What Does the Recent Technology Sector Earnings Reveal?

By Daniel Morgan, Synovus Trust Senior Portfolio Manager
Synovus Trust Company, N.A.

With a large amount of the ‘Bellwether Technology’ names reporting 1Q25 results, what conclusions can Investors make in regard to the health of the sector?

• Monster CapEx budgets continue to expand. Will the massive CapEx commitments to AI by the hyperscalers yield the ROI that investors will demand to drive Tech stocks higher? Time will tell!
  “We anticipate our full year 2025 capital expenditures will be in the range of $64-72 billion (an increase from $60-65 billion),” said during by Meta during its recent 1Q25 earnings call, and has led to an upward revision to hyperscalers’ CapEx estimates. The top four hyperscalers — Amazon, Microsoft, Meta and Alphabet — are collectively estimated to spend north of $330 billion (+38% Year-over-Year (YoY)) in CapEx in 2025 to build out their AI presence. This compares to a combined CapEx estimate of $240 billion spend rate in 2024. (Meta 2025 earnings CapEx guide to $64-72 billion; Google 2025 earnings CapEx guide to $75 billion; Amazon 2025 earnings CapEx guide to $100 billion; and Microsoft 2025 earnings CapEx guide to $80 billion).
  
  
• Data Center revenue growth is decelerating. Many investors, taking the new tariffs into consideration, expect the percentage of customers to reduce their FY25 budget. The thought is that enterprise decision-makers are likely to be hesitant while assessing the economic impact before redeploying their data center capital. Despite growth slowing, the top IaaS player reported solid 1Q25 results: Azure was up 35% YoY (versus 31% in 2Q25); AWS increased 17% YoY (verses 19% in 4Q24); and GCP was up 28% YoY (versus 30% in 4Q24). Each is looking for revenue growth in data center patterns to resemble FY22/FY23, which was followed by a re-acceleration in revenue growth in FY24. With the new tariff announcements, we could see a similar pattern in FY25 with more customers becoming hesitant and concerned about cost optimization!
• Digital ad spend is not falling off the cliff. There are a bunch of factors colliding all at once in 2025:
  1. Tariffs (10% or more on goods; the magnitude to be determined).
  2. Wealth effects are potentially coming down (and impacting all consumer transaction growth).
  3. Curtailment of de minimis and China ecommerce companies' outbound ad spend.
  4. Eventually other second-derivative recessionary impacts post-tariffs such as employment and wages. Even though there is a low probability of all these factors colliding in FY2025. Many investors were fearful that customer digital ad spend rates may begin to collapse.
  
  Despite ad revenue growth slowing, customer spend rates appear to be intact: Alphabet was up 8.5% YoY (versus 11% in 4Q24); Meta increased 16% YoY (versus 21% in 4Q24); Amazon was up 19% YoY (versus 18% in 4Q24); and SNAP increased 9.3% YoY (versus 7.9% in 4Q24). With retaliatory tariffs paused and likely new deals to resolve the remaining 10% tariff in the near term, excluding China, expect an impact like 2020 (post COVID-19 drop) on digital ad spend rates. That is some retrenchment in 2Q25 as advertisers sort out the playing field. Then a strong 3Q25 bounce back.
  
  
• Tariff exemptions give the smartphone space breathing room but remains in the “hot seat.” Top CDMA-based chip-set maker for smartphones, QCOM, reported 2Q25 QCT chip revenue (86% of total sales) that grew 18% YoY versus 14% estimates, with handsets (63% of total sales) growing 12% versus an 11% estimate. However, the 3Q25 revenue range of $9.98 billion to $10.7 billion fell slightly below the $10.33 billion estimate. Apple, one of the largest global smartphone makers, has faced a barrage of headwinds: First, with the expected iPhone 17 release slated for this September that is expected to have the latest AI features, including "an upgraded Siri personal assistant,” many current iPhone users may be compelled to hold off on upgrading from an older model. Second, exemptions are a relief, but complete alleviation might be temporary. The significant magnitude of the reciprocal tariffs imposed on imports from China and other countries that are important manufacturing locations for hardware products, including smartphones, had already led some investors to believe that a more sustainable (i.e., lower) rate was the likely eventuality. At the same time, the exemption for hardware product categories, including smartphones, appears less permanent. Apple’s 2Q25 iPhone revenues grew to $4.94 billion, up only 1.9% YoY. With greater China revenue growth at $16 billion, down 2.3% YoY. The iPhone’s growth in China likely will remain pressured given geopolitical tension (tariffs) and the return of Huawei in the premium smartphone market.
  
  
• Chip market recovery is still intact, but ‘tariff risk’ is abundant. Different sectors within the chip space — cloud/data center/AI, telco/enterprise infrastructure, PC/laptops, smartphones and automotive/industrial — are experiencing different recovery paces. Top PC/server CPU maker Intel Corp (INTC) reported solid 1Q25 results on a recovery in core end markets, but forward guidance was below consensus as management assumes demand destruction from tariff uncertainty. The company reported total revenue that was flat YoY, with some upside led by Data Center, which was up 10%. Yet PC was 8% YoY. Advanced Micro Devices (AMD) reported better-than-expected results in the Client (Computing) segment for the 1Q25, posting $2.29 billion in revenues versus a $2.07 billion estimate, up 67% YoY. That led Investors to believe that AMD’s Ryzen CPU chip may be stealing Microsoft from INTC in the PC space, and users maybe buying ahead of a potential price increase if the tariff restriction is lifted. Further, AMD reported a revenue increase (57% YoY) in the Data Center segment. All in all, it was a solid quarter for AMD and sets the stage for the ramp up of their MI325X and MI350X AI chips in second half of 2025 to compete directly against Nvidia’s Blackwell! Broad-based chip maker Texas Instruments (TXN) reported upside to 1Q25 and guidance that beat consensus for 2Q225, reflecting the continued semiconductor recovery across end markets and regions. Total revenue grew 11% YoY, (ahead of 7% estimates.) The beat was propelled by strong results in Industrial and Communications (up 10%) and low-mid single digit growth in Auto and Enterprise, offsetting a seasonal decline in Personal Electronics. TXN has fabs in the U.S., China, Japan and Germany, and the company feels that it has the flexibility to limit the impact of China tariffs on semis imported from the U.S. for China customers.