Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
“The FTSE 100 made a strong start on Friday morning, lifted by positive sentiment in the US overnight as Amazon and Meta chalked up stonking gains on their latest updates,” says AJ Bell Investment Director Russ Mould.
“While the scorecard for the Magnificent Seven in the current earnings season to date is mixed, Amazon and Meta certainly produced stand-out quarterly updates, with Meta unveiling a maiden dividend in what felt like a significant milestone.
“It feels a healthier situation to have the markets driven by strong earnings and corporate success rather than ongoing guesswork about when central banks are going to cut rates.
“Oil prices eased amid hopes for progress on peace talks between Hamas and Israel, with the main fly in the ointment for markets being the troubles being experienced by Japanese banking outfit Aozora Bank which is being hit by bad property loans in the US.
“Banking crises, even if they only affect one institution, often create nervousness around the risks of contagion.”
Amazon
“Amazon has smashed it out of the park with its latest results as sales and earnings both beat expectations.
“There had been worries that cloud computing growth was slowing across the industry as companies become more cautious about spending.
“Amazon has kicked those fears away by showing slightly faster sales growth for its cloud operations than the previous quarter. That will come as a great relief to investors who feared Amazon’s big profit engine was starting to splutter.
“Like many big tech firms, future growth expectations are pinned on greater adoption of artificial intelligence and associated cloud computing requirements. Amazon should be able to ride this wave even though there is plenty of competition for cloud services.
“The trick is managing market expectations and there is a risk that chief executive Andy Jassy might have got a bit too excited about potential AI gains. On the earnings conference call, he said: ‘We believe it will ultimately drive tens of billions of dollars of revenue for Amazon over the next several years.’ Failure to deliver would be disastrous for the share price.
“Against the backdrop of euphoria around AI, Amazon has been making interesting moves with fine-tuning the rest of its business. Introducing adverts to the Prime Video service provides a new income stream. Telling Prime customers that they need to have minimum checkout total to qualify for fast delivery helps to protect margins as drivers aren’t travelling miles to deliver a single box of pencils or a similar low-ticket item. In the US, logistics operations have been rejigged so items are stored closer to customers, meaning a reduction in transportation distances and therefore lower costs.
“Amazon has always been a big machine with many different cogs whirring away to generate revenue. It hasn’t been afraid of trying new things to see if they work or not and while most of them have yielded benefits, some didn’t work out like the recent abandonment of an insurance comparison service.
“The most important factor is that Amazon is eager to keep innovating and that should help it stay one step ahead of the competition. At the same time, it knows there are always ways to make the core business more efficient and so it continues to make small changes which could yield big benefits down the line.”
Apple
“Having surrendered its position as the world’s largest company by market valuation to Microsoft, Apple continues to be dogged by problems in one of its most important markets – China.
“Background tensions between Washington and Beijing aren’t helpful to the consumer electronics giant and iPhones are facing significant competition from rival smartphones in the world’s second largest economy.
“Nevertheless, there was much to like in the quarterly numbers with an increase in gross margins, better than expected earnings and revenue, and higher than anticipated sales across several product lines. Significantly, the company also reported its first revenue growth in more than a year.
“However, its services business, seen as crucial to future growth as the world becomes saturated with Apple products, came up slightly short against analyst estimates.
“Sales of the iPad struggled, albeit against tough comparatives, with the lack of a new model in 2023 in the first time in the history of the groundbreaking tablet not helping on this front.
“Much may hang on the imminent launch of the company’s new VR headset – Vision Pro – the first new hardware the company has released since the Apple Watch in 2015. Others have tried and failed to make headsets a mass-market product. History suggests Apple has the chops to succeed where others have failed and, if it can, then this could provide another leg to the growth story.
“For now, Apple is remaining fairly tight-lipped on AI, unlike a lot of its big tech rivals. However, a big announcement is being teased for later in the year and is likely to be seized on by the market when it comes.”
These articles are for information purposes only and are not a personal recommendation or advice.