Market Insights

Apple led a busy week of earnings by crushing estimates as users clambered for new iPhones. Most other companies also had strong results — especially chip makers and industrials.

The tech giant generated $65.6 billion of revenue from iPhones last quarter, up 21 percent from last year and 10 percent above forecasts. That suggests a long-awaited cycle of users upgrading to the latest iPhone 12 is taking hold. AAPL achieved several other milestones:

• Per-share earnings of $1.68 beat estimates by 27 cents.
• Overall revenue shot past $100 billion for the first time ever, beating estimates by 8 percent.
• Services, Mac, iPads and “Other Products” (like Watch) all increased by more than 20 percent.
• China revenue rocketed 57 percent as iPhones gained market share in the world’s biggest country. This suggests AAPL is successfully growing in a space historically dominated by Android.

Skyworks Solutions (SWKS), a key supplier of audio-transmission chips for AAPL, told a similar story. Earnings, revenue and guidance flew past consensus. Management detailed a list of next-generation products, supporting super-fast 5G networks and Wi-Fi 6.

“We expect the continued and rapid adoption of multiple wireless protocols to drive strong year-over-year growth for Skyworks,” Chief Financial Officer Kris Sennesael said in a statement yesterday afternoon.

SWKS jumped to new highs after reporting. AAPL, which rallied before its numbers, pulled back.

The iPhone story will continue next week as other suppliers report. Cirrus Logic (CRUS) is due Monday, followed on Wednesday by Qualcomm (QCOM) and Qorvo (QRVO). All three report after the closing bells.

Microsoft’s Cloud Mastery

Wedbush analyst Dan Ives called’ AAPL’s quarter “a masterpiece.” He used a similar artistic comparison for Microsoft’s (MSFT) results, calling them “Picasso-like.”

The software giant’s Azure cloud-computing business scored broad market-share gains, pushing all the key numbers past expectations. Digital transformation has given a major boost to Azure, which was struggled before the pandemic. Windows also beat as remote work fueled demand for new PCs and laptops. MSFT pushed to new record highs after reporting.

Facebook (FB), however, pushed lower after reporting. The social-media giant had a mix of good and bad news. The good news was better-than-expected numbers: earnings, revenue, and users. Management was also bullish on ecommerce as more users sell products on FB.

The bad news is a potential antitrust fight against AAPL over its App Store policies. Don’t be surprised if anxiety about this case weighs on the stock for a while, causing investors to look shrug off good numbers. That could also create the potential for a significant rally once the matter is resolved.

3M’s Big Surprise

The biggest surprise this week was probably from 3M (MMM). The industrial conglomerate had struggled with weak demand since early 2018, but last quarter showed real signs of a turnaround. Its electronics, auto, industrial and health-care segments all beat estimates. Management also resumed guidance, sending MMM to its highest price since July 2019.

Caterpillar (CAT) inched higher after its profit surpassed consensus but revenue missed. The machinery company has been rallying on hopes of infrastructure spending and expected demand for mining equipment. This week, it pulled back to its 50-day moving average for the first time in three months.

U.S. Steel (X) more than tripled before its report, following a similar path as CAT. Buyers returned after the numbers showed strong pricing and increased profitability for hot-rolled steel.

A.O. Smith (AOS) jumped on strong earnings, revenue and guidance. The maker of hot-water heaters got a boost from the strong housing market. Both AOS and MMM also cited impressive growth in China.

Visa, Mastercard

Visa (V) and Mastercard (MA) skidded lower before their results. Both credit-card giants beat estimates, triggering modest rallies in their stocks. They’ve chopped near highs since the summer. Given their sensitivity to the economy, investors may wait for clearer signs of a recovery before buying more aggressively.

Advanced Micro Devices (AMD) beat estimates and issued strong forecasts, but faces other challenges. Profit margins failed to increase along with revenue. That create pressure when you consider the other two issues. First, AMD’s in the process of acquiring Xilinx (XLNX). Integration troubles could hurt margins further. Second, Intel’s (INTC) is expected to stage a comeback under its new CEO, potentially threatening AMD’s dominance in thin chips.

Finally, AMD trades at 3-4 times higher multiples than INTC.

Texas Instruments, Western Digital

Texas Instruments (TXN), heavily focused on industrial and automotive chips, reported a strong quarter. It fell along with the rest of the market on Wednesday and bounced yesterday.

Western Digital (WDC) also beat estimates and issued bullish guidance. Like MSFT, the maker of data-storage products is benefiting from strong PC and laptop demand. Analysts commented that it may enjoy stronger margins in that legacy business in coming quarters.

Comcast (CMCSA) jumped after earnings and revenue cruised past Wall Street’s targets. Strong broadband and cable-television growth drove the quarter, raising hopes of increased revenue from its NBC Universal business in coming quarters.

In conclusion, Wall Street entered earnings season with a tailwind of positive guidance and sentiment. The results this week seem to validate those hopes — not just in big technology but also among industrials like MMM and CAT.