures, that place is Apple.
Munster told CNBC he sees the tech giant as probably the best risk/reward heading into earnings because average selling prices are going to be higher than expected.
Clarity on that should be a positive. That should be a clear outlier here in terms of performance going into the print.
Apple is expected to release its results on Nov. 1.
Munster said the average selling price and iPhone unit growth “should give investors some confidence that this is not just a product cycle story, that there is more of a sustainable shift to Apple as a service.”
Apple has been working to develop its services businesses, like iCloud and Apple Music. On Monday, Bernstein analyst Toni Sacconaghi said the company’s Search Ad business could generate over $500 million in revenue this year and hit $2 billion by 2020.
Apple isn’t the only name Munster said could do well. He said Alphabet’s Google, which reports on Thursday, could add 3 percent to 5 percent in annual earnings with its new approach to selling Android in the European Union. The company plans to start charging Android device manufacturers a licensing fee for using its apps in Europe.
A key metric, however, is ad revenue numbers, Munster said.
As long as they can keep that, Google in our view is the oxygen of the internet, and I think investors should be reassured by that.
Large-cap tech stocks are trying to regain footing they lost during the recent market sell-off. Munster called it a “psychological hit.”
Given the vast outperformance among these large-cap tech names, it’s understandable that investors are kind of on pins and needles. That doesn’t necessarily get solved on any given one quarter.”
Jason Ware, chief investment officer and chief economist at Albion Financial Group, agrees.
I don’t think any one of these companies are going to be made or broke just based off of one quarter, because they have such secular dynamics at play here.
He said those that have sold off the most probably have the most to gain in terms of a throwback rally if they have a really bullish report.
He pointed to Amazon, which reports on Thursday, and Alphabet, as well as Intel, which is in a bear market.
Munster said Amazon has a “different type of investor” that is “more critical” — and that could be a headwind for the stock. While revenue growth and earnings could slightly exceed the Street, questions around visibility and profitability in this new tech environment will likely neutralize favorable results, he said.
He also said he thinks there is “more tough news” on engagement for Facebook, set to report on Oct. 30.