Artificial intelligence (AI) megacap stocks have soaked up much of the stock market’s gains over recent years.

We’ve become used to the AI megacaps being the top stocks for investors, but top bankers from the likes of Morgan Stanley, JP Morgan and Goldman Sachs have voiced their concerns that AI stocks’ valuations are reaching bubble-like levels.

In November, a regulatory filing revealed that legendary contrarian investor Michael Burry – famously portrayed by Christian Bale in The Big Short – had allocated over 80% of his fund to bets against Nvidia (NASDAQ:NVDA) and Palantir (NASDAQ:PLTR). It later emerged that he had closed his hedge fund, saying in a statement: “My estimation of value in securities is not now, and has not been for some time, in sync with the markets.”

Nvidia’s earnings beat in the same month ended up spooking the markets: Nvidia had made so much money, investors apparently wondered how long its customers could afford it. Shares in Oracle (NASDAQ:ORCL) then fell 12.6% overnight following its 10 December earnings release which fed capex overspend fears.

“Markets quickly looked past the massive earnings beat, driven by a one-off asset sale, and focused on the rising capex and weak cash flows,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “Oracle has been at the epicentre of the AI financing debate, lacking the mammoth cash flows of the more traditional cloud giants.”

But some experts think it is too soon to worry about the scale of AI capex spend.

“The AI capex boom will likely create excesses, but neither its size nor its leverage is extreme,” said Henry Wu, chief quantitative strategist at Alpine Macro.

So is the AI boom market a bubble? Or is there still more value for investors?

Is AI a bubble?

The tricky thing about stock market bubbles is that they can only be definitively identified in retrospect.

“As AI adoption accelerates at unprecedented speed, investors are questioning whether today’s boom is laying the foundations for long-term growth, or inflating the next major market bubble,” said Ian Mortimer, co-portfolio manager of the Guinness Global Equity Income fund.

Doubts over the economics of current capex spend are being weighed against optimism over the long-term potential of AI.

“Despite bubble fears, early evidence shows AI is already improving business outcomes across major platforms including Meta, Microsoft, and Amazon,” said Mortimer. “Compared with previous market bubbles, today’s leading tech firms maintain strong margins, robust balance sheets, and reasonable valuations, with the Magnificent 7 trading well below the extremes of the dotcom era or Japan’s 1980s boom.”

What did for the dotcom boom was unprofitable companies borrowing money that, ultimately, they were never able to pay back. While the use of debt to fund AI investments is creeping up, lenders don’t appear concerned at present.

“Corporate bond markets – often the first to spot trouble – remain calm, with credit spreads close to record lows,” said Felise Agranoff, portfolio manager of JPMorgan American Investment Trust.

And while the stock market has ballooned on the back of AI exuberance, this appears to be backed up by financial performance.

“Despite soaring share prices, earnings have broadly kept pace, and the Morningstar Global Next Generation AI Index is currently trading close to fair value,” said Kenneth Lamont, principal at Morningstar.

Protecting against the AI bubble bursting

That doesn’t mean that bubble talk is misplaced, or that a major correction could wipe billions of value off stock markets.

“Announced mega-scale infrastructure programmes imply collective capital expenditure that could dwarf even the most capex-hungry industries, such as oil and gas,” said Lamont. “If data-centre assets fail to deliver their assumed useful lives, or if projections for the profitability of AI applications disappoint, today’s enormous spending plans could quickly become a millstone around the neck.”

You are likely more exposed to any potential bursting of the AI megacap bubble than you think. Most of your portfolio, whether that’s investments in a stocks and shares ISA or your pension, will likely comprise index funds that track the global stock market. If sentiment towards these stocks dips, your portfolio could take a hit, at least in the short run. This concentration risk is one of the drawbacks of passive investing.

You can reduce your concentration risk by buying equal-weight funds, which will cap every holding at a certain weighting of the portfolio. Lamont highlights Xtrackers S&P 500 Equal Weight UCITS ETF (LON:XDWE) as an example.

Or alternatively, you could buy a fund that excludes the megacaps altogether, such as Amundi MSCI USA Ex Mega Cap UCITS ETF (LON:XMGA).

Investors that want to retain some exposure to AI without being over-exposed to the stretched valuations of the megacaps could look for value opportunities in AI and its broader ecosystem, such as the suppliers to companies like Nvidia.

Rob Morgan, chief investment analyst at Charles Stanley, emphasises that diversification is the key to protecting your portfolio against market volatility.

“In today’s context, investors should ensure their portfolios aren’t completely dominated by the theme of big tech and AI, including tracker funds heavily skewed towards large US stocks,” he said.

Morgan recommends bonds as one offset to big tech concentration as well as defensively-minded global equity funds, or equity funds that target resilient, dividend-paying stocks. He highlighted JO Hambro Global Opportunities and Trojan Global Income as two quality-focused funds for investors to consider.

Bear in mind, also, that there are risks to being under-invested during a stock market boom. The table below shows how £10,000 invested into the S&P 500 in various years leading up to the dotcom crash fared compared to the same investment into a safe money market fund in the same year.

Source: AJ Bell and FE, total return in GBP from S&P 500 and IA Standard Money Market fund sector average (31^st December to 31^st December)

“The numbers show that investing in the market in December 1994, 1995, 1996 and 1997 was still preferable to investing in a money market fund, if you held on until the end of 2005, despite the market crash that was coming,” says Laith Khalaf, head of investment analysis at AJ Bell. “Investing in the money market fund was the better course of action in December 1998 and 1999, in the later stages of the bubble.”

Microsoft stock soared following its Q4 FY 2025 results, released after markets closed on 30 July, putting the company on course to break the $4 trillion market cap threshold.

The clamour to invest in Microsoft (NASDAQ:MSFT) has pushed its share price to unprecedented highs. Microsoft shares gained over 7% immediately after its earnings release, and continued to gain as the company’s earnings call took place.

“This quarter was music to the ears of Microsoft bulls as it exceeded Wall Street expectations, with significantly accelerated Azure growth,” said Dan Ives, global head of technology research at Wedbush Securities.

While not one of the top stocks among retail investors, Microsoft is a longstanding stock market giant, and now looks set to follow Nvidia into the $4 trillion club.

Of the ’Magnificent Seven’ stocks that currently dominate the S&P 500 and, with it, much of the global stock market, Microsoft is the oldest, having been founded in 1975 – one year before Apple.

Microsoft has had its share of ups and downs during that time. Microsoft stock gained over 460% in three years during the dotcom bubble of the late 1990s, but fell over 50% over the next three years as the bubble crashed.

But Microsoft has been at the forefront of various computing revolutions. PCs, the enterprise suite through Microsoft Office, and more recently cloud computing and artificial intelligence (AI) have seen it become a consistent leader in the global stock market and economy.

What is Microsoft Azure?

Microsoft Azure is Microsoft’s cloud computing platform. It is a direct competitor to Google’s GCP (standing for Google Cloud Platform) and Amazon’s AWS (Amazon Web Services).

These three companies dominate the cloud hosting market, holding a 63% market share between them. AWS is the largest incumbent, but with AI spending driving a boom in demand for cloud hosting services, there is space for Azure to grow extensively even if it just maintains its 22% share.

But the evidence suggests that Azure might be doing more than this, and could take market share away from AWS.

Azure revenue increased 39% in the year to June 2025, a figure that helped Microsoft’s stock soar towards $4 trillion after its earnings were announced.

Demand for AI is driving a surge of cloud revenue growth, as the developers of new AI models use cloud computing resources (referred to as ‘compute’ within the industry) in order to train and develop their new models.

How much is Microsoft spending on data centres?

One metric that would-be Microsoft investors should keep an eye on is its capital expenditure.

Microsoft expects to spend $30 billion on building out AI data centres in Q3 2025 alone. Those numbers would have worried the market a year or two ago. In the current climate, Microsoft has demonstrated that it can generate strong returns even on this level of investment.

“Microsoft is doubling down on the AI monetisation strategy within cloud,” said Ives. In other words, as long as it can keep monetising the demand for AI cloud services, the market may not mind how much Microsoft spends on building data centres.

Does Microsoft own OpenAI?

Microsoft is a major investor in OpenAI, the company behind ChatGPT, though it doesn’t own it.

It has rights to OpenAI’s IP, and also benefits from OpenAI’s demand for access to Azure – though OpenAI is reportedly exploring the possibility of ending its exclusive use of Azure in favour of other partners.

As well as access to OpenAI’s IP which includes ChatGPT, Microsoft also has its own AI assistant, Copilot. Microsoft’s CEO Satya Nadella revealed during the Q4 2025 earnings call that Copilot’s family of apps had surpassed 100 million monthly users.

Are Microsoft shares good value?

Despite being the world’s second-most valuable company, Microsoft stock isn’t wildly overpriced, at least not by the standards of big tech stocks.

As of close of regular trading on 30 July, Microsoft’s stock was priced at 37.6 times trailing earnings and 33.6 times projected earnings. That made Microsoft stock cheaper than shares in Nvidia or Amazon – though these figures predate the after-hours surge that accompanied Microsoft’s earnings release.

Given Microsoft’s mix of AI exposure, revenue visibility, impressive margins and healthy cash flows, Matt Britzman, senior equity analyst at Hargreaves Lansdown, says that “investors don’t need to look much further for an AI name to buy and hold”.

Similarly, Lale Akoner, global market analyst at eToro, says "if you’re looking for a stable, long-term way to ride the AI wave, [Microsoft] is still one of the best bets out there".

Summary

• Microsoft (NASDAQ:MSFT) and Meta’s (NASDAQ:META) shares both jumped after impressive earnings beats
• Meta's stock gained 12% overnight after announcing a 38% year-on-year earnings increase
• Microsoft shares surged almost 9% after announcing 24% year-on-year increase in earnings
• Those gains are enough to push Microsoft's stock to a $4 trillion+ valuation
• Wedbush Securities raised Meta share price target to $920 from $750
• Amazon (NASDAQ:AMZN) and Apple (NASDAQ:AAPL) both posted earnings beats
• Apple stock gained 2% overnight as China sales grew 4%
• Amazon's share price fell over 7% as AWS growth lags that of rivals GCP and Azure

| Microsoft and OpenAI | AI ETFs | Apple shares |

Microsoft and Meta kick off big week of results

Good afternoon, and thanks for joining our live coverage in the run-up to Microsoft and Meta’s results tomorrow evening, followed by Amazon and Apple’s on Thursday.

Microsoft’s share price movements are the subject of intense interest on Wall Street, as the company’s market capitalisation (market cap) nears the $4 trillion threshold Nvidia became the first company to break earlier this month.

A bumper earnings release on Wednesday could send Microsoft’s shares soaring. Will it be enough to join Nvidia?

Magnificent Seven earnings season is in full swing. Follow here for rolling previews, analysis, updates and reaction.

Microsoft and Meta shares gaining ground ahead of results

Markets have been open for around twenty minutes today, and as things stand Microsoft shares are up around 0.7%, while Meta’s stock has fallen 0.2%.

During yesterday’s session, Meta’s shares gained a boost from market optimism over a US-EU trade deal, gaining 0.69%. Microsoft’s stock was 0.25% up at one point, but closed the session down 0.24%.

When do Microsoft and Meta announce their results?

Both Microsoft and Meta will announce their results this Wednesday (30 July) after US markets close. That means after 9pm UK time.

Meta’s earnings call is scheduled to start at 2pm PT, which is 10pm in the UK. Microsoft’s is scheduled to start half an hour later, at 10.30pm in the UK.

Results will be released in between the close of markets and the start of the respective earnings calls – generally, soon after markets close.

Microsoft and Meta’s shares will continue to be traded during this period in what is known as after-hours trading.

What do analysts expect from Meta and Microsoft’s results?

Analysts polled by FactSet and LSEG have the following expectations for Meta and Microsoft’s results this week:

The FactSet estimates see Meta’s revenue increasing 14.7% and earnings rising by 14.0% year-on-year.

Microsoft, meanwhile, is expected to grow revenue by 14.0% and earnings by 14.6%.

Microsoft earnings preview

Besides the headline numbers, analysts and investors will be keeping a close eye on Microsoft’s cloud revenue platform, Azure.

Azure is one of the top three cloud service platforms, alongside Magnificent Seven rivals Amazon Web Services (AWS) and Google Cloud. Cloud services like these are getting a boost from the compute demands of artificial intelligence (AI) training.

“We strongly view this as Microsoft’s ‘shining moment’ with AI set to change the cloud growth trajectory,” says Dan Ives, global head of technology research at Wedbush Securities.

Like Google, Microsoft has its own AI model, Copilot. A theme for this week’s results could be analysts watching for signs of return on these AI investments.

“Adoption [of Copilot] has been picking up, and investors want to know whether it's boosting revenue in a meaningful way,” says Lale Akoner, global market analyst at eToro. “Microsoft is spending heavily to build more AI infrastructure, so profit margins will be closely watched.”

Meta earnings preview

Like Microsoft, investors will want to see evidence that Meta’s extensive investments into AI, especially its Llama model, are yielding results.

“So far, markets have rewarded the company’s massive capex pivot, driven by custom silicon, Llama models, and expanding infrastructure, but now it’s “show me the money” time, says Lale Akoner, global market analyst at eToro.

“Reality Labs losses remain a sore spot, but are tolerable if core earnings impress,” adds Akoner. “User growth and ad pricing trends, especially outside the US, will be scrutinised closely given recent dollar strength and macro wobble in emerging markets.”

Thanks for following our reporting ahead of Microsoft and Meta's earnings. Join us again tomorrow for a full day of preview and analysis, followed by Amazon and Apple's on Thursday.

Meta stock falls and Microsoft trades flat ahead of earnings

Good morning, and welcome back to our live coverage ahead of Microsoft and Meta’s results.

Microsoft shares closed yesterday’s session just 0.01% above the previous session’s close.

Meta’s share price, meanwhile, fell 2.46% in regular trading, though some of these losses were recovered after hours.

Expect to see lots of movement in both Microsoft and Meta’s stock this evening as both companies announce their results for the most recent quarter.

When do Apple and Amazon announce their results?

Apple and Amazon will both announce their latest results tomorrow (31 July), after markets close in the US.

The results will land in between markets closing and the start of each company’s earnings call, both of which are scheduled for 2pm Pacific time (10pm BST).

During after-hours trading, both Apple and Amazon’s stock is likely to be highly volatile. Share price movements will depend initially on the reaction to how the raw numbers compare to the expectations of analysts (we’ll bring you more on those later today), as well as how each company’s management discusses them during the earnings calls.

Why the Mag7 still matter

In case investors are wondering why changes in Microsoft or Meta’s share price should interest them, it is worth remembering that the Magnificent Seven group has been outperforming the broader market for over a decade.

“It really has been a case of investors needing to keep up exposure to these companies to enhance portfolio returns,” says Daniel Casali, chief investment strategist at Evelyn Partners.

The roots of this outperformance goes back to the rise of the internet during the 1990s, mobile data in the early 2000s, and the cloud computing revolution from 2006 onwards.

“In 2025 this is reflected in their earnings forecasts,” says Casali. “For the second quarter, they are expected to post an aggregate annual earnings increase of 14%.”

Data from FactSet suggests that the S&P 500 as a whole has, by contrast, posted average year-on-year earnings growth of under 6% so far this earnings season.

When it comes to the Magnificent Seven, “their financial leadership is not just a matter of trend: it’s a structural advantage,” says Casali.

Meta’s AI spend in focus

Meta’s share price has made solid gains this year as the company is, currently, viewed as one of the winners of the AI boom. It has been successful in incorporating AI into its ad business, for example, boosting targeting, engagement and efficiency.

However, the company is spending big on developing its own AI models, and that could lead to some investor pessimism if it isn’t able to demonstrate results.

“Meta’s had some disappointing progress on its open-source language models, and it’s opening the chequebook to put things right,” says Matt Britzman, senior equity analyst at Hargreaves Lansdown. “The creation of a new ‘superintelligence lab’ has caused quite the stir, with Meta rumoured to be dangling $100 million+ packages to poach AI talent.”

Last week, Alphabet shares fell immediately after it released its results despite strong headline numbers, with investors alarmed at its increased capital spend projections for this year.

Could we see a similar reaction in Meta’s share price this evening?

Microsoft shares are a favourite among fund managers

Microsoft’s stock has a dominant share of overall fund exposure compared to the rest of the Magnificent Seven, according to data from Morningstar, suggesting that it is a favourite of institutional investors.

Despite having been overtaken by Nvidia as the world’s most valuable company, it still edges the semiconductor giant out of top spot in terms of institutional fund holdings.

“Institutional confidence remains strong, driven by Azure’s 30% growth, deep enterprise ties, and its leading position in AI through OpenAI,” says Monika Calay, director of UK manager research at Morningstar.

Microsoft’s share of the top fund holdings has fallen by just 0.41% over the past ten years – and it has demonstrated greater consistency than any other Magnificent Seven stock during that time.

“Microsoft is the only member of the Magnificent 7 to consistently hold at least a 20% average weight in global equity portfolios every year for the past decade, a testament to its enduring institutional appeal,” Calay adds.

Apple and Amazon results: what the analysts expect

Analysts polled by FactSet and LSEG have the following expectations for Apple and Amazon’s results tomorrow:

The FactSet forecasts, if accurate, envisage Amazon’s revenue increasing 9.5% and its earnings rising by 5.6% year-on-year. For Apple, they predict a 3.9% increase in revenue and a 1.4% rise in earnings.

Meta and Microsoft shares swing during final session before earnings

We’re about one hour into the final trading session before Meta and Microsoft announce their results.

Meta’s stock opened 1.1% higher today, but it has fluctuated through the first hour of trading, currently sitting around 0.5% above yesterday’s close.

Microsoft’s share price opened 0.6% higher than yesterday’s close, but has lost much of those gains in the meantime.

Recap: Microsoft and Meta results expectations

Analysts polled by FactSet and LSEG have the following expectations for Meta and Microsoft’s results tonight:

Meta and Microsoft shares will likely make their first moves based on their performance against these headline figures, as well as other relevant factors included in their earnings release, like capex expectations and forward guidance.

We’ve seen before, though, that management comments during the earnings calls can have a big impact on share price movements. The sentiment for both Microsoft and Meta’s stock will depend heavily on whether they can convince investors that they are winning the AI war.

Microsoft results: Azure growth in focus

Microsoft shares are still struggling to make gains during this session, up just 0.14% three hours into trading.

Could strong growth in Azure - Microsoft's cloud platform - give Microsoft stock a boost this evening?

"Cloud performance through Azure was stronger than expected last quarter, and there could be some upside to guidance of 34-35% growth," says Matt Britzman, senior equity analyst at Hargreaves Lansdown.

Dan Ives, head of global technology research at Wedbush Securities, also believes that Azure's growth could take the market by surprise.

"We believe the stock still has yet to price in what we view as the next wave of cloud and AI growth," says Ives. "We view MSFT as the clear front-runner on the enterprise hyper scale AI front, despite increasing competition from Amazon's AWS and Google's GCP."

We're going to take a pause in reporting for now. Join us back here at 9pm for live coverage of Microsoft and Meta's earnings releases.

Breaking: Microsoft stock surges on earnings beat

Microsoft's share price has gained over 7% since close of trading.

Earnings per share increased 24% year-on-year to $3.65, and revenue increased 18% to $76.4 billion.

Azure revenue increased 34% year-on-year to $75 billion.

BREAKING: Meta stock up over 9% as earnings soar

Meta's stock, meanwhile, has surged 9.1% in after-hours trading on a bumper earnings beat.

Revenue increased 22% year-on-year to $47.5 billion and earnings per share rose 38% to $7.14 - smashing through the ~$5.90 that analysts had expected.

Concerns over Meta's profits following its AI investments seem misplaced now...

Microsoft's "slam-dunk quarter"

A few more highlights from this earnings beat that has seen Microsoft's stock surge over 7%:

• Intelligent Cloud revenue of $29.88 billion, ahead of an expected $28.92 billion.
• Gross margin of 68.6% beat an expected 68.0%; operating margin of 44.9% beat the expected 43.6%.
• Net income increased 24% year-on-year to $27.2 billion.

"This was a slam-dunk quarter for MSFT with cloud and AI driving significant business transformation," said Dan Ives, global head of technology research at Wedbush Securities. "We believe Microsoft is just hitting its next phase of monetisation on the AI front and more enterprises are accelerating their AI budgets," he added.

Meta's capex will keep growing next year

Meanwhile Meta's stock is still climbing, now up almost 9.5% since those results dropped.

"Meta has knocked it out of the park," says Matt Britzman, senior equity analyst at Hargreaves Lansdown. "AI is clearly delivering real-world benefits for advertisers, and they’re willing to pay more as a result. Average price per ad was up 9% over the quarter, a clear indication that Meta is delivering an improved product for both users and advertisers."

Capital spend is likely to increase $30 billion in the full year 2025, and CFO Susan Li signposted a similar rate of capex growth next year.

That may have taken analysts by surprise, but the market doesn't seem to mind. With the previous investments yielding such strong returns already, big spending seems to be going down well, and Meta shares are climbing.

We're going to end coverage here for this evening, but we'll be back tomorrow with more reaction and analysis for these eye-catching results, as well as a digest of what Meta and Microsoft's management says during their upcoming earnings calls.

Microsoft to enter $4 trillion club?

Good morning, and welcome back to our live coverage of tech earnings season. We’ll be digesting those huge earnings beats from Microsoft and Meta as today goes through.

Meta’s stock has gained 12% in out-of-hours trading since it reported a 22% revenue rise and a massive 38% increase in earnings.

Meanwhile, Microsoft looks set to join Nvidia in the $4 trillion market cap club when regular trading opens today. Microsoft stock has gained 8.7% overnight, following a 24% year-on-year increase in its earnings. Its market cap at close yesterday was $3.81 trillion – so closing today’s session with share price gains of anything over 5% from yesterday’s close will be more than enough to make Microsoft the world’s second $4 trillion company.

End of the AI profitability debate

There have been questions over the last two years as to whether or not the money that the Magnificent Seven hyperscalers are pouring into AI will deliver results.

That debate seems to be over.

"Meta and Microsoft turned over a new chapter in the AI story last night," says Matt Britzman, senior equity analyst at Hargreaves Lansdown. "Both companies crushed it, with debates around whether AI is delivering tangible returns starting to fade into history."

Meta’s stock surges on Superintelligence optimism

There was speculation ahead of Meta’s earnings release that investors would be put off by the big spending that the company is pouring into its Superintelligence Lab. But in the event, the vision of a superintelligent future painted during the earnings call saw Meta’s share price surge.

CEO Mark Zuckerberg led with optimism over the lab and its potential early in the investor call.

“Developing superintelligence, which we define as AI that surpasses human intelligence in every way, we think, is now in sight,” said Zuckerberg at the start of his prepared remarks.

“To build this future, we've established Meta Superintelligence Labs, which includes our foundations, product and FAIR teams as well as a new lab that is focused on developing the next generation of our models.”

Zuckerberg said that AI-infused smart glasses, such as those it has developed with Ray-Ban and a new range it is launching with Oakley, will be the main way that superintelligence is integrated into people’s daily lives.

He explained that one of the biggest technological hurdles that needs to be overcome in building AI that is more intelligent than humans is to build software that can train itself.

“We’ve begun to see glimpses of our AI systems improving themselves,” he said, adding that the progress was “slow for now”.

BREAKING: Wedbush raises Meta share price target

Influential investment bank Wedbush Securities has raised its 12-month price target for Meta from $750 to $920.

Based on where Meta's stock closed regular trading yesterday, that implies 32.3% in share price gains over the next year.

"We believe the recent level of investment is justified, and the infusion of AI capabilities across the company's ad stack and content recommendation engines are driving tangible results for Meta's Family of Apps and Reality Labs," said Scott Devitt, managing director, Equity Research at Wedbush Securities.

Recap: when do Amazon and Apple announce results?

With Microsoft and Meta's stock surging after their earnings beats is easy to forget we've got two more Magnificent Seven companies announcing results tonight.

Here's a recap of those timings:

eToro: Microsoft stock offers "perfect mix" to investors

It’s quite hard to overstate how impressive the double beat from Microsoft and Meta was last night.

Microsoft in particular hit all the right notes for a stock that looks set to break $4 trillion in market cap.

“Microsoft is investing heavily to build AI infrastructure, though it seems to be working,” says Lale Akoner, global market analyst at eToro. “Margins are holding up, and the business is seeing real demand, not just hype.”

Akoner believes that investing in Microsoft is one of the best ways to ride the AI wave long term.

“For retail investors, this is a perfect mix of a tech giant growing fast, spending smart and actually delivering on their AI promise,” she says.

Amazon stock on a high heading into earnings

Amazon’s share price looks set to catch some of the positive fallout from Microsoft’s big earnings beat yesterday. Amazon stock is up 2.6% in pre-market trading five minutes before US markets open.

With Azure revenue growing 39%, investors seem to be positioning themselves for the possibility of AWS following suit.

Scott Devitt, managing director, Equity Research at Wedbush Securities, expects AWS revenue to increase by 16% year-on-year in these results. That figure would put AWS revenue on approximately the $30.5 billion mark.

“AWS commentary was encouraging last quarter, highlighting the strength of AI demand,” Devitt said in a research note. He also highlighted that AWS management had said that AWS growth would have been higher in Q1 were it not for near-term capacity constraints.

BREAKING: Microsoft stock opens session at $4 trillion+ market cap

US markets have opened and Microsoft's share price has opened 8.2% above yesterday's close, more than enough to tip its market cap above $4 trillion during regular trading for the first time in its history.

Can Meta stock stay higher for longer?

Meta’s share price has also sustained its overnight gains, opening today’s session up 11.6% following its stellar results last night.

“Meta reported a blow-out quarter, meaningfully eclipsing both Street and Buyside estimates for 2Q revenue and the 3Q guide,” said Benjamin Black, co-head of Internet Equity Research at Deutsche Bank in a research note.

Black drew attention to Meta alleviating fears that its capex might be getting out of control.

“Perhaps just as importantly, the high ends of both FY25 operating expenses and capex guidance were maintained, while the lower ends were both modestly increased, which is meaningfully better than feared,” he said.

Big spending is perhaps the only cause for concern with Meta’s stock at present.

“Meta is planning to spend a lot more, possibly over $100 billion next year on AI and infrastructure. That’s a huge bet and while it could pay off long term, it adds real risk in our opinion,” says Lale Akoner, global market analyst at eToro.

“Meta stock jumped after earnings, but it’s had sharp ups and downs lately. Investors are still trying to figure out if all this spending will drive future profits, or just higher costs,” she added.

Apple’s share price has fallen 16.5% in the year to date. Apple used to be the world’s most valuable company, but at the moment it is languishing.

Macro conditions haven’t helped. Trump’s tariffs pose a particular threat to the company given how reliant its supply chain is on components manufactured overseas – particularly in China. Apple’s management has already flagged a $900 million hit to its profits as a result of tariffs.

But this is compounded by mounting disappointment on its progress in AI, which has “fallen well short of what investors and consumers have come to expect from one of the world's leading brands”, says Matt Britzman, senior equity analyst at Hargreaves Lansdown.

“Apple Intelligence has so far failed to deliver the game changing experience that was promised, so investors should watch out for any updates on new AI features,” Britzman adds. He also believes that tariff impacts are likely to come under scrutiny during this evening’s earnings call.

Apple and Amazon shares steady heading into results

Apple shares are trading flat today, while Amazon stock is up 1.7%, in their final trading session ahead of results.

On paper, analysts polled by FactSet expect the following figures from each company:

While these numbers could impact Amazon and Apple’s share price moves in after-hours trading, there is also likely to be a strong focus on deeper metrics.

In Amazon’s case, that will be growth of its cloud division, AWS. Microsoft set the bar high on that front last night, with its Azure division posting 39% revenue growth.

Apple, meanwhile, will need to demonstrate to the market that it is not being left behind in the AI race. Again – both Meta and Microsoft have demonstrated that spending big on AI is already delivering profits. Apple will need to convince the market that it is prepared to be bold in this race.

Our coverage is going to pause here for now, but we will be back after these results have been posted to bring you the headlines and all the reaction.

Apple shares rise after encouraging results

Good morning, and welcome back to our live coverage of big tech earnings season.

Apple shares have gained 2% overnight, following the company’s latest earnings release which revealed a return to positive growth territory in China, a key market for Apple.

Revenue of $94.0 billion represented 10% year-on-year growth and a record for Apple’s June quarter. Diluted earnings per share (EPS) were up 12% on last year to $1.57. Analysts had forecast revenue of $89.2 billion and EPS of $1.43.

“This was a major step in the right direction for [Apple CEO Tim] Cook and Cupertino with China the star of the show,” said Dan Ives, global head of technology research at Wedbush Securities.

“Now it's time to address the elephant in the room: the AI strategy which remains absent while the rest of the tech world is laser focused on the AI Revolution,” he added.

Amazon stock falls despite earnings beat

Amazon delivered an earnings beat – $1.68 compared to $1.33 expected – but its share price has fallen by more than 7% since the close of trading yesterday.

Revenue increased by 13% year-on-year to $167.7 billion, well ahead of the $162.2 billion that analysts had forecast.

AWS revenue rose 17.5% to $30.9 billion. In isolation, that’s not a terrible result – but compared to the momentum that Google’s GCP and, in particular, Microsoft’s Azure have demonstrated, investors are clearly concerned that AWS is being caught by its rivals.

“The spotlight was firmly on AWS, and it didn’t quite shine as brightly as expected,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

“While Microsoft and Alphabet have already shown strong momentum in cloud growth, AWS wasn’t the knockout many wanted to see, highlighting just how tightly investor sentiment is tied to the AI narrative right now.”

AI pessimism dampens reaction to Apple’s results

The 2% overnight gain for Apple’s shares is a fairly modest response to what is on paper one of the strongest sets of results in recent years.

iPhone sales grew 13% year-on-year, as did Apple’s Services division.

Investors, though, are clearly still underwhelmed by Apple’s progress on AI.

“We believe our platforms offer the best way for users to experience the full potential of generative AI,” said CEO Tim Cook during the earnings call that followed Apple’s results.

But the market isn’t convinced.

“Apple should be a leading name in AI hardware, but that’s simply not the case,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown. “Apple Intelligence was a flop, so a lot of hope now lies in an AI-powered Siri – but that might not come until next year.

“Brand loyalty gives Apple time to get the AI transition right, but it needs to start delivering,” adds Britzman.

Thank you for following

Thanks for following our coverage of Meta, Microsoft, Amazon and Apple's results.

We're going to wrap up our live reporting here. But we will keep breaking down the latest round of results and their implications for the market over the coming days, so keep checking MoneyWeek for the latest news on tech stocks.

We'll also bring you live coverage of Nvidia's results at the end of August. With cloud revenue booming and AI capex booming in Magnificent Seven results season so far, will it be another bumper set of results for the semiconductor giant?

Summary

• Alphabet announced earnings per share (EPS) of $2.31 and revenue of $96.4 billion, beating analyst estimates
• Tesla’s results showed EPS of $0.40 and revenue of $22.50 billion, down year-over-year, but in line with analyst estimates
• Tesla shares fell over 4.6% during the earnings call
• Five other Magnificent Seven companies announce earnings next week. Nvidia announces at the end of August

The MoneyWeek team is bringing you rolling previews and analysis, along with live coverage and reaction. Keep following for the latest.

| Magnificent Seven latest | Invest in Tesla? | S&P 500 | AI ETFs |

Good morning, and welcome to our live coverage of another big tech earnings season.

Two of the industry’s heavy hitters – Netflix (NASDAQ:NFLX) and Taiwan Semiconductor Manufacturing Company (NYSE:TSM) – got things underway last week, but big tech earnings season truly kicks into gear this week, as the first two of the Magnificent Seven companies announce their results on Wednesday.

Alphabet’s earnings release will be an intriguing glimpse into how the company is navigating the choppy waters that artificial intelligence poses. Is its core Search business holding up in the face of increased AI competition? If not, can growth of its Google Cloud service make up for any shortfall?

Then there is Tesla. Once again, quarterly delivery numbers have disappointed, calling Musk’s much-publicised political activity into question. But Tesla is now a robotics company – didn’t you know? – so updates on this month’s robotaxi launch will be the focus of attention at Tesla’s earnings call.

We will bring you rolling updates, preview and analysis, throughout this week and next.

When are Alphabet’s and Tesla’s earnings releases?

Both Alphabet and Tesla announce earnings after US markets close on Wednesday 23 July.

Alphabet’s earnings call is scheduled for 1.30pm Pacific Time (9.30pm in the UK), half an hour after US markets close. Its earnings will likely be published online during that window.

Tesla’s earnings call is scheduled to start at 4.30pm central time – 10.30pm in the UK, so one hour later than Alphabet’s.

TSMC results paint upbeat picture for big tech earnings

Taiwan Semiconductor Manufacturing Company – often referred to as TSMC for short – is rarely included in any of the big tech groupings, and isn’t anything like as much of a household name, but that is perhaps unfair.

In a nutshell, it is the world’s most advanced manufacturer of computer chips. Nvidia, which is the best-known semiconductor company in the world, doesn’t actually build any of its chips. TSMC does. It also builds chips for Apple, Arm, Qualcomm, AMD and Broadcom.

TSMC announced a 61% increase in profits last week, with revenue rising 39%. Yesterday, the company joined several of its high-profile customers in the $1 trillion market cap club.

Given that it builds the hardware that the rest of the tech industry depends on, TSMC’s success is a good bellwether for the health of the sector.

Netflix shares fall despite earnings beat

Streaming giant Netflix also posted its results last week. Shares fell in after-hours trading following the announcement, despite an earnings beat, exemplifying the weight of expectation that big tech companies are under at present.

Netflix was once numbered among the world’s most prominent big tech stocks during the ‘FAANG’ (Facebook, Amazon, Apple, Netflix and Google) era. Now, with a market cap around $520 billion, it is no longer in the upper echelons of big tech stocks, analysts, if not the market as a whole, were impressed with its 16% year-on-year revenue growth, and 47% increase in earnings.

“Netflix continues to produce phenomenal results with ever more growth in its sights,” said Alicia Reese, SVP Media & Entertainment equity research at Wedbush Securities. “Even as investor expectations were high heading into the print, and shares reflected some disappointment in the size of the beat and raise, the quality of the beat and raise keeps us positive as we assess the ongoing expansion of Netflix’s free cash flow.”

See our explainer on the results and subsequent Netflix shares reaction for more detail.

S&P 500 earnings strong so far

TSMC and Netflix are two of the highest-profile tech companies to have beaten earnings estimates so far, but it’s a trend that is playing out across the S&P 500.

Around 60 of the biggest 500 US companies have declared Q2 results so far. Of those, more than 80% have beaten expectations.

“That’s not unusual,” says Tom Stevenson, investment director at Fidelity International. “Companies tend to massage forecasts lower in the run up to results season.

“But it does suggest that earnings growth will continue at around the long-run average of 7%,” he adds.

Of course, with their high valuations, most of the Magnificent Seven stocks are expected to grow their earnings above this rate. Will they deliver?

Alphabet earnings: the watch-outs

Let’s take a closer look at the big tech earnings releases coming up this week, starting with Google’s parent company Alphabet.

Market sentiment towards Alphabet has dimmed in recent months. It is the cheapest of all the Magnificent Seven companies relative to past and projected earnings, trading at 21.22 times trailing earnings and 20.46 times projected earnings – below the S&P 500’s average on both fronts.

The fact that those two figures are so close to each other highlights part of the problem: analysts do not see Alphabet’s earnings growing significantly in the near future.

Many fear that generative AI could cut into demand for Google’s core Search business.

“New competition from language models like ChatGPT [is] a genuine threat,” says Matt Britzman, senior equity analyst at Hargreaves Lansdown. “Alphabet has a quality lineup of businesses, but its long-standing crown as the entry point to the internet is under pressure, and that’s put the valuation under strain.”

There is also the possibility that regulators could force a breakup of Google’s business, with two antitrust cases having found that the company operates an illegal monopoly over internet search over the last year.

“Calls for a forced Chrome divestment could challenge Alphabet’s search dominance, and that will keep some investors cautious until there’s more clarity,” said Josh Gilbert, market analyst at eToro.

Google has said it will appeal the decisions, but with Search lying at the heart of Google, any updates will be closely monitored on Alphabet’s earnings call on Wednesday.

Alphabet earnings: the tailwinds

While generative AI poses a threat to Alphabet’s business, it also offers opportunities, and investors will watch out for these keenly at the earnings call tomorrow.

For one thing, AI demand is driving growth of Google Cloud, with analysts projecting top-line cloud revenue growth of around 26-27%.

“Alphabet is continuing to invest heavily in Gemini, its flagship AI assistant, as well as AI-powered ad products and enterprise tools,” says Josh Gilbert, market analyst at eToro. “With growing investor interest in monetisable AI applications, updates on Gemini’s integration into Search, Workspace and Cloud could be a key focus this quarter.”

Capital expenditure is likely to rise, but the market won’t necessarily regard that as a negative given the arms race that big tech companies are engaged in over AI.

“In this environment, it’s spend or get left behind,” says Gilbert.

Tesla earnings: under-delivery becoming a habit

Tesla’s earnings will be released under a cloud: delivery numbers fell year-on-year for the second consecutive quarter. The company announced a total of 384,122 deliveries for the quarter on 2 July.

Shares in Tesla actually rose by 4% following the announcement, but fell 8.4% on 7 July. Tesla shares have fallen nearly 20% this year, as the relationship between CEO Elon Musk and president Donald Trump has soured.

“Elon’s position as a Tony Stark-like personality at the head of the company was a boon for a long time, but it’s hard to argue that his prominence isn’t having some detrimental effect on the brand,” says Josh Gilbert, market analyst at eToro. Read more on Musk’s changing relationship with Tesla here: Who’s driving Tesla?

Cybertruck sales have also continued to decline, having hit their lowest level in a year during the last quarter.

Fairly poor financial results can be almost baked-in for Tesla, barring any major cost-cutting achievements. As is often the case with the company, the short-term share price movements might hinge more on what Musk says that what the numbers show.

Tesla earnings: the robo-revolution

Tesla believers, though, don’t tend to have their faith shaken easily. Few are more bullish than Dan Ives, global head of technology research at Wedbush Securities.

Ives points to an uptick in Chinese sales during June as one reason for optimism ahead of Tesla’s earnings.

“Despite seeing more low-cost models enter the market from Chinese OEMs like BYD, Nio, Xpeng, and others, the company’s recent updates to the Model Y spurred increased demand,” says Ives.

With the long-awaited robotaxi launch having taken place in Austin earlier this month, there will be plenty for Musk to shout about if he wants to. Investors will look for updates on all things robotics when gauging Tesla’s mid-term prospects.

“There are a number of other key endeavors at Tesla including Optimus and the future of robotics, with Tesla one of the clear future leaders in AI in our view,” says Ives.

Thanks for following our reporting ahead of Tesla and Alphabet's earnings. We're leaving things here for today, but join us here again tomorrow morning for a full day of preview and analysis ahead of live coverage of the earnings releases in the evening.

Good morning, and welcome back to our live coverage of big tech earnings season.

This evening sees both Google parent Alphabet and Elon Musk's Tesla announce their second quarter (Q2) results.

Both companies are coming into this earnings season facing challenges as well as headwinds from the rise of artificial intelligence (AI). Follow here live for rolling previews and live updates from both earnings calls.

When do Alphabet and Tesla announce earnings?

To recap, both Tesla and Alphabet announce their Q2 earnings today, after US markets close. That means any time from 9pm in the UK.

Tesla and Alphabet will host an earnings call where management will field calls from analysts. These are scheduled to take place back to back. The earnings release for each company could land any time between the close of markets and the start of the earnings call, but they tend to land fairly soon after markets close.

The key timings are summarised in the table below:

Alphabet and Tesla earnings: what to expect

Analysts are forecasting the below revenue and earnings per share figures at Alphabet and Tesla’s releases this evening, according to consensus estimates from analysts polled by FactSet and LSEG:

Based on FactSet estimates, analysts expect Tesla’s revenue to fall 12.6% year-on-year, and for its earnings to fall by 23.1%.

The forecasts imply a 10.9% increase in revenue and a 15.3% increase in earnings for Google’s parent company Alphabet.

Alphabet earnings: beyond the numbers

As ever with big tech earnings, it is less likely to be the headline numbers that dictate which way Alphabet's shares trade immediately after it announces results today.

Instead, the data and comments from management surrounding the longer-term challenges and opportunities is likely to be the main driver.

In Alphabet's case, this all boils down to whether or not the potential gains from AI outweigh the threats it causes to the Google parent company's business.

"The rise of ChatGPT and other AI platforms has created unprecedented challenges for Google's search business," says Fabien Yip, market analyst at IG. "These new competitors offer conversational interfaces that provide intellectual answers to complex questions, potentially reducing users' reliance on traditional search engines and the advertising revenue they generate."

Google has developed competitors to ChatGPT, particularly its latest model Gemini 2.5 Pro, and investors will look for evidence of growth and adoption of Gemini during tonight's earnings call.

There is also the opportunity for Google Cloud to keep taking market share from competitors, like Amazon Web Services and Microsoft Azure.

"Innovation in AI enterprise solutions will be crucial for Google Cloud's continued success," says Yip. "The company's ability to integrate cloud offerings with other Google products like Workspace provides a competitive advantage that rivals find difficult to replicate."

Could Tesla invest in xAI?

One topic that could come up on Tesla’s earnings call this evening is the possibility of the company investing money into Elon Musk’s artificial intelligence start-up, xAI, which makes the Grok chatbot.

“Tesla is about to embark on an aggressive AI-focused strategy that we believe will include owning a significant piece of xAI,” says Dan Ives, global head of technology research at Wedbush Securities. “While near-term and this quarter the numbers are nothing to write home about, we believe investors are instead focused on the AI future at Tesla.”

Tesla investing in xAI would be subject to a shareholder vote later this year. Historically, Tesla investors have tended to follow Musk’s lead when it comes to corporate votes, but Josh Gilbert, market analyst at eToro, feels that convincing investors to put Tesla money into another Musk company could be a hard sell.

“Even if there is a theoretical future benefit for Tesla, it’s going to be a very hard case to make,” he says.

Winning the AI race: Trump to speak at AI summit as Tesla announces earnings

Today’s tech earnings announcements are conveniently timed, coinciding as they do with a major event in American AI.

President Donald Trump is due to speak at the ‘Winning the AI Race’ summit hosted by the All-In podcast and the Hill and Valley Forum in Washington, DC today.

Along with senior leaders from tech companies like Palantir and VC firms such as Y Combinator, Trump is expected to outline a roadmap to making the US the world’s leading AI economy.

Dan Ives, global head of technology research at Wedbush Securities, anticipates three main strands:

• The build-out of AI infrastructure;
• Innovation aimed at blocking states’ ability to hinder AI development with regulation;
• Ensuring that global US allies adopt its models, rather than those of “foreign adversaries”.

“The Trump keynote will likely aim at outlining a national AI strategy while targeting aggressive plans to accelerate chip exports reflecting the new administration’s elevated focus on winning the AI race,” says Ives.

Trump’s address is scheduled to take place at 5pm Eastern time, and as such could overlap with both Alphabet and Tesla’s earnings calls.

TSLA and GOOGL shares: one hour until US markets open

There is just under an hour to go until US markets open for the final session before Tesla and Alphabet announce their results.

Yesterday, Tesla stock gained 1.1%, but pre-market moves suggest Tesla shares could open today slightly below this level.

Alphabet shares likewise saw gains yesterday, of around 0.65%, but look set to open slightly down today.

Tesla share price opens 0.4% down ahead of earnings

US markets are now open, and shares in Tesla have opened the final session before the Q2 earnings release 0.4% below yesterday’s close.

Tesla shares have fallen around 18.3% so far this year

Alphabet’s shares opened today’s session slightly above yesterday’s close, but have since slipped below it.

Investors can expect big changes in both Alphabet and Tesla’s share price in after-hours trading following their earnings announcements today.

Magnificent Seven earnings calendar

Alphabet and Tesla are the first two Magnificent Seven companies to announce their Q2 earnings. Here’s the full schedule with the rest of the season’s releases:

There is a big gap between the first six companies and Nvidia, as is usual. Some semiconductor companies, such as Broadcom, won’t release their results until September.

Google revenue: what to watch in Alphabet's earnings release

Google’s heart and soul is its Search business, but its Cloud division is the fastest-growing segment by some distance.

“Cloud growth is the other key driver for Alphabet, with Google Cloud looking much more competitive for AI workloads than it was in previous cloud wars,” says Matt Britzman, senior equity analyst at Hargreaves Lansdown.

Analysts are forecasting somewhere between 26-27% revenue growth for Google Cloud, implying a figure of $13.04-13.14 billion.

Alphabet’s share price movements following the earnings call could largely depend on whether the figure comes in above or below this level.

Look out also for Google Services revenue. This division includes the core search and advertising revenue that Google’s empire is built upon.

Analysts expect growth here to slow to 8.5%, implying a figure of $80.21 billion. Beating that would suggest that Google Search is more resilient than thought to the generative AI threat – for now at least. However, falling short could set alarm bells ringing.

We're going to pause coverage for a few hours, but we'll be back around 9pm, when US markets close. Join us then as we report Tesla and Alphabet's earnings releases live.

Tesla shares look set to close up ahead of earnings

Good evening, and welcome back to our live coverage of Alphabet and Tesla's results.

Tesla shares opened this session down, but are around 0.3% up for the day as we head into the final minutes of regular trading.

Shares in Alphabet, though, have fallen through this session. Will Q2 results, and the subsequent earnings calls, change the picture for either stock?

US markets close; Alphabet and Tesla results now due

US markets have now closed. Alphabet shares finish this session 0.58% down, while Tesla's stock gained 0.14%.

Attention now shifts to the imminent release of each company's Q2 earnings report. As a reminder, here's what analysts polled by FactSet and LSEG are expecting:

BREAKING: Alphabet earnings rise 22% year-on-year

Alphabet's headline figures are in:

• Revenue of $96.4 billion, 14% up year-on-year
• Earnings per share of $2.31, up 22%

Alphabet beats on revenue and earnings

Both earnings and revenue came in above analysts' expectations. Google Search and Google Cloud revenue have both beaten expectations too.

Services revenue increased 12% to $82.5 billion, while Cloud revenue grew 32% to $13.6 billion. Analysts had been forecasting these segments to grow by 8.5% and 27% respectively.

Despite this, Alphabet shares have fallen 2.3% in after-hours trading. A reflection, perhaps, of how high market expectations are on the big tech giants.

BREAKING: Tesla earnings fall by 23%

Tesla has now released its results. The headline figures:

• Total revenues down 12% year-on-year to $22.50 billion;
• Earnings per share down 23% to $0.40.

Numbers like these were expected; earnings per share is exactly as FactSet analysts had forecast, while revenue is a touch higher.

Tesla shares are, in fact, gaining ground in after-hours trading following the earnings release.

Alphabet bumps capex to $85 billion

Alphabet's results make great reading on the face of it. Beats across the board, and the core Google business lines (especially Search and Cloud) have outperformed expectations.

The share price is tanking all the same.

One reason for this could be a big spending announcement.

"We are increasing our investment in capital expenditures in 2025 to approximately $85 billion and are excited by the opportunity ahead," said Alphabet CEO Sundar Pichai in the earnings release.

Has this big spending increase caught the market off-guard? AI is known to need big cap-ex from the major players, but some investors may be baulking at the level of this spend.

Tesla: affordable car is now in production

Tesla stock made gains immediately after its results were released - though these have since reversed.

Poor financial results had already been factored in ahead of today's results, given the deliveries were announced earlier in the month.

But there are positives in the earnings release. One of these is an announcement that the long-awaited affordable car began production in June, and that this will scale up in the second half of 2025.

The announcement also states that Cybercab will enter volume production in 2026. Anything relating to the self-driving car business is going to attract investors' attention. Expect Elon Musk to dive into detail on this during this evening's earnings call.

Alphabet earnings call starts

Alphabet's earnings call is now getting underway. Management will flesh out the raw numbers that have already been released.

Shares are down about 1.25% in after-hours trading at the start of the call.

Alphabet earnings highlights: Alphabet CEO says AI is benefitting Google Search

Alphabet CEO Sundar Pichai is delivering his open remarks, and striking an emphatic tone on the positive impacts of AI on Google’s business.

AI Overviews in Google Search now has over 2 billion monthly users, across more than 200 countries, according to Pichai.

The Gemini app has over 450 million monthly active users. Daily requests were 50% higher in June alone than in the first quarter of the year.

“AI features cause users to search more, as they learn that search can meet more of their needs,” says Pichai. That seems to be a direct response to market fears that generative AI could eat into demand for Google Search.

The market is responding positively to these comments. Alphabet stock has rebounded to above where it closed today’s session, reversing the share price drop that accompanied the results’ initial release.

Alphabet’s capital expenditure in focus

According to Alphabet’s CFO Anat Ashkenazi, the extra $10 billion that Alphabet is spending this year largely reflects “additional investment in servers, the timing of delivery of servers and an acceleration in the pace of data centre production, primarily to meet cloud customer demand”.

Both she and Pichai have spoken of a tight supply environment for compute power, as the world’s technology companies vie for access to the world’s data centre resources.

Part of Alphabet’s response to that tight market is to increase the supply, by building out its own data centre infrastructure. But Pichai warns there will be a lag before that new capacity comes online; demand for compute power is going to outstrip supply for the foreseeable future.

Alphabet's share price has now gained more than 3% in after-hours trading, as investors digest management's framing of the results.

Can Google Search keep making money in the AI era?

A question has come in on the monetisation of Google Search, given the falling number of ad impressions available per click-through in the era of AI Overviews.

Google's chief business offer Philipp Schindler replies: "AI Overviews... continue to drive higher satisfaction [and] higher search uses.

"We see monetisation at approximately the same rate, which gives us a really strong base on which we can then innovate and drive more innovative, next-generation ad formats."

Alphabet's earnings call sees shares gain 2.7%

Alphabet's earnings call has now finished. Shares are up 2.7% in after-hours trading at the end of it.

Now our attention turns to Tesla, whose earnings call will start shortly. At present, Tesla shares are down around 0.4% in after-hours trading.

Tesla: robotaxis could serve half US population by the end of the year

Tesla's earnings call starts with some big statements on the rollout of its (geofenced) robotaxi service.

Robotaxi is set to expand to "well in excess of what competitors are doing" in the next two weeks, says Tesla CEO Elon Musk.

The company is also seeking regulatory approval to launch in the San Francisco Bay Area, Arizona and Florida. Musk says that by the end of the year, Tesla will "technically" be able to offer self-driving rides to half the US population.

"That's our goal, subject to regulatory approvals," said Musk.

Musk aims for 1 million Optimus robots annually within five years

Optimus, Tesla's humanoid robot, will have prototypes this year, followed by scaled production next year, says Musk.

He says that the objective will be to produce one million units per year as quickly as possible - hopefully, within five years, he says.

Market will need more convincing on Google’s AI staying power

The conundrum that surrounded Alphabet, and whether AI is a headwind or a tailwind for Google, still remains even after a strong set of results.

“Alphabet is being forced to adapt or risk becoming a dinosaur in the new AI age,” says Matt Britzman, senior equity analyst at Hargreaves Lansdown.

The numbers on the key areas – Search and Cloud revenue – were impressive. But the question of monetisation remains.

“The Alphabet AI investment case is something of an enigma,” says Britzman. While the market seems to have decided that Alphabet is destined to be a loser in the AI race, Britzman feels that view is “both short-sighted and overly pessimistic.

“That said,” he adds, “until there’s more confidence that AI integration won’t cannibalise core search revenue, and some clarity around ongoing legal battles, there’s enough uncertainty to cap near-term upside.”

Customers love robotaxi, says Tesla

The opening remarks in Tesla's earnings call are now done. They were unusually uneventful, the robotaxi and Optimus plans notwithstanding.

The first analyst question asks for more detail on the robotaxi rollout.

"Robo taxi has been doing great so far in Austin," replies Tesla's CFO Vaibhav Taneja. "Customers really love the experience. Super smooth, very safe, and just a great experience overall."

He adds that expansion in Austin has already started, and that testing in a number of other cities has already started.

Tesla CFO: not appropriate to discuss xAI investment in earnings call

A question is asked about the benefits of Tesla invested into xAI.

CFO Janeja replies that this isn't the forum to discuss that issue, and that "if there is something which we need to discuss, we'll discuss it separately".

Musk then adds, "Obviously, we're a publicly-traded company. Shareholders are welcome to put forward any shareholder proposals that they'd like. I personally encourage that."

Tesla stock falls 2.8% in after-hours trading

Tesla shares slumped at around the time that Elon Musk finished his prepared remarks. They are now down around 2.8% in after-hours trading.

Most of the comments have been a little underwhelming, and non-specific. A lot of reasons given for delays in delivery - but many of these same reasons have been given at previous earnings calls.

Is the market starting to lose patience with Tesla?

How will the end of EV tax credits impact Tesla?

The end of tax credits could lead to "a few rough quarters", says Musk in response to a question on the subject. President Donald Trump has said that he will remove the electric vehicle (EV) tax credits that were introduced during the Biden era later this year.

Musk says that while tax incentives for EVs are vanishing in the US, they are still in place in much of the rest of the world.

"On the other hand, autonomy is most advanced and available from a regulatory standpoint in the US. So does that mean we could have a few rough quarters? Yeah, we probably could."

While the second half of this year and the first half of next could be tricky, Musk says that "once you get to autonomy at scale in the second half of next year... I'd be surprised if Tesla's economics weren't very compelling".

That's the end of Tesla's earnings call. Shares are down over 4.6% in after-hours trading, with investors having responded negatively to a cautious set of responses from Musk and his team.

Thank you for following our live coverage. That's everything for this evening, but we will be back tomorrow morning with rolling analysis and reaction to Google and Tesla's earnings.

Tesla’s long game

Good morning, and welcome back to live coverage. We’ll spend today breaking down the implications of last night’s earnings results from Alphabet and Tesla.

There are two contrasting stories there. Alphabet’s share price gained 2.3% in after-hours trading as management was able to paint an upbeat picture of Google’s place in the AI ecosystem, in spite of the challenges to its core business that the technology poses.

But Tesla’s share price fell 6.1% in after-hours trading, as CEO Elon Musk warned that the company could be set for a tough period until the second half of 2026.

“The typical playbook for the past few quarters has been declining fundamentals but enough AI hype to keep investors sleeping at night,” said Matt Britzman, senior equity analyst at Hargreaves Lansdown.

Musk’s cautious tone went against this typical pattern, but he was as ever bullish about the longer-term plan for Tesla, saying it is easier to predict where the company will be in five years’ time than in one or two.

“Tesla is in a very small cohort of companies with enough growth potential that investors are, for now at least, willing to look past weakening core financials,” says Britzman. “Last night's comments confirmed many fears around tariffs, rising costs, tougher margins, and struggling cash flows.

“But with that now firmly built in as the base case, the AI story can take back the wheel.

Robotaxi versus Waymo

One of the big questions that surrounds Alphabet and Tesla – and which both management teams discussed on last night’s earnings calls – is the future of the self-driving car market. Google’s Waymo and Tesla’s robotaxi are viewed as the two front-runners.

Waymo has now covered 100 miles on public roads, it was revealed yesterday. But Elon Musk went out of his way to talk down Waymo’s prospects, saying “Google is good at AI, yes, but they’re not good at real-world AI”.

ARK Invest – known for its bullish stance on Tesla – explains why they feel Tesla is the frontrunner in this race.

“Waymo in San Francisco, while more expensive than Uber and Lyft, are already starting to take share,” says Sam Korus, director of research for autonomous technology & robotics at ARK Invest. “And there are a lot of reasons why Tesla should be able to offer rides for a lower price than Waymo.

“They're using vision only, so their vehicles are less expensive. They have an adaptable fleet, so they can meet peak trough demand, without having underutilised vehicles. And they've got manufacturing scale so don't have to negotiate with other auto manufacturers.”

He adds that Tesla produces around 5,000 cars per day, which is around double the size of Waymo’s entire fleet. All of these can hypothetically become self-driving robotaxis.

“At the end of the day, people are going to look at an app and say, I can get from point A to point B for less money,” adds Korus.

Google Search looks safe for now

A major highlight for Alphabet last night was the resilience that its core Google Search business showed.

“Management commentary should alleviate investor caution around the perceived risks of generative AI on the Search business,” said Scott Devitt, managing director, Equity Research at Wedbush Securities. “These concerns are overdone, in our view, with Alphabet validating its ability to navigate this period of transition by exhibiting healthy query volume growth across both new and traditional surfaces.”

Top-line revenue growth for the Search arm beat analysts’ expectations, coming in at 11.7%. Paid click growth accelerated from 2% in Q1 to 4% in Q2.

While Alphabet still trades at the lowest earnings multiple of all Magnificent Seven companies, Devitt feels there is room for this improve over the coming quarters as investors become more comfortable with “the current macro environment, regulatory risk and the impact of generative AI on the business”.

Tesla and Alphabet earnings recap

Here’s a reminder of the headline results that Alphabet announced last night:

Tesla’s results looked like this:

Expectations are based on the consensus estimates of analysts polled by FactSet.

Tesla stock continues to fall

Any hope that Tesla stock would bounce back quickly from its after-hours decline has been dashed today.

Tesla's share price opened today's session 6.8% below yesterday's close, and has since fallen further, currently down around 7.6%.

The data centre supply gap

There was much talk during Alphabet’s earnings call yesterday on the tightness of compute supply: that is, how much resource is available in AI-dedicated data centres compared to the demand for it.

That tight supply is what eventually ameliorated the market’s response to Alphabet’s eye-watering $85 billion capex figure for 2025. There is huge demand for resources, and with Google Cloud revenue growth exceeding expectations, it makes sense for Alphabet to invest in capturing this market.

“AI adoption is growing at a speed far greater than what anyone is prepared for,” says Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics. Morningstar’s demand model forecasts US data centre capacity to triple between 2024 and 2030.

So while Google’s investment seems extreme at first glance, this is a market with significant growth potential. Google Cloud’s backlog increased 38% year-on-year, “implying continued momentum in the coming periods”, says Scott Devitt, managing director, Equity Research at Wedbush Securities.

Thank you for following our coverage of Alphabet and Tesla's earnings releases. We're going to end things here for now, but we'll be back next week for coverage of the next four Magnificent Seven stocks to announce earnings: Amazon, Apple, Meta and Microsoft.

Nvidia has become the world’s most valuable company after the chipmaker's share price rose to an all-time high on Tuesday 18 June.

The Californian company, which started life in 1993 as a specialist provider of 3D graphics for computer games, overtook Microsoft on the back of its share price nearly doubling since the start of this year. In February, Nvidia became the fourth biggest company in the world.

A boom in artificial intelligence (AI), and billions of pounds worth of sales to the biggest tech companies, has seen Nvidia take the top spot ahead of Microsoft, Apple, Alphabet, which owns Google, and the state-owned oil giant Saudi Aramco.

Christopher Rossbach, investment head at J Stern & Co, says: “We believe that AI and the metaverse will have a transformative impact on the global economy and on the companies driving innovation and growth. 

“Nvidia has been our strongest position year-to-date and we continue to believe that it has extraordinary prospects for growth and value creation.”

Nvidia’s share price – what’s behind its meteoric rise?

Nvidia has easily been the best performing of the Magnificent Seven tech stocks in recent years. Over the past five years, it has grown by more than 3,000%. 

Investors looking to profit from the rising tide of AI have been snapping up the stock, making it one of the most popular investments on DIY platforms. This, combined with a string of impressive results, has propelled its rise. 

The company reported its most recent earnings on 22 May – and they were impressive. First-quarter revenue was $26 billion, up 18% from the previous quarter and up 262% compared to a year ago. 

In addition to its chips, growth in the company’s data centre business has been driving its strong performance. Data centres made up 87% of overall revenues in the first quarter. 

The company’s ascent is “remarkable”, says Russ Mould, investment director at AJ Bell, “particularly as it is now considered to be more valuable than one of the most lauded electronic device makers in the world”. 

He adds: “There is a feeling that as long as Nvidia’s share price is rising, investors are happy and everything is fine on the markets.” 

As far as the S&P 500 is concerned, this has quite literally become the case in recent years. Nvidia has accounted for around a third of the S&P 500’s overall return so far this year. This makes concentration risk a concern for many investors – something we have explored elsewhere when looking at whether it’s time to ditch tracker funds.

Should you invest in Nvidia?

Nvidia’s share price continues to reach record highs – and investors on the sidelines will be disappointed they didn’t snap it up earlier. But there are risks associated with investing at the top of the market. This begs the question, will Nvidia continue to soar?

"Such stratospheric share price rises can come with a drawback," says Richard Hunter, head of markets at interactive investor. "The bar has now been raised, meaning that the shares could be vulnerable to disappointment, with increasing pressure on the company to surprise to the upside." 

Generative AI requires enormous computing power to work, and Nvidia’s chips facilitate this. They can carry out technical processes faster and with greater energy efficiency than many competing chips. The company describes itself as having “pioneered accelerated computing to tackle challenges no one else can solve”. 

Some valuation-focused investors might worry that Nvidia – and Big Tech in general – has entered a bit of a bubble. But investors believe AI will revolutionise the world around us. It’s these future opportunities that they are pricing in. 

Of course, there are risks associated and a regulatory clampdown could create headwinds. There are also concerns that AI is too energy-hungry, and that electricity grids might not be able to cope. We explored this topic in a recent MoneyWeek article: Should you invest in the US stock market and will Big Tech crash?

The Magnificent 7 – or Mag 7 – is a group of seven companies that are viewed as some of the leading names in artificial intelligence (AI) and technology.

These are frequently popular stocks with DIY investors, given their perceived leadership of crucial tech trends, as well as their massive global reach.

At the start of 2023, the seven tech companies collectively comprised approximately 20% of the S&P 500 between them. Now, they make up more than a third (34%) of the index.

So, which companies make up the Mag 7?

What are the Mag 7 stocks?

The seven companies that comprise the Mag 7 group are:

• Alphabet (NASDAQ:GOOGL) – the parent company of Google, as well as other companies such as the AI lab DeepMind;
• Amazon (NASDAQ:AMZN) – originally an online bookstore, now a giant of e-commerce and cloud computing via AWS;
• Apple (NASDAQ:AAPL) – the tech hardware company that brought the world the MacBook and the iPhone;
• Meta (NASDAQ:META) – formerly Facebook, the company is now heavily focused on ‘Metaverse’ technology as well as AI products, like the Llama model;
• Microsoft (NASDAQ:MSFT) – the computing giant behind the Windows operating system and the Azure cloud platform;
• Nvidia (NASDAQ:NVDA) – the hardware developer that pioneered GPUs, the chips that power AI data centres;
• Tesla (NASDAQ:TSLA) – the electric vehicle manufacturer that launched its long-awaited robotaxi service in Austin, Texas in 2025.

The term ‘Magnificent 7’ was coined by Bank of America analyst Michael Hartnett in 2023. By then, the group was already starting to dominate the stock market in the wake of the AI and tech stock mania that followed the public launch of ChatGPT in late November 2022.

While most of the group are highly diversified – Amazon is an e-commerce company as well as the world’s largest cloud services provider; Alphabet makes phones, self-driving cars and owns YouTube in addition to its cloud computing division and its core internet search business) – AI is their unifying feature as a group.

Some (like Nvidia) sell the hardware that underpins AI, or the cloud services on which models are trained and distributed (Amazon, Microsoft and Alphabet hold a 63% share of the global cloud market between them). Others develop AI platforms, such as Meta’s Llama or Microsoft’s Copilot, or integrate ‘physical AI’ into robots and self-driving cars (especially Tesla).

They are stock market behemoths; all have a market capitalisation (market cap) over $1 trillion as of 17 April. Nvidia, currently the largest in the group, has a market cap of close to $5 trillion.

How have the Mag 7 stocks performed over time?

Over recent years, each of the Magnificent 7 stocks have seen substantial increases in their share price.

In the five years to 17 April 2026, the Mag 7 stocks registered the following share price performance:

• Nvidia: +1,170%
• Alphabet: +202%
• Meta: +127%
• Apple: +107%
• Microsoft: +69%
• Tesla: +62%
• Amazon: +47%

In terms of how the group as a whole has performed, the CNBC Magnificent 7 Index – which tracks the seven stocks – gained 328% between its inception in October 2022 and 17 April 2026.

Why invest in the Mag 7 stocks?

It is no coincidence that the Mag 7 are some of the world’s most popular stocks to invest in.

“These stocks have a history of technological innovation and investment, which has allowed them to become the frontrunners in their field,” said Lee Wild, head of equity strategy at investing platform Interactive Investor. “Vast financial resources mean they can continue to spend heavily on further research and development.”

If you think about how frequently you search on Google, order goods from Amazon or check your iPhone, it soon becomes apparent just how wired in these companies are to daily life all over the world.

“Throughout the years, Magnificent 7 companies have grown significantly in size, enjoying market dominance and significant brand power,” said Wild. “They also have global recognition and large loyal customer bases, which helps reinforce their growth credentials.”

That has translated into rapid earnings growth for these companies, which in turn has underpinned the kind of share price gains noted above.

The risks of investing in the Mag 7 Stocks

However, popular stocks bring risks with them, regardless of how large and successful they are.

“All stock markets experience some level of volatility, but technology shares can experience greater price movements given the sector’s growth potential,” said Wild.

Tech companies in particular often trade on high price/earnings multiples given the expectation that their business will grow at pace many years into the future, and this is especially true of the Mag 7.

“However, if growth is slower than expected, or something goes wrong, share prices can sharply fall,” said Wild.

He added that their global reach can expose these companies to legal and regulatory scrutiny. Last year, Alphabet won an antitrust lawsuit that had been brought against it claiming that Google had a monopoly over online search.

There are also geopolitical risks in operating such massive businesses in innovative fields, as the various blockers that both the US and China have tried to raise against Nvidia selling its most cutting-edge chips into the Chinese market.

“As companies grow larger, they might reach a scale whereby it becomes more difficult to maintain a level of high growth that investors have become accustomed to,” said Wild. “They might also become vulnerable to competition either from smaller, more nimble rivals within their sector, or from alternative technologies.”

Are the Mag 7 still magnificent?

This group of stocks started being referred to as the Magnificent 7 during the rise of AI and in the aftermath of the Covid pandemic.

But up until then, the most common grouping to refer to big tech stock market giants was ‘FAANG’ – standing for Facebook (now Meta), Amazon, Apple, Netflix (NASDAQ:NFLX) and Google (now Alphabet). These five garnered lots of hype in the years leading up to and, particularly, during the pandemic, but since then AI’s rise (and the stagnation of the work-from-home economy) has seen Microsoft, Nvidia and Tesla gain more attention, while Netflix has been slightly left behind.

A similar process might be underway at present. The Mag 7 are not the largest companies by market cap – semiconductor companies Broadcom (NASDAQ:AVGO) and Taiwan Semiconductor (NYSE:TSM), as well as Saudi Arabia’s state-owned oil company Saudi Aramco (TADAWUL:2222) – are all valued higher than Meta and Tesla as of 17 April.

Some investors discuss the ‘BATMMAAN’ stocks – Broadcom, Alphabet, Tesla, Meta, Microsoft, Amazon, Apple and Nvidia – or the ‘10 titans’, which adds Broadcom, Oracle (NASDAQ:ORCL) and Netflix to the Mag 7.

Additionally, Elon Musk’s SpaceX is expected to IPO at some point this year and recent reports suggest it could be worth more than Tesla or Meta when it lists. If so, that could prompt a reshuffle in how investors categorise the top tech stocks.

Stocks related to artificial intelligence (AI) have been leading the market higher this year, with names such as Microsoft, Nvidia and Apple jumping between 33% and 218% year to date. These gains are reminiscent of the dotcom bubble in the late 1990s. I’m not entirely convinced we’re in a similar position, but we are certainly in a peculiar market.

Nvidia, the big daddy of AI, is trading at 232 times trailing earnings. That’s some multiple to “grow into”. But one stock does not make a bubble. As analysts at ETF firm WisdomTree point out, a composite tech index that includes stocks from different sub-sectors is trading at below 30 times forecast earnings today, compared with 55 times in the 1990s. That’s not cheap, but it is not a bubble.

Investment theory suggests that the more diversified you are, the better the risk levels and the more opportunity to capture what’s called market breadth. However, the AI buzz hasn’t been that broad or diversified – it’s really just about a handful of stocks. What’s more, I would argue that most investors who put money to work in AI-related stocks are not long-term investors. They are chasing momentum, which is a respectable strategy until it falls over. 

If you believe – as I do – that AI will have a huge influence over many sectors, then frankly AI falls away into the corporate noise – the businesses that use it smartly will probably be the very biggest tech-enabled firms with access to deep wells of capital. They might not be clever AI start-ups or even the giants such as Nvidia or Microsoft (where you could argue that the disruption is already priced into the share price). 

In simple terms, the momentum trade was, and maybe still is, just buying a handful of stocks in the short term. Later, one would bet on US mega caps because of their easy access to liquid capital markets to fund innovation.

3 ways to profit from AI

An alternative strategy is to try to pick stocks that will play the broadening out or diffusion trade – ie, the next generation behind Nvidia and Microsoft. That’s where the AI exchange-traded funds (ETFs) will undoubtedly come into play, such as the iShares Automation and Robotics ETF (LSE: RBOD), the Legal & General Artificial Intelligence ETF (LSE: AIAG), the WisdomTree Artificial Intelligence ETF (LSE: INTL) and the Global X Robotics and Artificial Intelligence ETF (LSE: BOTZ).

Another possibility is to try to out-think these ETFs and draw on the best ideas of active managers who are closely watching AI trends, such as the Polar Capital Artificial Intelligence Fund. For instance, Citywire has a tool called Fix the Future, which looks at the stock picks of the top active fund managers. You can screen managers based on sectors and themes, such as exposure to AI and automation. This screen gives you a handful of very familiar names, such as Alphabet and Tesla, as well as other large caps that use technology, such as Raytheon and Accenture. But it also throws up a whole bunch of less familiar names, many of which are in the aerospace and defence industry, such as Aptiv, Safran, Hexcel, AAR, and VSE. 

If none of this excites you, I’d suggest one very left-field idea: back the venture capitalists who are investing in tomorrow’s ChatGPT. Most of the listed venture-capital plays in the UK, such as Molten Ventures (LSE: GROW), are pushing the focus of their portfolio towards AI and automation in some way. 

A minnow fund called Forward Partners (LSE: FWD) is making a huge bet on AI, with many if not most of its portfolio companies “classified as AI, being businesses that are either applying AI or have generative AI products in market or near launch”. With its share price down at 24p, the market is currently applying an 80% haircut to the value of a portfolio. It’s risky, but that haircut leaves a wide margin of safety for investors. 

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Steve Ballmer was Microsoft’s CEO from 2000 to 2014, and today he is one of the richest people in the world, primarily thanks to his stake in Microsoft, along with the company’s founder, Bill Gates. 

As well as his investment in Microsoft, Ballmer is the owner of the Los Angeles Clippers an NBA basketball team. 

According to Bloomberg, Steve Ballmer has a total net worth of $141 billion, making him the eighth richest person in the world, and one of a group of individuals who’ve built large fortunes from technology. 

Here we look at how Steve Ballmer built his fortune and the factors contributing to his net wealth today.

Steve Ballmer’s net worth history  

Steve Ballmer became CEO of Microsoft in 2000, succeeding Bill Gates who co-founded the business and acted as its CEO until 2000. Ballmer had joined Microsoft back in 1980 as the company's 30th employee. As the business grew, he worked his way up through the ranks. He served in various roles, including senior vice president of sales and support, before being named CEO, having built a vast understanding of the enterprise. 

Ballmer's leadership style was known for being energetic and passionate, which was required at the time. During his tenure, Microsoft underwent a period of explosive growth, particularly in enterprise software and cloud computing, and Ballmer's leadership played a key role in the expansion of Microsoft's offering, mainly in the enterprise software (or business software) market. 

The Windows operating system has always been Microsoft's flagship product, and it was a world-beating product when Ballmer took over. However, it continued to evolve and improve throughout the 2000s, under the new CEO's leadership. The release of Windows XP in 2001 was a significant milestone, helping the company cement its position in the market at a time when the world was seeing a tech revolution. 

But Microsoft never took its position for granted. As the internet became more important in people's lives, and more companies sprang up offering connected services, Microsoft shifted to developing software and services optimised for online use, away from PC-based operating systems. Products like Internet Explorer and MSN Messenger made sure the business was at the forefront of the internet revolution, and Ballmer was a key player in pushing the business towards these markets. 

The development of products such as Azure and Office 365, also developed under Ballmer’s leadership, helped Microsoft become the go-to cloud computing and internet enable tech group in the world. As it rode the growth of technology, revenues grew from $25 billion in 2000 to over $70 billion in 2013.

Microsoft’s failures

Despite the company’s success during the 2000s, Ballmer missed some key opportunities, such as mobile devices and search. Ballmer famously dismissed the potential of the iPhone upon its release, and Microsoft's own attempts at creating a mobile operating system were met with little success – something the business is still paying for to this day, although its position in the cloud market has helped it offset most of the lost profits. 

Additionally, the company struggled to compete with Google in the search market, with its Bing search engine failing to gain significant market share. This is also something the business is struggling with even to this day, although Microsoft is a key shareholder in ChatGPT’s parent company OpenAI, and this might help the enterprise gain an edge over its long-time rival. 

What Ballmer did pick up on was the growth of the global gaming market. The establishment of the company's Xbox gaming division took Microsoft out of its core market and opened up a huge new one, even though it was a risk to begin with. Today, Xbox is one of the main console providers in the world.

In 2014, Ballmer stepped down as CEO of Microsoft, marking the the beginning of a new era as it started to build on the success of the Ballmer leadership.  

How Steve Ballmer spends his money  

Even though Ballmer retired as CEO of Microsoft in 2014, he has continued to stay active in the tech industry, investing in several other tech startups, including Twitter (now X) and Airbnb.

One of Ballmer's main focuses today is his role as the owner of the Los Angeles Clippers basketball team, which he acquired in 2014. He is also a lecturer at Stanford Graduate School of Business, where he shares his insights and experience with the next generation of business leaders, and founded the Ballmer Group, a philanthropic organisation with his wife, Connie. 

The following three stocks are from very different industries, but their characteristics demonstrate resilience throughout economic cycles, and each is driven by long-term growth themes in our framework of three megatrends: demographic changes, future of technology, and resource scarcity. 

Ferrari’s growth driver

Ferrari (Milan: RACE) has a well-known brand, enviable pricing power and a loyal customer base built on a strong franchise. Many of its cars sell out before production even begins.

Ferrari is well positioned to benefit over the next decade from the growth of the middle class in emerging markets, where the number of high-net-worth individuals is increasing most rapidly. In the electric-vehicle sector, Ferrari has entered the hybrid market. Its first hybrid car, the SF90 Stradale, was the company’s best-selling model until the recent launch of its SUV. The group is aiming to unveil its first fully electric model in 2024. 

Most of Ferrari’s revenue and profits come from the US and Europe. However, the company is growing its presence in emerging markets, especially China. The new Purosangue SUV is a step towards expanding its business in the Chinese luxury-vehicle market, where both luxury and comfort are in demand. Consumers’ interest in the SUV has far exceeded initial expectations, with a rapidly lengthening order book. 

Linde: the link to a low-carbon future

Industrial gases are essential across many sectors, and Linde (Frankfurt: LIN) is a global leader in this field. This diversity of markets can provide stability in volatile economic cycles, as we have seen recently. Furthermore, the company is seeking to diversify into markets that are less exposed to the vagaries of the global economic backdrop. These include healthcare and the food and beverage sectors. For instance, Linde was a significant supplier of medical-grade oxygen during the emergency phase of the pandemic. 

A major player across the entire hydrogen value chain, Linde looks ideally positioned as its customers seek low-carbon energy sources. This is a long-term opportunity, likely to give the company a fillip into the late 2020s. As the opportunities will be capital-intensive, forming partnerships will be the key to success. Linde is already one of the largest operators in green hydrogen, using electrolysis technology powered by renewable energy sources such as wind or solar.

It currently operates 80 hydrogen electrolysers in a joint venture with ITM Power.

Ahead in the cloud

Microsoft (Nasdaq: MSFT) is a firm that demonstrates leadership in technology and is developing practical applications in the realms of cybersecurity, gaming and new areas of artificial intelligence (AI).

With more and more corporate assets migrating online, demand for cloud services has increased. This can also heighten susceptibility to cyberattacks. Microsoft’s cloud services are one of its fastest-growing segments, with the Azure Cloud business recently topping the firm’s sales growth across all divisions. 

In the gaming sphere, its “Game Pass” offers online access to PC and Xbox games. At the end of 2022, PC Game Pass subscriptions had increased by 159% year on year, with 20 million people now using the service to stream games. Microsoft is also well positioned to capture the rapidly increasing focus on AI, notably through its position within the enterprise market.

With first-quarter earnings season in full swing in the US, interactive investor is marking the occasion with a three-day trading offer for US shares.

The investment platform will remove trading fees, which are usually £5.99 to buy and sell, on all US shares executed within the offer period from 26 April until 28 April.

It means until 9pm BST on Friday there will be no trading fees applied to all US stocks bought and sold on the interactive investor website and mobile app.

The offer coincides with the latest US earnings season, when some of the most well-known global companies will be sharing their quarterly results - essentially revealing signs about their financial health - to help investors make informed decisions about whether they should buy shares or retain the ones they already have.

Earnings season has so far revealed strong demand for cloud computing and digital advertising with Microsoft and Alphabet appearing in robust financial health. Microsoft’s revenue increased by 7% to $52.9 billion as its cloud business neutralised declining computer sales. Meanwhile, Google owner Alphabet’s revenue increased by 3% to $69.79 billion - a better-than-anticipated result.

Currently, no other UK investment firm is offering a similar opportunity to its customers: AJBell, Fidelity and Hargreaves Lansdown confirmed to MoneyWeek it had no plan to offer the same or similar.

What is the US earning season?

In the US, companies are required to report their earnings every quarter, unlike in the UK, which allows annual or half-yearly reports. Firms have to file the first draft of their financial data for the previous quarter a couple of weeks after the end of each calendar quarter - which in this case is the 31st of March.

This period is thus called “earnings season”. Analysts and investors then have the chance to look at reams of financial data to try and determine how a company is doing right now - and how it might perform going forward.

Why look to the US?

Savvy investors know the golden rule about diversifying and considering a mix of funds, shares and asset classes in order to spread your risk.

Lee Wild, Head of Equity Strategy, interactive investor, says: “Broadening your investment horizons geographically can be a powerful diversifier and help investors access growth outside of one’s home market.

“The US is home to some of the large technology companies, for example, which UK investors don’t have access to on their home market. None of us have a crystal ball, and earnings continue to give us a mixed picture, but investors have a breadth of choice at their fingertips.

“It’s not just household tech names that many of us have become familiar with. The US is the world’s largest market, with the broadest choice and plenty of hidden gems.”

Why look to the US during the earning season?

US first quarter earnings allowing investors to glean insights into the financial health of corporate America.

Victoria Scholar, Head of Investment, interactive investor, says: “Typically, earnings season provides investors with an opportunity to seize upon the bout of higher-than-average share price volatility.

Most interesting for private investors, the three-day offer from interactive investor is an opportunity to add new stocks to your portfolio and save some cash on trading fees.

US stocks to consider during earning season

Meta, parent company of Facebook and WhatsApp, has seen its share price rocket almost 70% year to date after the sharp declines of 2022. Might there be more to come once it releases its earnings results on 26 April? Staff at the tech conglomerate are bracing for another round of potential layoffs in May (following cuts in November last year and earlier this month), a move analysts are pinning on slowing ad revenue.

Meanwhile, Amazon is expected to report the following day, on 27 April. CEO Andy Jassy revealed only a fortnight ago in his annual shareholder letter that he’d spent recent months taking a “deep look across the company, business by business” and reflecting on numerous “simultaneous challenges” in the last year. Nevertheless, Jassy said he feels “optimistic and energized by what lies ahead”.

Elsewhere, whether or not the force remains with Apple – up by almost a third year to date – will be revealed next week when the tech giant plans to release its second fiscal quarter earnings results on May 4. The company missed expectations on sales, revenue, and profit on several lines when it reported its holiday quarter earnings in February. How will it fare this time?

Tesla shares are up around 50% year to date, rebounding from a torrid 2022.

Following the news that Microsoft has invested a "multibillion-dollar" sum, as much as $10bn in ChatGPT bot maker OpenAI, valuing the business at $29bn, we thought our readers might be interested Dominic Frisby's views on this game-changing technology.

Investors need to keep an eye out for the latest innovations like ChatGPT. The best investment funds are continually looking for new ideas that could change the world.

I’ve been playing with a new technology this week, which, I think, is as potentially transformative as Google’s search engine, Facebook’s network or Apple’s iPhone. It’s that significant.

Elon Musk says it’s “scary good”; Google management is so worried about it they have issued a “code red”; and it has achieved in just five days what took Netflix three and a half years.

And it’s going to put me out of a job.

This is Open AI’s latest offering ChatGPT - short for Chat Generative Pre-trained Transformer.

ChatGPT is a, free, powerful tool for users

OpenAI, if you are not familiar with it, is a research institute that develops artificial intelligence.

The company has developed language models that can generate human-like text and neural networks that can create images from text descriptions. Its founders include many of the world's most famous tech entrepreneurs, not least Elon Musk, and it is funded by private donations and research contracts. Its lofty “ultimate goal is to benefit humanity through the responsible development of AI”.

I first heard about ChatGPT from my son when he came back from university over the weekend.

Apparently, loads of students are getting it to write their essays for them. Academics, reports the Guardian, say it generates exam responses that “would result in full marks if submitted by an undergraduate”.

Programmers meanwhile, the Guardian continues, “have used the tool to solve coding challenges in obscure programming languages in a matter of seconds – before writing limericks explaining the functionality.”

I was discussing it on Twitter and User @Peng33G got it to write a perfectly passable song in the style of Dominic Frisby.

I urge you to go and have a play.

To give you an idea of how quickly this thing has found users, cast your eyes over the following, which shows the amount of time to reach one million users.

• Netflix → 3.5 years
• Airbnb → 2 years
• Facebook → 10 months
• Zoom → 9 months
• Spotify → 5 months
• Instagram → 2.5 months
• iPhone → 74 days ChatGPT → 5 days

My buddy, business consultant and tech entrepreneur, Danny Richman, mentors, as he puts it, “a young lad with poor literacy skills who is starting a landscaping business. He struggles to communicate with clients in a professional manner.”

In less than 15 minutes, with no coding required, he created a ChatGPT-powered Gmail account to which the landscaper sends a message. It responds with the text to send to the client.

Original text:

Sally I am starts work at yours monday from dave

Business version:

Dear Sally,

I hope this email finds you well. I am writing to let you know that I will be starting work with you on Monday. I am really looking forward to getting started.

If you have any questions or need help with anything, please don't hesitate to get in touch.

Best wishes,

Dave

Danny continues: “I also helped him use GPT3 to prepare an estimate, create a contract and respond to client enquiries. He just secured his first contract worth £220,000. This would not have been possible without this tech”.

How to use ChatGPT in the real world?

So what will ChatGPT be used for?

In the words of ChatGPT itself, “A wide range of natural language processing tasks, including language translation, text summarization, text generation, and language modelling.

So that might be chatbots and virtual assistants; “text generation tasks”, as it puts it - writing news articles or social media posts.

It could also be used to summarise texts - anything from legal documents to the tax code to the bible, by generating a shorter summary of a longer piece of text.

Its capabilities are likely to improve as it is further developed and refined. It is learning all the time.

So what does all this mean for investors? And how do you invest in ChatGPT?

How to invest in ChatGPT the technology shaping the world

Earlier in the week, I looked at how the world’s largest companies by market cap change from decade to decade.

Seven of the top ten in 2011 were natural resources companies. A decade later, in 2021 not one was. Nine were tech companies: Apple, Microsoft, Alphabet, Amazon, Facebook, Tesla, Berkshire Hathaway, TSMC, Tencent Holdings, Nvidia. Which of them will be there in 2031?

Many of these, you might have thought a year ago, have near-impervious monopolies. But tech changes quickly, as this latest development demonstrates. Already Alphabet’s position looks precarious.

Microsoft, though, was there in 2011 and in 2021. And guess what? It owns a large chunk of Open AI. It has made a number of investments in OpenAI, including a $1 billion investment announced in 2019. It is not known if Microsoft has a controlling stake in OpenAI or if it holds a minority stake in the company.

So the way to get some exposure to this new tech is to own Microsoft Corporation (NASDAQ:MSFT), though it’s not exactly a pure play. Its stake in Open AI is minimal in the context of everything else it does. Moreover, will Microsoft still be one of the world’s ten largest companies in 2031? That would make three decades in a row.

I also gather it is costing a lot of money to run. $3m per day is the figure doing the rounds on the internet. The bot itself would not confirm: “GPT is a large language model that requires significant computational resources to run, as it is trained on a very large dataset and has a very large number of parameters. As a result, it is likely that running GPT would incur significant costs, depending on the specific circumstances”.

But that’s the way with big tech. Get the users first, then worry about the profits. ChatGPT is doing that in spades. If the product is free, you are the user - and all that.

By the way, I got ChatGPT to write some of this article for me (though I ended up subbing it quite a bit). Can you tell which paragraphs?

Tech stocks dominated the market in 2021 as demand for the industry’s services exploded.

At the end of 2020, management consultancy McKinsey noted that digital adoption in the pandemic took a “quantum leap” forward as businesses and consumers had no choice but to work, shop and play online.

Nowhere was this trend more apparent than in the performance of the market’s top tech stocks, the so-called FANGs.

Led by the FANGs, tech stocks see revenues surge

The FANG group of tech companies, Meta (Nasdaq: FB) (formerly known as Facebook), Amazon (Nasdaq: AMZN), Netflix (Nasdaq: NFLX) and Alphabet (Nasdaq: GOOG) (the parent company of Google) collectively reported revenues of $532bn in 2019.

By the end of 2020, revenues across the group had jumped by 28% to $680bn. And by the end of 2021 that figure was $876bn, up 29% year-on-year and 64% since 2019.

Investors celebrated. The NYSE FANG+ Index, which provides exposure to the FANGs as well as Microsoft (Nasdaq: MSFT), Apple (Nasdaq: AAPL), Baidu (Nasdaq: BIDU), Nvidia (Nasdaq: NVDA), Alibaba (NYSE: BABA) and Tesla (Nasdaq: TSLA) doubled in 2020 and rose a further 22% in 2021.

But these tech stocks are now falling out of favour with investors. Since the start of this year, the FANG+ Index has slumped by 46%, erasing all of 2021’s gains and taking it back to the level last seen in June 2020.

Meta has been the worst performing stock by far this year. The stock is off more than 70%.

That’s the sort of return you might expect from a struggling penny stock, not one of the world’s most successful (and profitable) tech companies.

Investors lose faith in tech stocks

Analysts are not short of reasons to explain why the market has fallen out of love with these businesses. They point to rising interest rates, disruption, slowing growth and a rotation away from growth to value stocks.

But I think there’s a much simpler explanation. The market was just too overexcited about their prospects, something even the companies themselves are now starting to admit.

This week Meta announced it’s planning to cut 13% of its workforce around the world. CEO Mark Zuckerberg said the cuts were “the most difficult changes we’ve made in Meta’s history” and he went on to say the company was having to make these changes as the firm’s pandemic growth had not lasted.

“Many people predicted this would be a permanent acceleration,” he wrote, referring to Meta’s revenue growth during the pandemic. “I did too, so I made the decision to significantly increase our investments.”

Meta’s revenues jumped from $70bn in 2019 to $118bn for 2021 and Wall Street analysts were forecasting further growth in 2022. They’d pencilled in earnings growth of around 15%.

However, Wall Street is now expecting a slight decline in revenues from the company in 2022 and a staggering 33% decline in earnings.

A lot has changed for these tech stocks in a year.

Growth slows and cuts arrive

It’s not just Meta. Netflix’s growth engine has spluttered as competition has increased and the company has responded by launching an ad-supported version of its platform.

Google is struggling with a slowdown in digital advertising spending and this week Apple has told its suppliers to slow production of its new iPhone14. It has cut orders by three million units.

The e-commerce giant Amazon has also been forced to put its growth plans on hold. Earlier this year Fortune reported Amazon had “killed plans” to open 42 order fulfilment facilities and delayed opening an additional 21 locations.

These tech stocks have had to re-adjust their growth plans, and as a result, the market has had to re-adjust its perception of them.

Meta, Amazon, Apple and Netflix are no longer expected to generate double-digit sales and earnings growth indefinitely. Therefore, they no longer deserve a premium valuation

Could now be the time to buy tech stocks?

When valuing a business, analysts often try to estimate its future profits and work back to estimate how much these would be worth today. In theory, the higher the future potential profit stream, the more investors are willing to pay today.

So, when analysts revise their estimates for future growth lower, that will be reflected in the company’s current stock price.

That’s exactly what we’ve seen happen with these tech stocks over the past 11 months.

However, as the famous investor Benjamin Graham once said, “there are no bad assets, just bad prices.” In other words, everything has its price.

The fact is, none of these companies are going anywhere anytime soon.

Google remains the world’s go-to search engine, and the company’s cloud business serves millions of customers around the world.

Meanwhile, Amazon has built a global logistics giant, investing hundreds of billions of dollars over the past three years alone to develop its edge (it also has a highly profitable cloud division). Fellow FANG+ members Microsoft and Apple exhibit similar qualities.

Apple isn’t the world’s largest smartphone manufacturer, (that crown belongs to Samsung) but the company’s brand is one of the most valuable in the world, and consumers are willing to pay more to be part of the Apple ecosystem.

These companies are still at the top of their game. All that’s happened over the past year is growth expectations have shifted.

At some point their valuations will hit a level whereby the slower rate of future growth is fully reflected in the shares. When that happens, it could be the time to buy tech stocks.

To say that 2022 hasn’t been a good year for technology stocks would be a bit of an understatement. Most of the leading names such as Apple, Amazon, Alphabet, Microsoft, Meta Platforms and Netflix have slumped. Netflix is now down nearly 75% from its peak. Lots more damage has been done outside the top names: the tech-heavy Nasdaq Composite index is down 30% from its highs and more than 45% of its constituents are down by 50% or greater.

Still, the Nasdaq remains far higher than it was before the start of the pandemic – it’s up by about 25% since the beginning of 2020. This raises the question as to whether a longer-term technology bear market has only just begun, or whether this is just a blip in a wider bull market and an opportunity to pick up technology shares at a cheaper price.

To understand what is going to happen in the future, it is important to understand what lay behind the very strong tech bull market of the last decade. “There have been two main fundamental drivers,” says George Boyd-Bowman of the Liontrust US Opportunities Fund. First, the rise of the digital economy has created a “powerful demand backdrop”. Many of today’s largest tech companies have been at “the forefront of providing the building blocks of the digital world as we know it”. Amazon and Microsoft created Amazon Web Services and Azure to allow the ongoing shift to the cloud. Google (now Alphabet) and Facebook (Meta) were the key forces behind digital advertising and social media.

At the same time, several new business models emerged. Many tech companies have reinvented themselves as platforms, offering a range of services. A prime example of this is Meta acquiring messaging service WhatsApp and photo-sharing app Instagram, in addition to Facebook, the core social network on which the company was founded. Another is the growing use of software as a service (SaaS), under which companies sell their products on a subscription basis, rather than in return for a one-off payment. These models have generated large margins and amounts of free cash flow, as well as extremely high levels of recurring revenue and potentially low levels of capital expenditure, says Boyd-Bowman. Investors tend to value this highly.

Beyond the technology

The long boom has been driven by some fundamental changes to the way we live and consume goods and services. But tech investors can’t ignore the fact that the sector has also been “supercharged” by “macro factors they couldn’t have predicted or indeed wished for in their wildest dreams”, says Boyd-Bowman. As well as Covid-19, which accelerated the use of e-commerce and remote working, these include an interest rate backdrop “supporting sky-high valuation multiples” and the “most benign market background conditions for fast growing companies” in a long time.

Indeed, the ultra-low interest rates created by accommodative central banks have been the big elephant in the room where technology is concerned, says James Penny of TAM Asset Management. This is because investors tend to value companies by their future cash flows, discounted to reflect how long these cash flows will take to appear. Since the discount rate is related to the interest rate, low interest rates “make future earnings a lot more valuable than they would normally have been under a more normal interest rate regime”. Throw in the fact that low productivity growth in the rest of the economy means that there are few alternatives for those seeking growth, and it’s not hard to see why tech shares became so attractive.

If low interest rates were one of the big reasons for the recent tech boom, then it’s only logical that interest-rate hikes by central banks now desperate to contain inflation are having the opposite effect, pushing down valuations and creating a “sour cocktail” for investors, says Boyd-Bowman. It’s significant that the big falls in tech shares have coincided with the “Fed pivot”, when the US Federal Reserve made it clear that it “was serious about getting on top of inflation” by choosing to start to hike rates. With the other major central banks, including the Bank of England, starting to follow, the days when near-zero bond yields led investors “to ascribe absurdly low discount rates to future revenue streams” seem numbered.

The removal of pandemic restrictions – while good for the rest of the economy – is another reason why tech stocks are falling, says Boyd-Bowman. This is because the return of people to physical shops and offices has caused the “Covid-induced sugar high” that it provided to certain companies to start to fade. Indeed, it’s become clear that “while many of the structural shifts that were in place before the pandemic are continuing to run”, they “aren’t necessarily going to do so at the supernormal rates we saw over the last couple of years”.

Why the market has soured

There’s also been a shift in investor expectations, says Penny. During the boom, many people “fell in love with the disruptive potential of these companies”, assuming that their success would continue, seemingly forever. This led investors to pile into them, driving up valuations to very high levels. However, in the past six months investors have started to become a lot less optimistic about the prospects of these companies.

Many of the biggest names of the boom period, such as Amazon and Netflix, have recently started to produce earnings and sales figures that have failed to meet the expectations of Wall Street analysts. As a result, many investors who have previously intended to stick with these companies in the hope of fast growth have decided “that now is a good time to take some of their profits while they can”, pushing down prices.

The big question is whether this decline will end up becoming a rout on the scale of the dotcom bust, where the Nasdaq lost three-quarters of its value between March 2000 and February 2003, or just another blip, followed by a quick recovery, like 2016, 2018 – or March 2020. Everyone agrees that much depends on investor sentiment – something notoriously difficult to predict. Anthony Ginsberg of GinsGlobal Index Funds is a relative optimist who doesn’t see this as a dotcom-era story, but “probably more similar to March/April 2020 at the start of Covid-19, when markets overreacted and panicked”. Markets are currently waiting to see whether the major central banks, such as the Federal Reserve, European Central Bank and Bank of England, are able to “successfully engineer a smooth landing this year”. Of these three, the US Federal Reserve is seen by technology investors as the most important. If the Fed is able to get US inflation under control, and do so without raising interest rates too high, then “sentiment on the US technology sector should improve, causing shares to rebound”.

Boyd-Bowman of Liontrust is also optimistic. He argues that while the lifting of restrictions has hurt many of the tech companies, it’s not on the scale of the dotcom bust where “the fundamentals of nearly every tech company imploded and many saw significant year-over-year revenue declines”. Meanwhile, the “Fed put” – the belief that the Fed would never let the stockmarket fall too far – has been replaced by a “private equity put”. Buyout funds are paying “healthy multiples” for some tech companies, says Boyd-Bowman. This year we’ve seen deals for virtualisation software firm Citrix ($16.5bn), cybersecurity and data-backup company Datto ($6.2bn), identity-management provider SailPoint ($6.9bn) and business-planning software group Anaplan ($10.7bn). This should help give investors confidence that the fundamentals are different this time, he argues.

Not everyone is convinced that there will be a soft landing. “This is like the start of the 2000-2003 tech crash,” says Jerry Thomas of Sarasin and Partners. Yes, the recent fall means that “valuations aren’t quite as crazy as they were during the dotcom era, and are much closer to fair value than they were only a few months ago”. It’s also fair to say that the companies in this tech boom “are much better than the 2001 vintage”. Still, history has shown that “negative sentiment tends to overshoot in the other direction”. What’s more, despite the market correction, there are still many “pockets of hype and expectation”.

Avoid the hype

There are a number of red flags that investors should note if they are looking for buying opportunities, says Thomas. For example, avoid companies “where the product they are selling is not differentiated from the competition, or where there are no barriers to entry”. This is especially important when it comes to mid-cap companies that lack economies of scale. Another big warning sign is companies that are “going on an acquisition spree outside their core areas in order to boost flagging growth rates” or are going through an “identity crisis”. However, perhaps the biggest group of tech companies to avoid is those with no real cash flow or earnings. These are still “super expensive”.

It’s not a good time to buy into companies where the investment case relies on earnings in the future rather than the present, “especially when the market is now focused on immediate profitability, and is much less forgiving of promises about the future”, agrees Neil Campling of Mirabaud Equity Research. And even companies that make money consistently might not be the best idea if they are still “priced for perfection”, as many still are. This is because they are not only likely to find that “any missteps... get punished hard”, but even if they meet their targets, they will suffer from “multiple compression” with investors simply less willing to pay huge multiples of current earnings.

In terms of specific sectors, Campling is particularly bearish about electric cars, where he thinks that there is a massive bubble. “Everyone in this area is now trying to become the new Tesla,” he says. That’s pushing down profit margins and leading to a lot of unproductive investment. What’s more, firms trying to enter this area are having to compete not just with other entrants, but all the major traditional manufacturers such as Volkswagen, General Motors and others, who have announced plans to move away from the internal combustion engine within the next decade.

A positive outlook for profitable firms

If Campling is bearish about shares that just promise fast growth without a clear plan for translating that into profits, he is much more optimistic about those which are not only currently profitable, but also have decent valuations. This is because this puts them at much less risk of investors cutting the earnings multiples they are willing to pay. The winning approach over the next few years can be best summed up by the idea of “growth at a reasonable price, rather than growth at any cost”, he says. And with inflation now a major worry, firms that “provide services enabling other firms to cut their costs” should do particularly well.

Investors are unlikely to go far wrong if they focus on “firms that will benefit from long-running themes which also have valuations that make sense”, agrees Thomas. While valuation is always subjective, one possible shortcut that investors can use to determine whether this is indeed the case is to compare a tech company’s share price with its position before the start of the pandemic in February. If the share price is at – or even better below – the pre-pandemic level, then this may be a good sign that it has not become overvalued as a consequence of the last two years, and may be worth considering as an investment.

In terms of specific sectors, cloud computing, the provision of data storage and IT services over the web, rather than on physical hardware directly controlled by the user, is one big theme to look at, says Ginsberg. The cloud-computing boom will also help boost demand for cybersecurity services, as not only are large American companies “shifting their IT spending increasingly to the cloud”, but they are also “demanding cybersecurity services be provided as part of any cloud-computing package”. What’s more, some of the big names in these sectors also stand to benefit from US government contracts in the near future.

It’s impossible to know how close we are to the bottom of this tech bear market. If the dotcom bust is any guide, there could be a long way still to go. However, the indiscriminate nature of these sell-offs means that long-term investors can usefully look for chances to begin buying profitable stocks, while leaving bottom-fishing in more speculative ones until later. We look at four that may already be interesting below.

Four tech stocks that still offer value...

Meta Platforms (Nasdaq: FB) owns the social network Facebook as well as a range of related apps, most notably the messaging service WhatsApp and the picture-sharing website Instagram. The company is now using some of the money generated by Facebook, which is an “incredible cash cow” says James Penny of TAM, to invest in the metaverse (a vision of a network of virtual worlds facilitated by virtual reality (VR) and augmented reality (AR)). While this investment “could end up falling on its face”, there are early signs that it “could be this generation’s Facebook”. Facebook trades at only 13.6 times forecast 2023 earnings.

Streaming service Netflix (Nasdaq: NFLX) has fallen a long way from its peak valuation due to concerns that the number of subscribers has peaked. However, there is still some value left in, reckons Neil Campling of Mirabaud, especially if it finds ways to cut down on password sharing, which has been blamed for allowing people to have a free ride on other people’s subscriptions. He also thinks Netflix could make money from developing computer games based on some of its hit series. Netflix trades at only 14.8 times forecast 2023 earnings.

Microsoft (Nasdaq: MSFT) should do well, thinks Anthony Ginsberg of GinsGlobal. He is particularly impressed by the way that it has become a “sizeable player in cloud computing”. At the same time, the company is also making moves into online gaming: it recently revealed that more than ten million people have streamed games over Xbox cloud gaming. The stock is more expensive than other blue-chip tech stocks at 23.6 times forecast 2023 earnings, but is showing strong growth. Sales have nearly doubled since 2016, and are set to keep growing at roughly 10% a year.

Cybersecurity firm Palo Alto Networks (Nasdaq: PANW) will continue to benefit from the surge in demand created by the move to cloud computing, says Jerry Thomas of Sarasin. It is particularly noted for its advanced firewalls as well as its automated security operations, and also provides security consulting services to companies. The shares are not cheap, even though they are down by around 30% from their peak, and still trade at 49 times forecast 2023 earnings. However, sales more than doubled between 2017 and 2021, and are expected to keep growing at around 25% a year.

... and two technology funds that do the same

If you want to invest in a broad portfolio of tech shares then HAN-GINS Tech Megatrend Equal Weight UCITS ETF (LSE: ITEP) might fit the bill. This has a portfolio of 114 companies in various fast-growing sectors, including cloud computing and big data, cybersecurity, social media, blockchain and digital entertainment. The companies in the portfolio are on an average price/earnings ratio of 22 and the ETF’s total expense ratio (TER) of 0.59% is reasonable.

If you want to focus on a specific theme, the HAN-GINS Cloud Technology Equal Weight UCITS ETF (LSE: SKYP) holds a group of 76 companies involved in the shift to cloud computing. It also has a TER of 0.59%. Equal weight means that a fund holds the same amount in each stock, rather than holding more in larger companies, like most indices.

Back in 2013, American financial pundit Jim Cramer, host of the Mad Money TV show, introduced investors to a new basket of stocks: the Fangs. These were the tech investments of the future, he said. They were called Fangs because they “take a major bite out of the bears”. Classic Cramer.

The original basket was Facebook, Amazon, Netflix and Google – hence the acronym. Apple was added to the list fairly soon afterwards, and Microsoft sometime later. There were also some name changes to upset the acronym. Google’s parent company became Alphabet in 2015; more recently, Facebook relaunched as Meta Platforms in 2021. But the term Fangs has stuck as a shorthand for a basket of companies best poised to take advantage of new technological trends.

Old tech stocks, such as IBM and Dell, were based on the emerging personal computing revolution of the 1990s. But the new tech stocks were partaking in the upheaval brought to all our lives by the rise of high-speed internet and everything moving online. Facebook was going to be the new public square; Amazon would replace the high street; Netflix would push the cinema into irrelevance; Google would become the equivalent of the highway that connected you to the rest; Apple would provide the cutting-edge hardware to access the grid; and Microsoft would transport all the data into the cloud.

How did these prognostications work out? Pretty well. The world certainly has been taken over by these companies. Investment returns have reflected this as well – for a while anyway. Between early 2014 and early 2020 – just before the markets crashed after the Covid-19 outbreak – a market-cap-weighted portfolio of these companies was returning a stunning 37.4% price growth annually. Compare that with the 8.8% of the S&P 500 or 15.5% of the tech-heavy Nasdaq Composite over the same period. If you had listened to Cramer back in 2013, you could have truly made some mad money from his idea.

Fang stocks: not much in common

During this time, the Fangs also came to dominate the markets. They became the pack leaders for the market rally of this period. If Alphabet or Microsoft were up on a given day, you could bet that the Nasdaq was, too – and probably the S&P 500 to boot. This led some investors to think that the market rally as a whole was ultimately dependent on the performance of the Fangs. Yet if you looked deeper into the basket you could see some problems. These six stocks had been lumped together because of their technological affinity. But a more basic analysis showed that they operated on very different business models.

Alphabet, Amazon, Apple and Microsoft were classic monopoly companies. Amazon uses its sheer size and influence to dominate online retail. Google does the same for online search. Microsoft has managed to achieve the same thing behind-the-scenes in cloud computing and business IT infrastructure. Apple is firmly established as the hardware for people who like tech – or like to look like they like tech. But what about Netflix and Meta? Back when Cramer introduced the term, both looked like they had solid monopolies in their respective fields – online streaming for Netflix and targeted advertising for Facebook. A deeper analysis, however, suggested they might not hold onto this position for long.

Equity analysts talk about a company’s monopoly position in terms of how wide their economic moat is – the metaphor is obviously taken from a medieval castle. A company with a wide moat is thought to have an entrenched market position that would be hard for competitors to challenge. For example, it is almost impossible to imagine a small start-up trying to challenge Amazon’s impressive distribution networks.

It is not, however, so hard to imagine a company challenging Netflix’s online streaming services. Setting up a rival platform should be straightforward enough. At that point, the two would compete on quality and cost. Similarly, there seems no reason to think that Meta’s Facebook should have a permanent hold on social media. New trends are popping up all the time. Kids these days laugh at Facebook as a platform dominated by “old” people.

The Fang stocks’ diverging fortunes

Markets have belatedly caught up with this analysis. Meta and Netflix have started to see their share prices decline dramatically. At the time of writing Meta is down roughly 35% over the past 12 months, while Netflix is down about 60%. Alphabet is flat, Apple is up 20% and Microsoft up 12%. Amazon is down more (a 27% fall), mostly due to its recent results and the end of the lockdown-driven online-shopping boom, but overall it’s clear that Meta and Netflix are now being treated differently to the rest.

Markets have become more, not less dependent on the Fangs in this period, but they have shifted in such a way that they pay less attention to the price moves of Netflix and Meta. This may still be a problem, since the rest of the Fangs are not doing as well as they have in the past: they’re between 12% and 27% in the red since the start of the year. That’s a far cry from the 37.4% average annual growth they delivered in the 2010s (on a cap-weighted basis). No wonder markets are sagging.

Still, moving forward, if you still think the Fangs have serious value to deliver, it might be sensible to toss out Netflix and Meta – unless you think that company management can pull a rabbit out of the hat and turn them into hyper-competitive players in sectors that are suddenly newly competitive.

The tech-heavy Nasdaq index, which is frequently used as a benchmark for the tech sector, has crashed into a bear market. The index has fallen 22% from its record high close last November.

However, as my colleague Max King points out, the valuations of many quality growth stocks are now either “attractive or very attractive,” after being dragged down with the rest of the market.

As I recently noted – If you’re going to buy FANG stocks today, these are the three to focus on – companies with substantial competitive advantages and unique products are likely to pull through this turbulence, while corporations that lack any conceivable advantages over the competition are likely to continue to struggle.

We’re already seeing this trend play out in figures from the streaming giant Netflix (Nasdaq: NFLX) and Facebook’s parent company Meta (Nasdaq: FB). These corporations are losing market share to competitors and there are plenty of other examples.

Peloton (Nasdaq: PTON), down 80% in a year, is just an exercise bike with a computer attached. Affirm (Nasdaq: AFRM) a “buy now pay later’’ company, has cratered 80% since November. Its product operates in a very similar way to credit cards. Robinhood (Nasdaq: HOOD), down 72% from its IPO price, is now just one of many online stockbrokers that offers fee-free mobile app trading.

None of these organisations offer anything new or unique, and all face stiff competition.

For a company to succeed in the long-term it needs to have a niche, and it needs to defend that niche from the competition.

On that front, at the other end of the spectrum we have corporations such as Google‘s parent Alphabet (Nasdaq: GOOG) and Microsoft (Nasdaq: MSFT).

Google’s competitive advantage keeps the competition at bay

Alphabet disappointed the market by reporting a $1.5bn drop in profits for the first three months of 2022 compared to the fourth quarter of 2021. A worse-than-expected performance from YouTube was the biggest disappointment. YouTube revenues only rose 14% to $6.9bn, below the $7.5bn expected by Wall Street analysts.

Overall, the company reported a 23% rise in revenue for the quarter to $68bn, slightly below the $68.1bn expected by analysts.

YouTube’s lacklustre revenue growth reflects the wider trend in the streaming and online content sector. Consumers and advertisers are overwhelmed with too much choice, and they are starting to refocus where they spend their time and money. This is the same headwind that Netflix and Facebook are having to deal with.

YouTube may have more than two billion daily users, but it’s not a unique service. Platforms such as Tik Tok and Instagram are copying its business model, and they’re not the only ones. The lack of any competitive advantage is harming the company’s growth. I would not be surprised if this trend continues.

But where Google really has the edge is in search and services. Both of these divisions reported blow-out performances for the first quarter. Revenue from Google Search jumped 24% year-on-year to $39.6bn. The division now accounts for 58% of total revenue. Meanwhile, Google Cloud revenues expanded 44% to $5.8bn.

These divisions have huge competitive advantages. Google Search is one of the digital world’s most valuable assets. The Google brand alone is worth $263bn. It also has over two decades of data available to help users find the information they need. To back up its brand and data avantage, Google owns over $100bn of assets, mostly data centres, to process information and power Google Cloud.

Based on these numbers, a competitor would need around $400bn to build a brand capable of taking on Google in the search and cloud business. That’s out of reach for all but a tiny fraction of the corporate world.

Microsoft: a vital service for the corporate world

Microsoft exhibits similar competitive advantages. It has a world-renowned brand and has spent tens of billions building the infrastructure and software required to create and sustain a world-leading cloud and computer services business.

The company’s first quarter figures support this idea as revenues during the three months to the end of March jumped 18% to $49.4bn, beating Wall Street expectations.

The “more personal computing” division, which includes its PC and gaming businesses, reported revenue growth of 11%, while intelligent cloud revenue jumped 26% and the productivity and business process unit grew 17%. The company also revealed that demand for its cloud services is accelerating as customers press ahead with the digitisation plans.

In many respects, cloud computing is already a commoditised industry, but Microsoft and Google stand out because they offer services as well. They offer access to services such as AI systems and the suites of Microsoft Office and Google Workspace – all valuable resources for other businesses.

Bargains are emerging from the rubble of the tech sell-off, but investors need to be careful. The world of business is only becoming more competitive, and companies without a durable advantage are going to continue to struggle.

My money’s on stocks like Alphabet and Microsoft, which have a clear advantage over the competition and the resources to keep improving the customer experience.

Software is reinventing the world. Over the last decade, new technologies have disrupted virtually every industry, upending old ways of working and unlocking new opportunities. There are very few businesses that haven’t had to rethink their strategies to adapt to these new circumstances, and not even the most established industries are immune from feeling the effects of this shift.

The financial services sector is no exception. Over the past several years, a wave of innovation has swept through the market, driven by both challenger and established banks. These forward-thinking companies have taken advantage of newer technologies like cloud computing platforms, API integrations and mobile applications to deliver banking services to customers in a way that’s faster, more agile and more accessible than in the past.

More and more customers are choosing not to queue in a physical branch when making changes to an account or depositing funds. These changes in consumer expectations have driven a shift towards all-digital models – many challenger banks operate with no branches and minimal customer-facing support staff, while established banks have launched sweeping IT modernisation programmes in order to meet and surpass customer expectations. Apps have been overhauled to a mobile-first standard, while performance and stability have been improved to reduce wait times and make overall customer experiences less frustrating.

There is now a much greater emphasis on smooth, pleasant and modern customer experience journeys, with carefully designed user interfaces that minimise confusion and allow customers to swiftly navigate through them to their desired outcome. Financial institutions leverage these robust digital platforms to deliver on all of their customers’ needs, including everything from automated virtual agents that can answer queries, to AI systems that can speed up complex tasks like loan approvals.

One of the key technologies behind this is the cloud. Before the widespread availability of cloud computing, setting up the technology infrastructure needed to provide financial services would require an enormous investment in data centre hardware and qualified technicians to manage it, in addition to the development costs of building and maintaining customer-facing digital apps.

Now, however, platforms like Microsoft Azure allow all the necessary infrastructure to be put in place almost instantly, and paid for based on consumption, drastically lowering the barriers to entry for new organisations, and opening opportunities for existing banks to modernise and innovate. Similarly, Azure can also provide access to cutting-edge capabilities like advanced data analytics and AI training models, which enables organisations to deliver a wider variety of services with minimal outlay. In many cases, this offers more stability than privately hosted infrastructure, with lower latency and greater reliability.

Low-code/no-code application development tools Like Microsoft Power Apps are an ideal complement to this, and allow employees to rapidly create and expand apps with no technical knowledge. This allows slick, modern apps to be created in very short timeframes, and connected to Azure cloud services to take advantage of the scalability and advanced features that it brings with it.

It’s not just banking that has been disrupted by this shift. Other consumer financial product sectors including insurance, mortgages and general lending have also seen an influx of new digital-native startups enabled by this new technology, while established companies have leveraged these tools to create a smoother and more pleasant experience for customers. On top of that, the same strategy has allowed traditionally exclusive services like stock trading and investment to be opened up to a wider consumer market through accessible and user-friendly apps.

While offering new financial products and reinventing customer-facing services have been the most visible ways in which financial sector companies have made use of cloud technologies, these new capabilities have had an enormous impact on their internal operations, too. These new IT resources have enabled financial services organisations to make efficiency gains and cost savings in a number of areas.

For example, in addition to lowering the barrier to entry for new organisations, shifting workloads to the cloud allows organisations to move IT infrastructure expenses from a CapEx model to OpEx. Because they’re more predictable, OpEx costs are easier to budget for, and don’t require large amounts to be set aside for upgrade projects.

Moving workloads to the cloud also enhances the potential for innovation. The world of modern finance is complex and fast moving, and businesses in the sector depend on having up-to-date information. Cloud-based infrastructure allows organisations to harness data on their customers’ behaviour and use of their services far more efficiently and effectively, accelerating the creation of real-time data analytics dashboards, which ingest data streams from a variety of sources to ensure that businesses can make data-driven decisions based on live market information.

Security is more important in banking and financial services than arguably any other industry, and fintechs need to ensure that their customers can put their trust in their technology. For this reason, secure, encrypted integrations between apps and services have become a vital part of financial organisations’ infrastructure. In addition, the enhanced, in-depth security offered by platforms like Azure offers businesses peace of mind that their customers’ data is going to remain secure, and built-in compliance toolkits allow them to stay on the right side of regulations without unnecessary burden.

In many ways, the financial services sector has changed more in the last ten years than it has in the last half century. Banking is in the middle of a revolution that will continue to rewrite the rulebook for years to come, and the market may look very different in the future. For organisations that want to stay ahead of this curve, harnessing the innovation unlocked by modern cloud services and next-generation application experiences is the best way to ensure that they can spearhead this trend and lead the way into the next generation.

To learn more about how the financial sector is driving digital innovation, please click here to download our eBook.

The five biggest stocks in the S&P 500 – Facebook, Apple, Amazon, Microsoft and Alphabet/Google – now account for just under a quarter of the market capitalisation of the US index. That’s well above the long-term average of 14%. The top ten, meanwhile, account for nearly 30% – again, well above the long-term average of about 20%. These figures help explain why the big tech firms have become such a lightning rod for competition concerns, but they don’t explain how this dominance has come about.

Now a new working paper from the National Bureau of Economic Research, an American think tank, suggests that record low interest rates have been critical. In “Falling rates and rising superstars”, Thomas Kroen, Ernest Liu, Atif Mian and Amir Sufi analysed market data going back to 1962. They compared the market performance of companies in the top 5% of their industry with the returns on a portfolio consisting solely of their smaller rivals. They found that when interest rates were falling, the dominant companies outperformed. “Falling...rates disproportionately benefit industry leaders, especially when the initial... rate is already low.”

Why is this the case? Industry leaders are able to borrow more cheaply and in greater quantities than their smaller competitors, so they get more benefit from falling rates. In turn, this means they can buy back more shares and also leverage up their balance sheets (both of which tend to boost valuations while rates are falling). Privileged access to cheap money also means they can invest in expansion, or in buying rivals, more easily. In effect, lower rates give leading companies the ammunition to entrench their dominance.

What does this mean in practice for investors? If falling rates have boosted valuations of the biggest stocks on the way up, it implies they may struggle if rates rise, particularly as this would mean investors place less of a premium on future earnings. So if inflation isn’t transitory (even central bankers are finding this argument hard to sustain), betting on big tech – and by extension, the US market in general – may no longer be such a sure thing.

Of course, rates may remain low. However, as recent events in both the US and China amply demonstrate, governments don’t like it when one group of companies appears overmighty. So if rates don’t rise, heavy-handed regulation may step in to knock big tech off its perch instead. One way or another, superstars eventually tend to fall to earth. This is all worth bearing in mind when considering your asset allocation. Don’t dump your tech holdings that have done so well. But ensure you have some exposure to assets that may benefit from a changing backdrop – having some exposure to commodity producers probably makes sense.

Security cameras or heating thermostats that can be monitored with a mobile phone are already important tools for many households. The smart-home transformation can automate our daily lives and help protect our homes and families from threats. So this market is set to grow further, but while leading technology companies like Microsoft and Amazon provide the power to deal with all the data it will produce, there are cheaper ways to play this theme.

The established tech players are clearly crucial as they bring the necessary scale – untold numbers of security cameras are set-off every hour, for example, and owners must be alerted wherever they are on their mobile phones. However, without the gadgets doing the monitoring there’s no data to act on. This means the much smaller niche-players that produce, distribute and install all manner of monitors and sensors will also play a key role in connecting our homes.

An unloved orphan

One in this area that stands out as undervalued is Texas-based Resideo Technologies (NYSE: REZI), a $4bn company spun-out of Honeywell, the global industrial conglomerate, in 2018. As often happens when losing a parent company, Resideo’s shareholder support drifted away and interest from analysts dropped because it’s so small compared to the group it left. The result is relative obscurity in stockmarket terms, which in part explains why the shares languish at $29 and a price/earnings (p/e) ratio of 14.5 (a sizeable 50% discount to the market). This looks very attractive given that Resideo is expected to grow earnings by over 20% a year.

Held back by a poor start

Still, it’s difficult to find companies with a good story, double-digit growth and a low valuation, raising the question of why Resideo remains so cheap almost three years after it became an independent company. The shares have been held back by a rocky first year when it undoubtedly lost support because of some poor forecasting and expectation management. Under-delivering earnings and reporting crushed margins all took their toll. From that low point, Resideo has been a turnaround play.

Under new management

The current chief executive, Jay Geldmacher, joined about a year ago: he is a 30-year veteran who’s already led a spin-out company in the industrial technology area and has a record of delivering results. In the last quarter, sales were up 20% to $1.4bn over the year, margins climbed to 25.9% and operating profits grew strongly.

There’s still much to do but Resideo is making the right progress. Its annual sales are around $5bn but it sees a $110bn addressable market across its product and distribution activities. And it has a strong base from which to secure more business in a fragmented marketplace – its products, such as movement and glass-break sensors, cameras, and leak and carbon monoxide monitors, are already present in 150 million homes worldwide and it’s the number-one distributor of security devices. There is also the likelihood that people will increasingly pay to have equipment correctly fitted and maintained, as well as buying products for DIY solutions. Resideo serves both markets to differing degrees.

Resideo's green credentials

In an age when environmental issues are coming to the fore, creating greener or healthier homes can be a sales driver. Remote systems can significantly reduce energy usage and expenditure, as well as other waste (a hidden pipe that drips once a second wastes 2,700 gallons of water a year). Airflow and conditioning devices are also important, given that indoor air quality is often worse than outdoors.

So a lot of the right buttons are being pushed here: green credentials, links to hot tech themes (see below), strong growth and a 50% valuation discount to the market. Given the stock is so cheap, the downside seems limited. Resideo is worth a look.

An overlooked play on popular tech themes

Resideo’s activities of home sensor and device production and distribution aren’t what investors view as strong tech plays, but the firm is operating within the big tech theme of connecting our homes with our devices. It’s also riding on some themes that have been setting other sectors alight – think of the adoption of the 5G mobile network for connecting everything, the remote internet cloud for the vast processing needed, and the internet of things (the term for networking everything from home appliances to cars to medical monitoring and diagnostic equipment).

So while Resideo isn’t going to trade on the heady ratings of mainstream tech stocks, it deserves to be trading higher than it is, given new management is making progress and the turnaround appears to be gaining traction. If management continues to deliver sales in line with or above guidance while building margins, that will attract broader investor interest.

There are currently only about half a dozen analysts covering the stock and their views vary widely. There is some consensus for the idea that the shares should be able to reach a price of $36, from the current $29, but this is probably a bit too conservative. Trying to value it somewhere between its competitors on both the product and distribution side – such as Allegion, Acuity Brands or Wesco – could suggest a price target of above $40 over the next year, if the company stays on track.

It’s worth noting that Resideo is not entirely hidden below the parapet. Billionaire US investor David Einhorn, the founder of hedge fund Greenlight Capital, highlighted what he called the fund’s “medium-sized” position in Resideo in its investor letter earlier this year. He too suggested earnings should grow strongly and seemed happy continuing to hold the shares as turnaround progress continues.

Investors often fail to appreciate just how big Big Tech is. The world’s four largest technology stocks –Alphabet, Amazon, Apple, and Microsoft – account for around 21% of the market capitalisation of America’s S&P 500 index. In other words, just 0.8% of the index’s companies comprise more than a fifth of the index.

But this isn’t the first time huge, fast-growing tech shares have dominated stockmarkets. The 1960s and early 1970s marked another Big Tech era. Markets were in thrall to the Nifty-50, 50 fast-growing large-caps that captured the headlines. Four of them were famous tech stocks: IBM, Kodak, Polaroid and Xerox. Their history, and the parallels we can draw with today’s market backdrop, hold valuable lessons for the investors and tech titans of the 2020s.

Turning down Xerox’s copier

All four tried to move onto each other’s turf, just as today’s tech companies have been doing. The star of the four was Xerox. From 1963 to 1972 Xerox’s shares rose by 1,463%. Shares in Haloid (which became Xerox in 1961) gained 120,000% between 1936 and 2000. Xerox’s first office copier – the 914 – was launched in 1961. But in the late 1950s, Xerox approached IBM to help fund and sell its copier after its launch. IBM employed management consultants AD Little to assess the prototype copier’s potential.

AD Little said the copier was too big for an office and too heavy for IBM’s typewriter-salesmen to transport, so IBM opted not to assist and Xerox marketed it alone. Xerox cleverly placed the machines with customers for free, charged a monthly rent covering the first 2,000 copies, and printed money by billing five cents a copy after that. I joined Xerox as a senior manager in 1973 and saw at first hand the events I describe below.

Copying Polaroid’s camera

Imaging and office automation were the main competitive battlegrounds. Kodak and Polaroid competed in imaging. Kodak was the global market leader in photographic film, paper and related chemicals. Polaroid, which invented polarisers (optical filters that let only certain lightwaves in) for sunglasses and 3D-imaging, made large instant-photography cameras.

The launch of Polaroid’s “pocket-sized” SX-70 colour instant-camera changed everything. Edwin Land, founder of Polaroid, was the Steve Jobs of his day. He wanted a pocket-sized SX-70 so, at its 1972 market launch, he produced it from his jacket – specially made with larger-than-standard side pockets. The SX-70 single-reflex instant camera automatically produced a fully-developed colour print in one minute and was an instant success.

Kodak’s team of 1,400 instant photography developers were stunned by the SX-70’s size and performance. They ditched their now obsolete prototype and copied Polaroid’s approach. Polaroid sued for patent infringement in 1976 and won. It was awarded $925m in damages and Kodak was obliged to cease production of all instant cameras and films.

Kodak’s next mistakes

While Kodak was struggling to compete with Polaroid in instant photography it made an even bigger mistake. A Kodak research and development (R&D) engineer, Steve Sasson, invented the first portable digital camera in Kodak’s laboratories in 1975. But Kodak decided not to develop and market it because it feared it would cannibalise its massive revenues from film photography. But digital photography did emerge and drove both Kodak and Polaroid into bankruptcy – in 2012 and 2001 respectively.

IBM, Kodak and Xerox competed in office automation. IBM dominated mainframe computers (large ones used for bulk data processing) and had a typewriter division. Xerox was the market leader in office copiers. Both companies wanted to offer a complete range of office automation so IBM introduced an office copier in 1970. Xerox sued IBM for patent infringement, won the case but was awarded only $25m.

In the 1970s both introduced word processors. Xerox’s Palo Alto Research Centre (PARC) developed the world’s first personal computer in 1972 (the Alto) complete with mouse, user-friendly interface and networking. In 1975 Kodak launched its Ektaprint copier aimed at Xerox’s profitable mid-range market segment. The Ektaprint’s speed and copy quality were superior to Xerox’s existing machines. Xerox had no inkling of the pending launch despite both firms having R&D laboratories in Rochester, New York with their staff mingling socially. I remember examining an Ektaprint in Xerox’s competitive products laboratory soon after launch and being impressed by its many major innovations and copy quality.

How did these companies fare moving onto each other’s turf? Firstly, Kodak moved tentatively, only launching its Ektaprint copier in six US cities. This gave Xerox time to launch a competing product with similar performance. Kodak then took seven years to launch the Mark II Ektaprint but Xerox launched an upgrade of its new model the year before. Xerox failed with its personal computer, the Alto, which was never marketed.

Xerox misses a huge trick

However, the Apple Macintosh and Sun Workstation were both modelled on the Alto. So why did Xerox not commercialise it? Firstly, because it was distracted and deterred by the purchase of Scientific Data Systems, a minicomputer company, in 1969; that division was closed down in 1975 with the loss of over $1bn. Secondly, Xerox’s top managers were from Ford and used to making modest improvements to existing products rather than launching new, innovative ones.

Xerox also failed to develop a timely small copier, partly because of thinner profit margins on smaller machines and because the small new-technology copier we developed within Xerox was burdened with large-copier specifications that delayed development and increased costs. That enabled Japanese companies such as Canon and Ricoh to launch small copiers and move upmarket with larger machines.

Then Xerox decided to explore inkjet technology for small copiers and printers and asked me to head up an inkjet R&D laboratory; I declined since I did not want to move my young family to the US. In 1968 the FTC (US Federal Trade Commission) charged Xerox with monopolistic practices (it had 90% of the US copier market). A consent decree was signed with the FTC in 1975 under which Xerox granted competitors patent licences at nominal royalties.

What investors and today’s titans can learn

What lessons can be drawn for today’s tech companies? First, if you develop a potentially world-beating product, do commercialise it (remember what happened to Xerox’s PC and Kodak’s digital photography). If you market it, do so wholeheartedly or the incumbent will match it before you gain substantial market share (Kodak’s Ektaprint). Do be aware of new or improved technologies that can take sales from your existing products (instant photography, Ektaprint improvements). If you try to copy a competitor’s product, do so without infringing its patents (Kodak/Polaroid, IBM/Xerox). And beware of regulators.

Internet and data are the battlegrounds for today’s tech companies. It all began when Apple introduced the Alto/Macintosh PC in January 1984 at a time when Microsoft had MS-DOS. Because Apple wouldn’t license its Mac software to others, Microsoft was able to develop Windows (launched in November 1985), which became the de-facto standard. IBM had used Microsoft to develop the operating system for its PC (launched August 1981), but failed to specify exclusivity, so Microsoft could sell its operating system to other computer makers.

In October 2001 Apple launched the iPod – a 21st-century version of the ubiquitous Sony Walkman. Sales boomed and 42% of Apple’s revenue in the first quarter of 2008 came from the iPod. Smartphones were the next battleground. In 2007 Nokia led the market in mobile phones. But although Nokia’s hardware was excellent, its software was not. That gave Apple the opportunity to introduce the iPhone in June 2007 and take market share. But Apple, as with the Mac, kept its mobile operating system to itself, giving Google the opportunity to introduce Android. Google was market leader in search and online advertising and wanted Search, YouTube, Maps and Gmail on mobiles. Enter Android in 2007 with the first Android smartphone (HTC’s) launched in 2008. Android has become a de-facto standard like Windows. It now has 86% of the market.

Microsoft badly missed the mobile opportunity. Samsung, using Android, became the number-one smartphone company in 2012 and has remained number one. In an echo of the Polaroid/Kodak case, Samsung was sued by Apple for patent infringement in 2011 with Samsung counter-suing. Apple eventually won damages of $539m in 2018. The next area of competition was data and the cloud. Amazon gained first-mover advantage by offering companies cloud storage and remains market leader. Microsoft’s recent renaissance stems from its adoption of cloud storage where it holds the number-two position.

Video streaming is another arena of competition. This was pioneered by Netflix, but Amazon (using Prime), YouTube (Google), Disney, Apple and others are all now competing with Netflix. Finally, remembering the FTC/Xerox case, tech companies need to be aware of regulatory issues. Microsoft was fined €561m by the EU for monopolistic practices in 2013 after it deleted a browser choice pop-up for Windows 7, having agreed in 2012 to include it. Alphabet (Google’s parent company), Amazon and Apple have all fallen foul of EU antitrust investigations in recent years. And the US Congress is expected to impose new regulations on Big Tech, which it sees as effective monopolies. Many analysts now expect these companies to be broken up – heralding an era of smaller

Creative-software group Adobe (Nasdaq: ADBE) came out with record-breaking results this week, beating analysts’ expectations yet again. Exceptional businesses are rare but Adobe is one of them. Over the past five years, profits have leapt 60% annually and cashflow is up over 300%, while gross margins have averaged an eye-catching 86%. And that was before the pandemic. Covid-19 has clearly triggered the need for even more digitisation, and at a faster pace as technology plays an increasing role in our lives. Adobe, which makes this happen, will be enjoying tailwinds for years to come.

An obscure giant

Despite being extremely profitable and a top-performing stock – the shares have grown 26.5% a year since floating in 1986 – Adobe isn’t that well-known. For many, it’s simply the maker of the Acrobat software that creates and reads PDF documents. For others, it’s the publisher of Photoshop, the program for editing pictures. Both are very important. Over 250 billion PDFs are opened a year in Adobe software, and 90% of the world’s creative professionals use Photoshop, which is to images what Microsoft Word is to text. But today Adobe is broader, offering a suite of software for document management and storage; website design, content and e-commerce; and image and video editing.

These have been highly successful as Adobe’s profit history shows. This growth should continue because they plug directly into the theme of the digitising world.

First, we know many professionals are working from home. People will start to go back to the office as the pandemic is contained, but many won’t do so full time. It’s clear that a degree of remote working is here to stay: employees want it, productivity seems to increase and smaller office spaces mean lower costs. Businesses are using PDF documents that can be edited, stored, searched and retrieved. They can also be signed electronically. With Adobe, all this takes place seamlessly across the cloud that connects computers and devices wherever they are, making offices virtual as staff don’t have to be together in one brick building.

Second, Adobe’s creative software also connects collaborators when it comes to creativity, again across the cloud. Design teams from large studios and agencies as well as freelancers are working together on images, videos and general design. This is serious work and will become more so – a digital world is a visual one, in which businesses and organisations are competing for attention.

Taking this further, Adobe helps users large and small build, and capitalise on, their digital presence, including creating innovative content for websites as well as carrying out transactions and analysing all their internet traffic. This is the future and Adobe is a leader. Its products let users analyse their visitors and customers in real-time to generate personalised experiences and engagement – this is a critical growth area for ecommerce.

Subscription software

Adobe’s unique software is now offered as a software-as-a-service (SaaS) product, meaning it is rented, not bought (see below). Market analysts reckon this is a $158bn sector expanding at 12% a year to hit $307bn by 2026. Given that Adobe is the world’s third-largest SaaS after Microsoft and Salesforce, it is well-placed to share in this strong growth.

Adobe’s own outlook is equally upbeat. It sees its potential market as worth around $128bn by 2022. Its sales of $11bn last year are only a small part of this, so there is plenty of scope for growth.

Technology companies are flying high because the world is rapidly digitising. Volatility is to be expected but the numbers are coming through strongly. Adobe’s dominant position will mean further growth as digitisation progresses, so its returns should continue outpacing the wider market.

Reliable and recurring revenue

Adobe has been one long success story. Founded in 1982 with origins in printing software, desktop publishing, typesetting and fonts, it joined the stockmarket in 1986. Today it’s a $233bn company that employs 22,000 people. The shares were priced at the equivalent of 17 cents then (allowing for stock splits) and are almost $500 today: a compound rate of 26.5% a year over nearly four decades. A $1,000 investment back then is worth $2.94m today – a 294,000% return.

Any company whose products are so widely used that they become everyday words have a good (though not guaranteed) chance of success – think Google or Skype. Adobe has two. Most of us talk of “PDF-ing” a document or ask if an picture has been “photoshopped”. Hardly analytical, but deep brand embedding suggests a product is here to stay.

What made Adobe something of a standout business for long-term investors was its early adoption of the subscription-based revenue model. Users no longer buy software; instead they rent access to it. Over 90% of Adobe’s revenues are now recurring. This predictability and reliability of income is one reason why it merits a premium valuation: at today’s share price, it trades on 60 times trailing earnings and 48 times forecast earnings. And whether the world is expanding or in full lockdown, Adobe has proved it keeps delivering. Its latest results show revenue ahead of management expectations, strong profits and expanding margins. Importantly, the company affirmed further growth in the next quarter in line with existing expectations.

Analysts were warming to the stock even before the latest results. Adobe’s strong record and the potential for deals to add more client offerings mean it continues to offer long-term upside.

Despite dire warnings of imminent collapse from the investment Jeremiahs early this year, the technology sector has been a star performer. In the first half of 2020 the 28% return from the £2.6bn Polar Capital Technology Trust (LSE: PCT) and the 37% from the £800m Allianz Technology Trust (LSE: ATT) helped cushion investors from the market turbulence. So why did the bears get it so wrong?

Ben Rogoff, manager of PCT, says that the tech sector, with earnings growth of around 150%, has driven all the earnings growth of world markets since 2009. As for the pandemic, he agrees with Satya Nadella, CEO of Microsoft, who says: “We’ve seen two years of digital transformation in two months.” The sector’s valuation, with a forward price/earnings multiple of 23.5, may look expensive but is not much above the market average despite its higher earnings growth.

“The magnificent six” tech stocks deliver

Ed Yardeni of Yardeni Research points out that “the magnificent six” – Apple, Microsoft, Amazon, Alphabet, Facebook and Netflix – now account for $6.5trn of market value and over 25% of the S&P 500’s market capitalisation. But only the first two are in the information technology sector, accounting for 44% of it. Since the start of 2015, forward- earnings estimates are up 95% against a drop of 2% for the rest of the S&P. Profits have been boosted not only by revenue growth but by high margins.

It is hard to keep up with the scale and speed of digital transformation. Rogoff quotes research findings that nearly 40% of couples now meet online. Around 96% of Generation Z, born between 1995 and 2015 (26% of the US population), own a smartphone and half spend more than ten hours a day online; 70% watch more than two hours of YouTube a day, 83% watch Netflix and their average attention span is eight seconds.

More broadly, the pandemic has resulted in $52bn of additional e-commerce as the migration of spending online, hitherto occurring at a pace of 1% a year, has accelerated. The quickening trend towards remote working, education and spending is expected to persist and new areas, such as telemedicine (remote healthcare) are opening up.

Walter Price, manager of ATT, thinks there is much more to go for: half of advertising is still spent on television, radio and print. Around 42% of his portfolio is related to “the cloud”, the delivery of software and services from the internet rather than via corporate networks, a key requirement for remote working. “Technology is the way out if we are to live through pandemics,” he says.

Racing ahead of the market

Both trusts have about a third of the portfolio outside the narrowly-defined sector, balanced by relatively low exposure to Microsoft and Apple. PCT, with over 100 holdings, has more than 70% invested in the US and ATT, with 64, over 90%.

Price is far more sceptical about Chinese companies and has cut exposure there to 2%. Neither owned Wirecard, once Europe’s tech flagship. Both have more than 80% invested in firms with market values above $10bn but ATT has less exposure to the $100bn mega-caps. Both trusts boast higher growth but also higher valuations than the sector.

Rogoff invests in the high- growth phase when “companies [seem] expensive but revenue and earnings forecasts are wrong” before selling out before maturity, when stocks become value traps. This is not easy as sceptics have regularly forecast the maturity of Apple, Amazon, Facebook and Microsoft and warned about the business models of Netflix, Tesla and Ocado. They may prove equally wrong about Uber. Rogoff tells the better story but Price has outperformed him over most time periods. Both trusts should continue to be excellent investments.

IT procurement used to represent a significant capital investment for businesses, in terms of both hardware and software. Rolling cycles of hardware refreshes ensured that workers had devices that could handle their needs, while software licenses were procured on a per-user basis and replaced or upgraded when new versions were released.

But that system lacked flexibility - if a business invested in software licenses for workers who then left, those licenses would lay dormant with a real cost associated with them. That lack of flexibility went both ways, too, with temporary staff needing software licenses procured, even if they were only in the business for a matter of weeks.

Software-as-a-Service (SaaS) changed all that, moving software from the CapEx column to OpEx, while also delivering that much needed flexibility. At its most basic level SaaS is a system of renting or leasing software licenses, allowing businesses to make use of the software for as long as they need it through an ongoing subscription, rather than a significant initial outlay. So those temporary workers who will only be around for a couple of months, will only cost the business two months’ worth of software subscriptions for the applications they need.

Switching to a SaaS model has also delivered tangible benefits to the software developers and publishers. There was a time when piracy was a major issue for huge software companies like Microsoft, with its Office productivity suite one of the most pirated applications on the planet. But with Office now part of a SaaS offering in the shape of Microsoft 365, the cost of entry is far lower, and the benefits of an official subscription far outweigh the attraction of pirated or hacked versions. Plus, those Microsoft 365 subscriptions also ensure that every user is on the latest version of the software, with ongoing updates and security patches rolled out automatically.

Similarly, Adobe’s Creative Suite used to command a significant capital investment, and that investment would roll around again whenever new versions of the applications were released. But with Adobe’s Creative Cloud SaaS offering, businesses and individuals can subscribe to the applications they need on a monthly basis, making software that was previously out of reach a reality. Why look for a cheaper application that can do most of what Photoshop does when you can just subscribe to Photoshop instead?

But traditional software powerhouses transitioning to a SaaS model is only part of the story, because the software world is now dominated by developers who have never worked any other way. And if the unprecedented events of 2020 have shown us anything, it’s that technology and specifically cloud-based SaaS platforms have kept the world turning, and industry working.

Communication and collaboration applications and platforms have become the lifeblood of remote working under the shadow of a pandemic - SaaS solutions like Slack, Zoom and Dropbox have kept us connected, productive and effective while working remotely, and now that we’re used to working this way, they’ll likely become staples in a post-Covid world.

That SaaS model works across any number of industries and applications, too. Cloud-based accounting platforms like Quickbooks from Intuit allow small and large businesses alike to keep on top of their finances from anywhere and at any time, while app-based telephone solutions like RingCentral have done away with traditional PABX systems, allowing users to make and receive calls from almost any device with an internet connection.

With businesses and consumers alike adopting SaaS as the preferred method of buying and using software, this market is only set to grow, making it an attractive investment opportunity. But technology moves fast, and today’s innovative startup could be tomorrow’s boom and bust story. Thankfully CMC Markets can take some of the worry out of the equation with its SaaS share basket, which rounds up some of the biggest players in the sector including Microsoft, Salesforce, Adobe, Slack and Zoom, spreading exposure over a carefully curated collection of companies. If you’re looking to ride the SaaS wave and invest in this innovative technology sector, CMC Markets can help.

To find out more about share baskets and test run a demo account, head to the CMC Markets website.

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A portfolio of shares should be based on some large, well-managed companies with proven business models and compelling long-term prospects. These ten stocks fit the bill, says Stephen Connolly.

Short-term trading can generate high returns. But it can also be very risky, so it doesn't make sense to allocate more than a small portion of your equity portfolio to it. What, though, is the best strategy for the rest of the equity allocation if you're interested in owning shares directly?

A portfolio needs a foundation of solid and dependable assets that can hold their own. These are companies that can be bought and tucked away for the long term, or even for life; they shouldn't need reviewing on a daily basis. They can easily sit alongside other core investments, such as investment trusts.

Below, I highlight ten such stocks. There's no particularly scientific selection process. The list that follows is just an attempt to identify companies with proven business models and management for market-beating returns over the long term. They can enhance, de-risk, or even start a sensible portfolio of individual stocks. They are what could be labelled "quality", and tend to be dominant within their sectors. I have drawn on several different regions and attempted to diversify by industry. Stocks given high values by the market, but without a demonstrably profitable business, have been ignored so you won't find Tesla or Uber here, for example. Following tips and one-off recommendations can lead to great gains, but at the same time portfolios can become unbalanced; sometimes too much has been invested in small caps or a particular sector, for example.

It can even be that the companies, while they appear promising, are simply too risky should the economy deteriorate. The stocks below are certainly not immune to economic volatility, but their businesses are generally built on multiple revenue streams, tempering their exposure to the business cycle. They are stocks for all seasons.

Adobe

Software (US)

Adobe's (Nasdaq: ADBE) brands have created not one, but two, new English words. People talk of "PDF-ing a document", and wonder if a picture has been "Photoshopped". This sort of "brand embedding" suggests a product will endure. Adobe launched in 1982, with origins in printing software, desktop publishing, typesetting and fonts. Photoshop arrived in 1989 and the PDF in 1993. Photoshop is to images what Microsoft Word is to text editing. The firm now offers a broad suite of software around document management, image and video-editing, and design. The software is widely used in offices and has a strong customer base in the creative industries, from studio teams through to freelancers. The group moved into cloud computing (whereby data is stored and managed online rather than on a user's PC) with Creative Cloud a few years ago. This offers project access across multiple locations and devices.

What makes Adobe a standout business is its early adoption of the increasingly ubiquitous subscription-based revenue model. Users no longer buy software on a disc, they rent it online. More than 90% of its revenues are now recurring. Creative Cloud and the associated Document Cloud are increasing usage at a rate of more than 20%. Adobe's track record and the potential for deals to add more client offerings mean the stock deserves its premium valuation.

Carnival Corporation

Leisure and Travel (UK)

There are two big things to get right in the cruise industry. First, whether through discounting or free extras, get those ships 100% full. Then, make sure there's plenty to sell that captive audience, from alcohol to day trips. The industry has got this down to a fine art, with passengers and profits on an upward path.

But there's still much further to go: last year's 28 million passenger total is only a small part of the multi-trillion-dollar travel market. For example, while some 50% of cruisers are American, only 3% of the country's population have been on one. European market share is also relatively low, and the Far East offers great demand.

Demographics are changing favourably. Older, post-retirement travellers are important. But there's also a marked upswing in millennials seeking "experiences" with an appetite for travel. Carnival Corporation (LSE: CCL) is the world's biggest cruise operator, with ten brands including Carnival, Princess, Cunard and P&O. Its 100-plus ships give it about half the global industry's total passenger capacity. A large proportion of these sail the Caribbean out of the US. Carnival will be adding more than a dozen new ships over the next four years. The shares are cheap and the outlook upbeat.

Diageo

Beverages (UK)

With headquarters in London, Diageo (LSE: DGE) is a leading global drinks business with brands including Smirnoff, Johnnie Walker and Guinness. Branded beers and spirits are likely to be consumed for many years to come. Diageo's last reported figures beat market expectations with a broadly based performance. Recent industry trends have shown a shift in consumption towards craft and premium products and Diageo has been positioning itself accordingly.

The company has been a strong performer, and is well regarded by investors. Sales are expected to grow somewhere between 5% and 6% a year over the next few years, although the group has been known to be cautious in its guidance and could therefore surprise on the upside. The key with Diageo is its healthy balance sheet and the fact that it has big margins and generates strong cash flows that can be used to invest for growth, or be returned to shareholders.

Diageo is a long-term investment that ticks the boxes as a dependable foundation stone in any portfolio. It's not cheap compared with peers, but attracts a premium rating given its record, dependability, and brand quality. The strength of the brands with their loyal consumer base mean it has a degree of pricing power and should be able to keep revenues ahead of inflation at a minimum. With higher sales it should also be able to eke out higher margins in future, implying further cash being returned to investors either through share buybacks or dividends. It hasn't failed to increase the latter every year for the best part of 20 years.

Johnson & Johnson

Healthcare and Medical Devices (US)

Johnson & Johnson (NYSE: JNJ) is a leading US pharmaceutical and medical-devices business operating worldwide. The 133-year-old firm boasts a strong long-term compound-growth rate. On the pharmaceutical side it is active in tumour treatments and immunology. It's also working against infectious diseases. The devices division makes disposable contact lenses, disinfection products, and orthopaedic equipment. Johnson & Johnson is a business built on several diverse, yet reliable long-term revenue streams.

The company is no stranger to litigation, like many of its pharmaceutical competitors; lawsuits have become part and parcel of investing in the sector. For example, it was recently involved in legal action concerning opioids.

Looking forward, healthcare generally remains a huge market and the demographic trends of an ageing population in developed markets, in conjunction with an emerging middle class in developing countries, are positive for pharmaceutical and medical-device businesses. Where Johnson & Johnson adds value is in its record od innovation, which it is able to back up with strong cash flow from other activities.

In turn, it has been able to produce blockbuster treatments with significant margins that can support further investment and boost returns to shareholders. As American stocks go, it has a decent forward yield of 2.7%, as well as a solid balance sheet. The shares are trading at around 15 times next year's earnings, which constitutes a reasonable entry point for long-term investors.

LVMH

Luxury Goods (France)

Bernard Arnault, a doyen of Parisian business and one of the world's wealthiest men, took charge of LVMH (Paris: MC) towards the end of the 1980s. The conglomerate was originally made up of the Louis Vuitton trunk and travel-goods maker, along with Mot & Chandon champagne and Hennessy cognac. With the purchase of various businesses since, including Givenchy, Guerlain, Bulgari and Christian Dior, it's now a €180bn behemoth the world's top luxury goods group by revenue.

Sales have climbed 50% over five years with earnings doubling, and 2018 was another record-breaker for revenue. LVMH has been achieving solid sales growth in both developed and emerging markets and seems unaffected by the trade war; growth in China has been accelerating and demand for luxury goods is holding up, while consumers' appetite for products such as iPhones is slipping. Arnault's focus has been mainly on highly regarded European luxury labels and using the group's financial resources to build them internationally. While LVMH isn't immune to economic slowdowns, the global appeal of its top-notch labels gives it something of a defensive quality. It is well managed and should keep delivering market-beating returns for years.

Nestl

Consumer food and drink (Switzerland)

There's not much Nestl (Zurich: NESN), the world's biggest food company, doesn't do from breakfast cereal, tea and coffee, to pet food, frozen meals and ice cream. Sales top CHF 91bn a year. Its brands will feature in most people's weekly shop somewhere, and they include Nesquik, Cheerios, Nescaf, Nespresso, San Pellegrino, Smarties, Quality Street and Hagen-Dazs. The group has cut its exposure to beauty products, bringing in cash to invest in core food and drink products. More broadly, the group continues with its three-year turnaround strategy, which has boosted sales, and it's putting cash to work on foods with a healthier-living slant. The group's recent results have been better than forecast and shareholders are responding positively. The figures have tempered concerns that companies such as Nestl are vulnerable to fast-moving start-ups as consumers become more quality-conscious. Nestl will continue to thrive if it can maintain pricing and margin momentum.

Nike

Sports shoes and apparel (US)

Nike (NYSE: NKE) was founded as Blue Ribbon Sports in 1964 and has grown to become a global marketing juggernaut, with a brand synonymous with many of the top inspirational names in sport. Its ability to use these associations to create deep loyalty from its customers is widely admired, as is the design innovation that has kept it at the leading edge of its industry for 50 years. Investors and analysts still sometimes underestimate Nike, however. Worries over slowing US sales, too much out-of-date stock, or the threat of Amazon all make the rounds. Yet the shares have climbed 19% a year over the past decade, while profits have doubled to $4.5bn.

Nike's customer base is remarkably cross-generational, with the "Swoosh" emblem visible everywhere from golf courses to high-school basketball tournaments. There's little to suggest that loyalty to Nike is fickle, and it's hard to picture the company as an "also-ran" in ten years' time. Spurs to growth include a revamped digital push with a new and popular purchasing app, plus greater use of social media. Nike is working on slashing the time it takes to bring products to market to respond faster to fashion trends and manage pricing and stock better. Significant investment in breakthrough materials developed around automated robot manufacturing could boost production and margins greatly.

L'Oral

Beauty and cosmetics (France)

A seller of hair dye to Parisian hairdressers before World War I, L'Oral (Paris: OR) has grown to become a global beauty and cosmetics powerhouse worth more than €120bn. The company owns and manages brands including premium labels Lancme, Giorgio Armani and Yves Saint Laurent. The Bettencourt family descendants of the founder still owns a third of the company, while Nestl has 23%. Profits have easily more than doubled over the past decade and the shares have gained in excess of 11% annually, outpacing the broader market. The most recent figures in April were ahead of expectations, thanks to strong sales around its deluxe offerings.

Taking a longer-term view, a focus on big cosmetic companies provides a good geographic spread as well as the protective diversity of a large portfolio of brands. The beauty industry is gaining from increased demand in the Far East, together with greater use of make-up among "selfie"-conscious millennials inspired by online campaigns by "influencers". The greatest growth is likely to come from premium, world-class labels that should be dependable over the long term and relatively resilient to economic downturns. Non-premium products will give support too, regardless of the wider economy, as people are extremely unlikely to stop washing their hair or moisturising.

Roche

Pharmaceuticals (Switzerland)

Swiss pharmaceutical giant Roche (Zurich: ROG) is a favourite among fund managers, who point to its long record of dividend increases and cash-flow generation. Most of its revenue has come from oncology medication (dealing with cancer and tumours), although with a lot of it losing patent protection this won't be much of a growth area in future. Where there will be gains is in ophthalmology (eyes), neurosciences (nervous system around multiple sclerosis and Alzheimer's disease) and in-vitro diagnostics (sample testing and analysis), where emerging-market growth has been rapid. The neuroscience arm could see some big breakthroughs and new blockbuster drugs.

Overall sales last year were CHF57bn, a rise of 7%, almost matching the increase in research and development spending. The group is considered to have one of the strongest new development pipelines, and it has achieved numerous regulatory approvals for new treatments. With its record and potential new game-changing therapies, Roche stands out as a quality operator where the multi-year nature of research and patent time periods aligns well with the investment horizons of a long-term investor.

Visa

Payment processing (US)

Visa (NYSE: V) is one of the world's biggest card-payment companies, processing hundreds of millions of transactions a day. Each time money changes hands between consumers and businesses on its network, it takes a fee. Although often mistaken for a finance or credit business, it is in fact a long-established and highly profitable tech play. It doesn't issue cards or lend any money itself. Its clients, mainly banks, do all that with their customers. Visa gains from spending activity, all without the hassle of dealing with cardholders, or the worry that they won't be able to pay.

As brands go, few are more central to everyday life. There are around 3.3 billion Visa-badged cards worldwide almost one for every two people. Nearly 50 million businesses accept them from local cafes to five-star international hotels. Profits quickly mount up. Last year it made $12.8bn on operating margins that have been at an eye-catching 60% or higher for years. Earnings are expected to keep growing in the 15%-20% range. Its global network has been decades in the making and can't easily be copied a significant barrier to new entrants. Its only real competition is the smaller Mastercard. Digital disrupters such as Apple Pay or PayPal haven't come anywhere near it. Visa will gain long term from the driving forces of e-commerce and the shift to increasingly cash-free societies.

Paul Allen, Bill Gates' early business partner, has died, aged 65. He was the visionary and "ideas man" behind the firm that went on to rule the world.

"I met Paul Allen when I was in seventh grade, and it changed my life," wrote Bill Gates in a Wall Street Journal tribute last week. "I looked up to him right away. He was two years ahead of me in school, really tall, and proved to be a genius with computers." But the Microsoft co-founder, who has died aged 65 from non-Hodgkin lymphoma, turned out not to have much head forbusiness.

After leaving Microsoft in 1983, he set up 50 or more ventures, many under the umbrella of his company Vulcan Inc, but none came to much commercially. He was essentially a visionary.

"Even in high school, before most people knew what a personal computer was, Paul predicted that chips would get super-powerful and eventually give rise to an entire industry," recalls Gates. Long before Elon Musk, Allen could lay claim to being Silicon Valley's first big-spending space cadet, funding SpaceShipOne the first private aircraft to put a civilian in suborbital space.

A diversified ideas portfolio

Allen described himself as an "ideas man" and, in the second half of his life, spent his estimated £20bn-£26bn fortune, derived from Microsoft stock, "on as many ideas a possible", notes the Independent.

In his home city of Seattle where he bought the Seattle Seahawks football team as "a civic duty" and the nearby Portland Trail Blazers basketball team out of personal passion his love of Jimi Hendrix was immortalised in the Museum of Pop Culture, an interactive building designed by Frank Gehry, which Allen co-founded.

He also set up research institutes to study brain science and artificial intelligence, says the FT. "As an investor, Allen had his share of disasters, including the $8bn he burnt in building an over-leveraged cable TV empire." But he showed "a perspicacity in the potential for breakthroughs to yield practical results, and a willingness to place large bets with his personal fortune".

Brought up on books

Born in a Seattle suburb in 1953, the son of two librarians, Allen "grew up in a house stuffed with books" and was "especially keen on science fiction", says The Daily Telegraph. He attended the private Lakeside school where he bonded with Bill Gates over a computer terminal.

Their first venture set up when Allen went to Washington State University in 1971 was a short-lived traffic-analysis outfit called Traf-O-Data. But in 1974 opportunity knocked when Altair launched the first personal computer running Intel's new 8080 chip. Allen persuaded Gates to drop out of Harvard to co-create software tools for the new machines. "Micro-soft" was launched the following year.

In 1981, the duo struck "the deal of the century", persuading the then-almighty IBM to run their MS-DOS operating software in its new range of PCs, with Microsoft retaining copright. That arrangement paved the way for Microsoft's later near-stranglehold of the market. But as Microsoft grew, Allen found himself sidelined, says the FT.

A low point, shortly after he'd fought off his first bout of cancer in 1983, was overhearing Gates and the company's future CEO Steve Ballmer "discussing how to reduce his influence and ownership in the company". He left soon after, but "had the good sense not to sell out at the lowball price Gates offered". Fortunately, the pair later made up the rift.

Gates observed that his former partner "wanted to accomplish great things, and did". He's right, says Richard Waters in the FT. "If history gives you only one shot at making a real difference, then Paul Allen seized his with both hands."

Since January 2015 the market capitalisation of Amazon has risen by $630bn a quite staggering increase of 550%. The company is now worth around $770bn. The natural conclusion is to assume that this impressive leap in value is all down to Amazon taking over the retail universe, and laying waste to the world's high streets and shopping centres as it does so.

And yet, you'd be wrong. Amazon may have disrupted or destroyed the business models of everyone from booksellers to supermarkets by selling goods online, but the main factor behind its more recent gains accounting for more than 50% of the rise in its market capitalisation is the soaring value of its "cloud" business, Amazon Web Services (AWS), which is now valued at around $400bn, up from just $40bn in early 2015. In short, Amazon's spectacular recent gains don't come from selling items out of warehouses stuffed with physical goods, but from being paid to store data in warehouses stuffed with banks of servers.

Amazon is far from being the only big-name beneficiary of the booming cloud business. Microsoft perhaps best known as a PC software behemoth has seen its own market cap rise by $445bn since early 2015. At least 80% of this gain is down to its own cloud business, Azure, and other cloud-related product areas. Other companies reaping vast value gains from the cloud include software services group Salesforce.com, search-engine giant Google and computing giant IBM. Which leads us neatly to what may be your most pressing question right now what exactly is the "cloud"?

What is the cloud?

The cloud is simply a way to store data remotely, in a bank of servers located perhaps in the same office building or somewhere else entirely, rather than in the hard drive of your computer. As long as you have access to the internet, you can then draw that data down or play with it, in the cloud, whenever you choose. In the early days of the cloud, most big companies built and owned their own data centres, stocked full of computer servers on which the data was stored. They would also own and run "redundancy" data centres, to act as back-up in case the first ones failed to work. This is known as "private cloud" provision ie, you create your own cloud.

The problem with private cloud provision was that it meant all of these big companies had to manage their own data centres. This generally was not their core competence you don't necessarily want to be spending a lot of time sourcing and managing increasingly complex IT equipment if you're running an investment bank, for example. Thus, when the opportunity came to outsource data-centre management, it was assumed that most companies of any size would jump at the chance to shift from their private clouds to the "public cloud".

In reality, the initial phase of growth took longer than anticipated. Companies worried about the security implications of moving to the public cloud having someone else looking after their sensitive data seemed a step too far. They were also concerned about the quality of their internet connections how could they access the data if web access went down? not to mention the cost of closing the data centres they had already built themselves. Yet security fears have been allayed over time by a lack of breaches at the large public-cloud operators. Internet speeds have been fast enough for all forms of cloud usage for a number of years now (unless you are a retail customer in rural England!). And as for the final point, companies have mostly decided to keep their legacy data centres, while electing to fill any of their new data storage needs by moving onto the public cloud. As a result, legacy or "on-prem" (short for "on-the-premises") data centres have only seen a very slow decline, while the growth of public-cloud usage has been slower than was first anticipated ten years ago.

Born in the cloud

However, the most cloud-intensive businesses of the modern age were all created so recently that they don't have any legacy data centres to be weaned away from. Indeed, these internet businesses have built their business models around the outsourced public cloud Amazon itself being a prime example. All of Amazon's e-commerce sites were stored on AWS by 2009. AWS was included within Amazon Retail until 2012, and Amazon Retail was its largest customer. Nowadays AWS's largest customers include film- and television-streaming giant Netflix, rent-a-room specialist Airbnb and music-streaming group Spotify. One of Microsoft's largest customers is taxi service Uber.

Cloud IT spending

These companies are all really only capable of existing because of the public cloud. Most of them started small and without the capacity to build huge data centres off their own bat, and as it turned out, they didn't need to. It's these "cloud native" businesses, rather than traditional firms, that have been the main drivers of public cloud growth in recent years. Overall, about a third (roughly $1.6trn) of global IT spending of around $4.8trn is related to the cloud, and spending on private cloud provision still dominates overall industry spending. So far this has been stable, although as the chart above shows, it is expected to fall in the future, which means that investors remain very focused on public cloud provision in its myriad forms.

Swimming through alphabet soup

As you may have noticed, the cloud is an area awash with acronyms. There appears to be nothing that IT engineers enjoy more than making up confusing acronyms for every aspect of their business lives, and then using them as much as possible to prevent any outsider from deciphering anything useful about their industry. In IT speak, the cloud is broken up into three main areas. Infrastructure-as-a-Service (IaaS) relates to the provision of remote data centres about $40bn is set to be spent on IaaS this year. Platform-as-a-Service (PaaS) is similar, but instead the cloud is hosting applications that can be used by developers or end users spending here is expected to reach $15bn this year. Finally, there's the largest area Software-as-a-Service (SaaS). This refers to the hosting of all services on the cloud, such as Microsoft Office 365 (which offers widely used word processing, spreadsheet and presentation software), or Salesforce.com's customer relationship management software.

As data centres and other equipment used for private clouds run by individual companies become obsolete, they are likely to be gradually replaced by public cloud services. Public cloud services are almost natural oligopolies. There are two main reasons for that. Firstly, the economies of scale are extremely powerful. Secondly, the ability to catch up with a leading player is nigh-on impossible for a late entrant (unless they focus in small niche areas what's known as the "edge of the cloud" in IT speak). This is good news for the main companies in the sector because there is still plenty of room for growth.

Goldman Sachs estimates that IaaS and PaaS have barely scratched their potential market to be specific, they reckon that only 7% of that market has been penetrated so far. Penetration is increasing very slowly at a rate of 1%-2% growth per year but due to the relatively small number of leading players in the sector, this means dramatic growth rates for the companies best placed to take advantage. The SaaS space, meanwhile, represents a larger, more competitive, market, with many more players jostling for attention. But the oligopolistic players in the IaaS and PaaS space still have major advantages here, in terms of their ability to bundle SaaS products to benefit their customers. AWS doesn't just offer storage to its customers it also currently offers 103 different cloud-related services, and this number is rising on a monthly basis. Most analysts see no reason why over time cloud services can't account for 50%-70% of the market overall, which suggests that the main players will enjoy strong growth in this market for the next ten to 20 years.

The cloud-market leaders

The three biggest players in the sector are AWS, Microsoft, and GCP (Google). Last year AWS had a 42% share of the public cloud business, Microsoft came second at 14%, and Google lagged behind at 5%. This year alone the three plan to spend about $30bn between them on developing their businesses. Microsoft is seeing the fastest growth an incredible 100% a year, while AWS grew at a 46% annual rate in the last quarter. At this rate, Microsoft will have a 22% share of the market by 2019 while AWS's will have fallen to 35%. Microsoft's secret weapon is the corporate relationships it has built up during 30 years of providing Windows software to customers around the world. AWS, by contrast, only came into existence in 2006, and moreover, because Amazon is so active in other industries such as online grocery and food delivery AWS is effectively barred from an entire range of businesses who don't want to "get into bed" with the perceived enemy. As for the third major player, Goldman Sachs reckons that Google can build its market share up to 10% by next year, helped by its superior machine learning and artificial intelligence capabilities.

Use of the public cloud has accelerated in the past year hence the strong share-price performance of the leading names in the sector. This acceleration is usually a sign that a technology is moving into the mass market, and it's true that public cloud companies are increasingly making inroads into new companies by selling them services that they can use on their own private clouds. These include ways to analyse and use data to make an underlying business more effective. Google and Amazon have multibillion dollar research and development budgets for advanced technologies such as artificial intelligence and machine learning, which means that their product offerings generally dwarf anything a customer can create in-house.

Should you invest in these companies?

In short, this is a rapidly growing sector with plenty of room to get even bigger. And the biggest players have a near unassailable position. As a result, AWS, Microsoft Azure and Google Core are all great growth businesses. But they have seen huge share-price gains too. So is the good news in the price?

AWS is usually valued on an enterprise value (EV) to earnings before interest, tax, depreciation and amortisation (Ebitda) basis. This takes account of the company's high levels of capital expenditure necessary investment for future growth. Traditionally, a valuation of 15 times EV/Ebitda would be seen as high the Macau casinos traded up to that level in their boom of 2008-2014, for example. AWS currently trades on a multiple of 25 much higher than that. However, the business does have 60% Ebitda margins and sales growth of 46% a year and climbing. With market penetration at just 7% right now, there is also a decade or two of growth to come. So if growth rates can be maintained along with Ebitda margins (which, in fact, should actually rise as economies of scale improve further with size), the multiple would collapse to just seven times within four years. Given that many analysts expect growth to accelerate for the next 12-24 months before it starts to slow, that still looks a good valuation to me.

Microsoft trades on a price/earnings (p/e) multiple of 26 times for this year, which is a little less punchy than AWS's valuation. However, the whole Microsoft business is growing more slowly than AWS and Amazon, as the cloud business only makes up 15% of Microsoft's total group revenue. It will grow to be 35% of total group revenue in two to three years' time, and will allow Microsoft as a whole to see 15% annual earnings growth for the next two to three years. Given that, 26 times might seem high but as with AWS, this is growth that looks set to be predictable for many years.

However, the one thing we know in equity markets is that something will upturn the apple cart the difficulty is predicting when. Some analysts stress that SaaS is a more efficient service than IaaS/PaaS and that this will let rivals such as Salesforce.com steal growth from the public cloud triumvirate. Others stress that "edge of the cloud" technologies will get larger as clients' needs become more complex, making it harder for the big players to cater to the whole market.

Others see the risk of new entrants. Facebook has the server scale to get involved if it chooses and in China the triumvirate is excluded the market there is dominated by the traditional Chinese duo of Alibaba and Tencent. They can match the triumvirate for resources and thus capital spending budgets so when will they start to sell cloud services overseas? Lastly, as we have seen with Google in the search-engine business, and Google and Facebook in online media, competition authorities start to get interested when dominant players begin to make too much money and abuse their positions.

The public cloud space has all the makings of that story, with the added feature that the triumvirate (and its nearest rivals) are all US or Chinese businesses. Thus, European regulators and competition authorities are likely to be the first to query the power of AWS, Microsoft and Google in this sector. Yet many of these risks seem mid- to long-term, and so it's likely that for the next 12-24 months Amazon, Microsoft and Google will continue to provide investors with strong returns based on their hold over the public cloud. If you haven't bought in yet, there are still plenty of gains ahead.

Most students are on a tight budget, so if you or your child are heading to university this year, it's important to make your money stretch as far as possible. Fortunately, many companies offer hefty discounts to make it easier.

For example, if you want to buy a new laptop or smartphone, Apple offers "education pricing", which enables you to save up to £339 on a new Mac and up to £50 on a new iPad (although given that Apple products tend to be more expensive, it's worth considering if there are cheaper alternatives). Microsoft also offers big discounts, including the university version of the Office365 suite for £59.99 for four years. Meanwhile, artists can get Adobe Creative Cloud (which includes programmes such as Photoshop and InDesign) at £185.90 per year, a whopping 65% discount.

The price of books can come as a nasty surprise, but Waterstones offers a 10% discount on purchases of £25 or more with a UNiDAYS card (see below). If you order a lot from Amazon, students can get its Amazon Prime service which gives you unlimited one-day delivery, plus unlimited streaming of films, TV shows and music for £39 for 18 months, rather than the standard £95 for a year.

There are also a wealth of great travel discounts. Sign up for a 16-25 Railcard to get a third off all train travel at a cost of £30 for a year or £70 for three years. This also comes with additional perks, including 90% off Youth Hostels Association membership. If you normally travel by coach, invest in a Young Persons Coachcard, which offers a similar deal on National Express coach fares.

Those aged under 25 who have an eye on travelling further afield can pick up an Interrail Youth Pass offering a 25% discount on the adult price, while STA Travel offers exclusive deals on tickets to destinations around the world for students and young people.

Finally, being away from home needn't mean missing out on your daily dose of news. The Financial Times offers a student digital subscription for £137.80 per year, a 50% discount, while you can sign up to The Times for £20 a year this also gives you two-for-one cinema tickets at Odeon cinemas every weekend.

Three tempting student discount schemes

UNiDAYS is an online discount website. In order to access the special offers, you need to be a student in higher education. Once registered, you'll be eligible for a bunch of discounts for free. The service is available online and through an app, so there's no need to carry a membership card. UNiDAYS pays out £5 as a reward if you invite a friend who signs up. Current exclusive offers include 15% off Canon products and 20% off membership at PureGym.

Student Beanshas a similar model, providing exclusive discounts for free through its website and app. Students in higher education are able to register for a digital membership card, which can be used online and on your phone. Exclusive offers include 35% off at the Body Shop and a 20% discount at Thai restaurant Busaba Eathai.

US extra is the National Union of Students' official discount card. It requires you to carry a physical card, which comes at a price of £12 for one year, £22 for two, and £32 for three years. There's also an app to help you locate the discounts closest to you. Of the three options, NUS extra offers the biggest range of discounts more than 200 at present. Current offers include an additional 25% off student ticket prices at Odeon cinemas Monday to Thursday, and a 10% discount at the Co-op.