\n<\/p>\n
This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newsletters<\/p>\n
Good morning. Did someone say credit cockroach? The Wall Street Journal reports that BlackRock and a group of other lenders have lost $500mn to a \u201cbreathtaking\u201d accounts receivable fraud. This just a few days after BNP Paribas reported a \u20ac190mn \u201ccredit event,\u201d also involving fraud. Email us with the name of a good exterminator: unhedged@ft.com<\/p>\n
And don\u2019t forget: the New York edition of Alphaville\u2019s Pub Quiz is on November 11! Unhedged will be there, along with every other self-respecting finance nerd in our great city! It will be fun! Details here. <\/p>\n
Three months ago, during the last Big Tech earnings season, Unhedged tried to explain the differences in performance among the big techs (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla). We concluded that the picture was pretty simple: the market likes revenue growth. \u201cGrow sales\u2009.\u2009.\u2009. stock goes up. Occasionally the market is a pretty simple beast,\u201d I wrote. This is the view that, for all their unimaginable size, the big techs still trade like start-ups. Investors want to see world domination (for which sales growth is a proxy) and are happy to worry about profits later.\u00a0<\/p>\n
I now think that\u2019s wrong. Yes, sales growth monster Nvidia has performed the best, and near-growthless Tesla has performed the worst in recent years. But take out those two extremes, and the picture is muddier. A vivid recent example of this is the different market responses to the third-quarter earnings of Alphabet and Meta.\u00a0<\/p>\n
Alphabet announced a big increase in both revenue and earnings per share, and management warned that investment in artificial intelligence would lead to significantly higher operating and capital expenses next quarter and next year. Its shares rose 3 per cent on the news. Meta announced broadly the same thing, and its shares fell 11 per cent on the news. News reports focused on Google\u2019s growth and on Meta\u2019s expenses, but the numbers were not all that different. In fact, Meta\u2019s sales grew more than Alphabet\u2019s, in absolute terms and relative to expectations. Despite this, after the leap in Alphabet\u2019s shares, they now trade at a 20 per cent premium to Meta\u2019s on a price\/earnings basis (and Meta, at 20 times forward earnings, is easily the cheapest of Big Tech stocks).\u00a0<\/p>\n
There were some important differences in the earnings per share results, if you look a bit more closely: Alphabet\u2019s growth accelerated and crushed expectations, while Meta\u2019s, although strong, decelerated and merely edged past expectations. <\/p>\n
Widening the lens a bit makes the point clearer. Here is revenue growth over the past four quarters, and analysts\u2019 expectations for revenue growth over the next four quarters, at five of the big techs:<\/p>\n
Meta\u2019s revenue is growing faster than Alphabet\u2019s and is expected to keep doing so. And generally, all of the companies are expected to hold sales growth steady-ish in the year to come. Earnings are a very different story:<\/p>\n
All five of the companies\u2019 earnings are expected to slow significantly next year \u2014 partly because the past year has been exceptionally good cyclically, and partly (for all of the companies but Apple) because of heavy AI spending. At Meta and Amazon, profits are supposed to grind down to nearly nothing (though, after Amazon\u2019s banner third quarter reported last night, estimates for next year seem likely to rise; Alphabet\u2019s estimate may get a boost soon too). Meta is in a class of its own, however, when looking at estimates, for this year and next, for capital expenditures and free cash flow:\u00a0<\/p>\n
Meta is expected to increase its investments much more than its peers, in both dollar and percentage terms, and it is correspondingly the only one of the five that is expected to see free cash flow decline next year. The market is not giving carte blanche to the \u201cAI hyperscalers\u201d to spend what they want on data centres. Meta is the only company that is increasing spending faster than it is increasing free cash flow, and the market is punishing it accordingly.\u00a0<\/p>\n
This may seem crushingly obvious: of course<\/em> markets care about earnings and free cash flow. But the AI boom narrative has been that it is a no-holds barred race for computing power and AI market share, profit be damned. This is absolutely not the case: Meta shares\u2019 divergent performance shows that the market is setting guard rails for the big techs, and most of the big techs are respecting them.<\/p>\n (Armstrong)<\/em><\/p>\n After all the excitement running up to the US-China talks at the Asia-Pacific Economic Cooperation summit in Korea, the US and China came to a deal that markets did not care about at all. The economic and financial impact of the agreement was so modest in scale that it was completely overshadowed, in the stock market, by tech company earnings. <\/p>\n A few horses were traded. Trump announced that China would purchase \u201cmassive amounts\u201d of soyabeans (12mn tonnes this year, and at least 25mn tonnes annually for the next three years, according to Treasury secretary Scott Bessent). China postponed the rare earths controls it announced earlier this month. Both countries suspended measures targeting each others\u2019 shipbuilding industries. The US is holding off on its extension of tech-related export controls and halving of the fentanyl tariff rate on China, to 10 per cent.\u00a0<\/p>\n The tariff cut is a bit of relief for China. But the benefit will be marginal. Louise Loo of Oxford Economics forecasts it adding just 0.1 to 0.2 percentage points to China\u2019s growth next year.\u00a0The soyabean purchases are just a return to the levels of last year. <\/p>\n In sum, the agreement is less a deal than a moment of d\u00e9tente. Loo points out that \u201cthe four \u2018Ts\u2019 \u2014 Taiwan, transshipments, TikTok and chip technology\u201d \u2014 went mostly untouched. \u201cAll the large economic and non-economic issues that Trump, and prior American presidents have complained about weren\u2019t even on the table\u201d, Bill Reinsch of CSIS said.\u00a0<\/p>\n According to Alan Wolff of the Peterson Institute for International Economics, \u201cWe don\u2019t have a great deal. We have a pause.\u201d Eswar Prasad of Cornell University agrees:\u00a0<\/p>\n It\u2019s not a deal, it\u2019s a framework, or even an outline of a framework, so the uncertainty hasn\u2019t been resolved in any substantive fashion\u2009.\u2009.\u2009.\u2009If one were to think about any major gains the US has made relative to where we were a few weeks ago, there are gains. But if you go back to January, before Trump took office\u2009.\u2009.\u2009.\u2009its hard to see how much the US has gained<\/p>\n There was another \u2014 more interesting and less direct \u2014 development in US-China trade relations this week that came in the form of US trade agreements with Cambodia, Malaysia, Vietnam and Thailand. These agreements specifically call for the enforcement of measures to combat transshipments made to evade US duties, which was not addressed directly in the China \u201cdeal\u201d. There are also clauses in the agreements with Malaysia and Cambodia that threaten the reimposition of \u201cliberation day\u201d-level tariffs if the two countries enter new bilateral free trade agreements or \u201cpreferential economic agreement[s] with a country that jeopardises essential US interests\u201d.<\/p>\n A little of the pressure has been removed from US-China trade relationship, but it remains deeply adversarial. <\/p>\n (Kim)<\/em><\/p>\n The CDMX dream<\/p>\n This newsletter was amended after first publication to correct the figure in the first paragraph to $500mn<\/em><\/p>\n Can\u2019t get enough of Unhedged? Listen to our new podcast, for a\u00a015-minute dive into the latest markets\u00a0news and financial\u00a0headlines, twice a week.\u00a0Catch up on past editions of the newsletter\u00a0here.<\/p>\n Due Diligence<\/strong> \u2014 Top stories from the world of corporate finance. Sign up here<\/p>\n The AI Shift<\/strong> \u2014 John Burn-Murdoch and Sarah O\u2019Connor dive into how AI is transforming the world of work. Sign up here<\/p>\n","protected":false},"excerpt":{"rendered":" This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newsletters Good morning. Did someone say credit cockroach? The Wall Street Journal reports that BlackRock and a group of other lenders<\/p>\n","protected":false},"author":1,"featured_media":31741,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[49],"tags":[5041,5552,3016],"class_list":{"0":"post-31740","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business","8":"tag-cash","9":"tag-matter","10":"tag-profits"},"_links":{"self":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/31740","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=31740"}],"version-history":[{"count":0,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/posts\/31740\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=\/wp\/v2\/media\/31741"}],"wp:attachment":[{"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=31740"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=31740"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naijaglobalnews.org\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=31740"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Trump\u2019s China deal<\/h2>\n
One good read<\/h2>\n
FT Unhedged podcast<\/h3>\n
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