The biggest tech names just keep getting bigger.
Apple (AAPL) - Get Report, Amazon (AMZN) - Get Report, Facebook (FB) - Get Report and Microsoft (MSFT) - Get Report each closed at new highs on Tuesday, leading the Nasdaq (NDAQ) - Get Report index past 10,000 for the first time ever. And each of those tech giants except Facebook continued those gains into Wednesday.
Is Big Tech reaching a new crest, or are we seeing the beginning of an extended rally this year as investors flood into tech?
"Our takeaway is that the run can continue into the year -- and for many of them individually, they're not just back at highs, but they're at technical buy points," said Cornelio Ash, an analyst at William O'Neil & Co.
Here's a quick look at the bull case for each.
Despite the impact of COVID-19, Apple holds steadfast appeal for investors -- and Apple bulls believe that Apple could be trading at $400 within a few quarters. Apple's supply chain seems to have normalized, at least for the time being, and investors are looking ahead to a strong sales cycle driven by Apple's iPhone 12 lineup as well as the iPhone SE, an early hit among budget-conscious buyers.
Apple's growing services business is also a valuation boost, according to Wedbush analyst Dan Ives. Ives calls the iPhone 12 and Apple's services the "1-2 punch" that could raise Apple's valuation to $2 trillion by 2022. Apple's services segment alone is worth between $500 billion and $650 billion, according to Ives, and investors are beginning to appreciate Apple's opportunity to capitalize on its massive installed base.
When it comes to Microsoft, investors aren't finding much to criticize these days. The 45-year-old company is perhaps the best diversified of all the tech giants, with revenue split roughly equally between its three main business segments: productivity and business processes, intelligent cloud, and more personal computing. Of 23 analysts listed in FactSet, 22 have a Buy rating on Microsoft shares.
Microsoft bulls view its expansive enterprise tech stack -- which spans productivity suites like Microsoft 365, Azure, server products and more -- as a major structural advantage as it aims for more cloud market share. RBC Capital Markets analyst Alex Zukin, writing on Microsoft's new Cloud for Healthcare offering, noted Microsoft's success in "knocking down traditionally silo’d fiefdoms and going to market with a cohesive, cross-product strategy." Microsoft Cloud for Healthcare is the first of many more specialized clouds, and evidence of the company's strong position in capturing a new wave of demand for cloud services.
Throughout COVID-19, Amazon has played a uniquely significant role in the lives of many consumers. The company weathered a massive surge in demand for home delivery of groceries and other essential goods as millions of people sheltered at home, and investors expect Amazon to parlay the demand surge into lasting gains.
In its first-quarter earnings report, Amazon told investors that it will plow virtually all of its profits for the current quarter into its COVID-19 response, which included everything from safety equipment for workers and re-investing in its core delivery infrastructure to meet demand. It also delayed its Prime Day event due to COVID disruptions, pushing the event off until September.
Analysts believe that Amazon will reap the rewards of its ecommerce investments later this year, and particularly around the holidays. Earlier this week, analysts at Bank of America wrote that an e-commerce "tidal wave" is coming in the second quarter, and that the surge will continue through the second half of this year as momentum shifts back to rapid delivery around the back-to-school season and holidays.
With more people hanging out at home, and looking for ways to connect virtually, Facebook's platforms -- as ever -- have served as a popular destination. The company reported a surge in messaging and video calls as the COVID-19 pandemic ramped up around the world. Facebook's main bread and butter, advertising, took a hit in Q1 and is expected to worsen in the current quarter. But investors appear confident in Facebook's ability to push new monetization initiatives as the ad market recovers.
Writing in a note this week, Goldman Sachs analysts highlighted Facebook Shops, a new initiative giving sellers a single online store for users of Facebook and Instagram. Analyst Heather Bellini wrote that the initiative will drive checkouts on Facebook, and ultimately more value for shares: "Instagram has the ability to monetize shopping through enabling businesses to promote their shopping products on its Feed and Explore functions for increased brand awareness, engagement and ultimately conversions," she explained. Facebook Shops is the latest effort by Facebook to expand its focus beyond advertising and into commerce. Long-term Facebook investors view it as a promising opportunity.
Apple, Facebook, Amazon and Microsoft are holdings in Jim Cramer's Action Alerts PLUS member club.