Kanyi Maqubela of Kindred Ventures warns that despite recent market rebounds, investors are bracing for a downturn. Alphabet and Microsoft earnings matter disproportionately: a miss could trigger sharp losses, but a beat yields only modest gains. Europe's uncertainty and inflation pressures will dominate investor focus this quarter.
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Kanyi Maqubela. The Nasdaq has bounced off session lows, still down 2.8%. And to the point that we were making earlier in the show, if Tesla can have a stellar quarter last week and only be rewarded by shareholders, that stock 3% rise the next day, how does that set up Microsoft and Alphabet tonight? What do they have to show investors to move higher or simply not move significantly lower?
Yeah, it's really interesting because it feels almost like the market is waiting for the other shoe to drop. Bond yields are down, but the market is still soft. And so it's clear that there's, you know, there's already been a lot of selling across the market. So it's clear that investors are sitting and waiting and trying to figure out when the other shoe is going to drop. One of the things I think about both Alphabet and Microsoft is it's great that the mega-cap earnings week is starting with those two because they both have reasonably strong performance and strong fundamentals going into this earnings season. As your prior guest was just saying, you know, the 19x forward earnings is actually reasonably attractive. And as it relates to cloud, as it relates to advertising, and as it relates to e-commerce, there's 3 big pillars for Alphabet that still look pretty resilient today.
Right. But Kanyi, what you're talking about and what we hear often, especially from VCs, are those secular shifts, right, that are still intact, especially when it comes to cloud names and even chip names, which are getting hammered in the current market environment. So, you know, What do investors do in this? Do they hold on to cash? Do they sit this out? Or, you know, typically is this a time to look for opportunity?
If I were an investor looking at the public markets right now, I wouldn't be ready to look for opportunity yet because I do think that we do still have a downside ahead of us. And I think it was Dan Niles earlier who was saying that. And I actually agree. One of the unfortunate things about this is if either Alphabet or Microsoft underperforms, that I actually think you're going to see a disproportionate effect on the market to the downside. Whereas if they outperform very, very well, I think you may see, like you saw with Tesla, only 2, 3, maybe even 5% gains.
Kanyi, the 3 things that I'm most curious about this earnings season: Europe, inflation, and guidance. Europe from the perspective of what happens to demand and sentiment with the tragedy that's unfolding in Ukraine. Inflation as a part of that, when you're looking at labor and you're looking at supply chain, and then guidance, With that uncertainty and the inflation built in and just the tone shift, are we going to see companies being more cautious? Which of those things or something else, if you're looking at something different, do you think is most important for investors to focus on this season?
In the short term, I would say guidance. And part of why is because it's really, really hard to understand what's happening right now when it comes to these supply chains, when it's coming to COVID. So you look, for example, at Microsoft. The chip shortage is going to have a continued acute impact on their their ability to be competitive in the PC market. And you look at Google and coming out of COVID and you're seeing that there is a shift in advertising towards services away from products because more and more people are getting out. And so it's one of those things where so much of what's happening right now with consumer demand is moving and so much of what's happening in supply chains is moving really dramatically. And that's actually making it harder to do really, really sharp guidance in the longer term. However, there is a question as to whether or not the rate hikes that are almost inevitable over the course of this next year are going to result in us being able to enter into a recessionary environment. It's going to be really hard for us to thread the needle of keeping inflation down while continuing to, you know, raise these rates and cool the economy from, from the vantage point of the Fed. And so in the longer term, so over the course of the next year to year and a half, I personally feel like really being able to manage that inflationary trend is going to be the most challenging.
