I had a bit of a flashback last night to the year 2000, sitting in my office after hours watching JDS Uniphase collapse on the heels of its conference call after reporting “better than expected” earnings for the quarter. Throughout 2000, techs and telecoms were still making a ton of profit, but it was becoming apparent that they were still coasting on the spend from 1999. And that the environment was changing. So you would see a breathless 4pm “print” with a better than expected EPS and revenue number, but then management would get on the conference call and tell you that the outlook was deteriorating.
Company after company did the same thing. High quality or low quality firm, it didn’t matter. Everyone was affected, from the blue chips like Cisco to the trashbags like Nortel. It didn’t matter. And so the mantra became “Ignore the numbers, wait for the call.”
This is exactly what last night felt like, with the first of the mega cap tech giants reporting. Microsoft’s earnings were great. Their outlook confirms the need for their having let go of 10,000 employees in recent days. The environment is changing. During the pandemic they pulled forward three years worth of demand into one. Enterprise tech spend exploded. Consumer tech demand exploded. The pace was never going to be sustainable. Now we pay for that pull-forward. The stock price has already paid for it, but not necessarily in full.
This earnings season, companies in technology and other growth areas of the economy are all going to be singing a similar tune. Things are good right now but the future is growing more uncertain by the day. My best guess is that cautious tones on conference calls will be the norm, not the exception. If you were the CEO or CFO of a Fortune 500 company, why wouldn’t you project caution right now? What would be the advantage of telegraphing anything else headed into an obvious slowing of demand for virtually everything?
Michael and I talked about Microsoft’s report and the current state of things last night during the live premiere of What Are Your Thoughts, which has been watched by over 20,000 viewers so far. If you missed it, check it out below:
