Constellation Research Principal Analyst & Founder Ray Wang joins Yahoo Finance Live to make the case for why MATANA should be the new name for Big Tech stocks instead of FAANG.
- The popular acronym FANG may be a thing of the past. Our next guest says that investors need to focus on a new group of tech giants instead. He calls it MATANA? MATONA? You're going to tell me how to pronounce it here in just a second, but Microsoft, Apple, Tesla, Alphabet, Nvidia, and Amazon. Joining us now we have Ray Wang. He's joining us here on set, Constellation Research Principal Analyst and Founder. Ray, it's great to see you here in person finally, so Microsoft, Tesla, Nvidia, the new editions. Meta and Netflix are out. Why?
RAY WANG: They're out because they're one trick ponies. And in the digital world, what happens if you're not doing other business models and digital monetization, it's not going to survive. And we've been seeing that with Netflix. They've got to get into ads. They've got to get into ads. They haven't yet, right? And they're taking a beating from it right. Facebook has got to do something besides ads. Once again, they're taking a beating for it. So is it going to be the glasses? It's going to be the metaverse? We're not there yet. And that's really kind of what the challenge is.
But you take something like Apple, and what have they done? They've got ads. They've got surge. They've got goods. They've got services, memberships and subscriptions all down the line. Amazon is doing the same thing as well. And they're doing well. And then if you look at something like Tesla, they've been doing well. I mean, let's take a look at the 52 week lows, right? Those three companies are outperforming the rest of the tech sector, something by 20-- they're 20% to 30% above their 52-week lows, even in this route that's going on right now.
- Another addition, Microsoft. Why?
RAY WANG: Microsoft has more than just business-to-business and consumer. They've been able to manage both. They're positioned well for the metaverse. They're position well for the cloud. And of course, they've got their gaming business.
- Ray, what about Nvidia? We want to bring that up because that is a stock that has struggled a little bit as of late. We talk about the challenges facing the sector. You're bullish on that name. Citi was out this morning, saying it's still going to be a challenging couple of months for this sector. Why is Nvidia the right pick for you?
RAY WANG: So NVIDIA is a lot more than just the chips that we look at and just more than the data center or the gaming. They're sitting at the edge between AI, the metaverse, the future of compute. And the way they do their partnerships is they're set up in a way that the GPU is going to be dominant for quite some time, plus all the other high performance computing aspects. And so while supply chains are kind of holding them up at the moment, they're going to come back. And if you want to buy them at a cheap level now, like, a year from now, you won't be regretting that at all.
- I just want to close the loop on a Netflix. Why are they out?
RAY WANG: Well, the reason they're out is because how many more subscribers? How many more subscriptions are you going to handle?
- It doesn't seem like it's a game anymore. Like they've moved on the evaluation. So once we get past that, still you're not in on Netflix.
RAY WANG: Do you want ads on Netflix yet? That's the question. But you know what they really should do, and if Reed's listening, product placement should be where they, plus the ability to do IP licensing. Look how Disney makes its money. We should have the "Game of Thrones" theme park. Actually, no, I don't want that. But you get the idea.
- HBO Max, yeah, yeah.
- Well, you bring up an interesting point, because when we look at the tech sector, certainly we have seen it under a tremendous amount of pressure this year, just overall. Even Bank of America, their recent fund flows showing that $2 billion net was taken out of tech stocks funds just last week. When do you think we're going to see the tide start to shift there? Because at the same time, we're still having the Fed saying that they're not going to be done raising rates any time soon.
RAY WANG: You're completely right. I mean, what's been going on at the macro level is interest rates, we don't know where they're going to end. And if you came out of Jackson Hole thinking, OK, we'll have interest rates at probably we'll see around 4 and 5 is kind of where we'll end up. That's OK. But the problem is the Fed is trying to address core inflation.
The problem is not core inflation. It's headline inflation. Headline inflation is energy and food. And if we don't get energy prices down, we really have no control, and everything's spiraling. You can do all you want on core inflation, fine. You might be able to chip off 1% or 2% there. But wages are still going up. If you look at employment, we're where we were in 2019, in terms of number of jobs available and number of people, especially in tech. There's three jobs for every individual-- no, there's two jobs for every individual in tech. And so we've got huge issues.
So and if we spread this out, like 10 years out, it's going to get even more interesting because the world population is going to peak at about 9.1 billion. And it's going to go down from there. So we're really short. So automation is going to have to make up the rest. And that's where a lot of this, where we look for tech, is really automation is going to be one of the big future areas.
- So earlier you spoke to Reed about what Netflix had to do. How about speak to Jerome, Jerome Powell, about what the Fed ought to do, and can they land this plane?
RAY WANG: There's only so much they can do. You can glide path in. But the rest is policy. It's got to come from the presidential level.
- Ray, what about Apple, one of your picks here, one of the consistent picks that I think you have liked now for quite some time. They're coming out with a new phone expected to release September 7, the big event. How much of a game changer do you think it's going to be significant here for Apple, at least over the coming quarters?
RAY WANG: So we're always like, hey, are you going to buy the next iPhone? And people are on every other year cycle, some people on every three year cycles. But that number is so big. This is a super cycle in general, in terms of people refreshing their phones. So there's probably 200 to 300 million people that are still going to refresh this phone cycle.
And 5G is part of it. The new camera is part of it. And then, of course, what else is going to happen? And that's what they're going to announce. But the thing about Apple is not the fact that they're selling more phones, it's the fact that they're selling more services on every phone. And so all the services, right now it's something about 21% of revenues is on services. They're going to get to about 25% in the next 24 months. So these are just devices to sell more services. And the RPU is huge.
- Just a vessel. And you talk about the trend that we've learned from tech earnings, which is when it comes to digital ads, what have we learned in that space?
RAY WANG: We've learned that social sucks. Social doesn't hold it anymore. And what we were looking for is commerce. That's where the ads are, and search still wins. So search and commerce are where you see that. But think about this market. It's kind of crazy. The three dominant players are in three different business models. Google is in search. Facebook and Meta is in social, and Amazon, the third player, sitting somewhere close to $40 billion is in commerce. So they're duking it out for digital ads. But I can tell you, commerce and search are the ones that are winning.
- All right, what about cybersecurity? We haven't talked much about that, certainly a huge growth potential here in the tech space. Any names in particular that you like there?
RAY WANG: I still like Crowdstrike. I still like Palo Alto. I think they're pretty solid. Those are the ones that are going to carry for quite some time.
- Ray Wang, next time you just need to hang out for the whole hour.
- I know.
- We will not kick you out. Good to have you in the studio, sir.
RAY WANG: It's been a long time.
- It has.
- I appreciate it. Excellent stuff.