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WSJ Your Money Briefing
Tech Cash Will Keep Flowing Despite Cautious Tone
00:07:27
Has the demise of big tech spending been greatly exaggerated? With capital spending by Amazon, Microsoft, Google and Facebook up 57% from the year before, the Wall Street Journal's Dan Gallagher explains why a closer look at those companies' recent quarterly reports suggest spending might not be so constrained.
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Still running global payroll like a relay race deal replaces fragmented payroll vendors with one global system. No third parties hire, manage and pay teams in 150 plus countries with in house local experts and white glove delivery and deal plugs into what you Already use Workday SAP Netsuite operate like a local everywhere. Visit d e l.com WSJ that's d e e l.com WSJ. With your money briefing. I'm Tanya Bustos in New York for the Wall Street Journal. In a moment, a look at how the demise of big tech spending has been greatly exaggerated. That's according to Heard on the Street's Dan Gallagher, and that despite a cautious tone, investments in things like cloud networks are likely to expand in the coming year. First, here are some money headlines. More investors are selling options in a bid to boost returns, a shift that traders say is helping to tamp down market volatility for now, but potentially at the expense of greater turbulence later. Assets at Mutual and Exchange traded funds that focus on systematically selling options have swelled by about 50% in the past five years. That's to $15.7 billion in 2018. Known as Reach for yield behavior, it's underscoring concerns about the nearly decade old bull Market in US St. The Journal's Gunjun Banjari has more on how@WSJ.com security officials are raising alarms over Chinese investment in Israeli tech companies The Israeli government is reconsidering accepting Chinese funds as Israel moves to create an interagency government body to oversee sensitive commercial deals involving foreign companies. The effort has been underway in recent months, but has taken on added urgency amid recent complaints about Chinese investment from American and Israeli security officials, including National Security Advisor John Bolton. Mr. Bolton has warned in recent visits that the investments in Israeli tech could hurt intelligence ties. American officials say they have offered to help set up the regulatory body. US colleges and universities brought in a record $46.7 billion in donations last fiscal year, fueled by stock market gains and strategically timed gifts, allowing donors to prepare for changes in tax laws. Harvard, Stanford and Columbia universities each raised more than $1 billion as the divide continues to grow between a handful of fundraising giants and everyone else. The top 10 schools by total donations represent less than 1% of all US colleges and universities, but these schools raised 18% of all funds last year. Donation amounts increased more at public universities than at private ones last year, though in total dollars. Private schools still brought in more money, the ninth consecutive year of gains coming up why investments in the tech sector will keep on flowing despite an otherwise cautious tone. Following last year's record setting outlays. Guidance from some suppliers has been cautious as of late. But Heard on the Street's Dan Gallagher says the demise of big tech spending may be greatly exaggerated. A closer look at big tech companies stated plans this year suggests spending might not be so constrained. Joining us now with more from our San Francisco booth is Heard on the Streets Dan Gallagher. Welcome back Dan.
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B
How are you doing?
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Good, thanks. So I think it's pretty fair to say that the tone as of late with regard to big tech spending has been pretty cautious, correct?
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B
Well, it's been very cautious. Like what we saw during the recent earnings season is we saw companies like intel and Nvidia which are chip companies that sell a lot of products to companies like Microsoft, Google and Amazon for these big cloud centers. Their, their, their, their outlook was essentially very cautious. Intel flat out said that we're seeing, you know, these types of buyers. Kind of the language they said was to digest their spending because there had been so much spending over the past year that, that they had to kind of take time to get, you know, to, to essentially make use of that equipment. Nvidia's tone was even more cautious. They said, you know, they kind of blamed the global economy, said they had some lost orders. So I think going into the cerny season we had this kind of worry that there was going to be this big drop in this capital spending by these giant companies.
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So in terms of what we can gather about how much these big tech companies spend, like the big tech giants like Amazon, Facebook, Alphabet's, Google, let's sort of break down what we know of their latest reports and stated plans. Let's start with Amazon. Investment in cloud networks is huge. AWS is a huge business. What do we make of that?
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B
Well, they're, they, you know, Amazon doesn't break, none of these companies break out exactly what they spend on each of their particular thing. What they do is they report a total level of capital expenditures for every given quarter. But they, they do tend to color and say, you know, most or a lot of the spending was towards, you know, towards, you know, know, building out data centers and other things to, to further their networks because that's essentially their key competitive advantage. If you're Microsoft, Amazon or Google, that's, that's where a lot of your, your future strength is, is building out the strength of your network. So it's well known that the, that the, that networks are a big chunk of what they spend the capital on. And for Amazon they, they kind of said pretty clearly on their, on their earnings call that they're going to, that the coming year, 2019 is going to be a bigger investment year than 2018 was.
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A
So what do we make of what's been happening by way of Alphabet's Google? A lot of investments and business happening there.
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B
Yeah. And that's one where you could, it was, it was easier to get to understand where there'd be a cautious tone because they said in their earnings call that they, that they're growth rate was going to be slower for capex in the coming year. They had a really big jump in 2018 because part of that capital expenditures was in things like land and property. You know, they spent more than 2 billion alone on a property piece of property in New York City for instance. And that that was in that amount. So they, you know, they projected a tone that they were going to try to spend less overall. But they also in the call that I think a lot of people missed is that they said they expected their investments in like, in things like data center equipment to still go up. So even though their total capex bill may not go up as much as it did in 2018, based on what they're planning for, they still are planning to grow their investment in the kind of equipment and networks that. So I think they're going to be focusing more. They're spending on that.
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A
And Facebook, the other big tech giant worth noting here, what do you make of their, of how spending will come into play for them?
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B
Well, that's one where they've actually been pretty clear on that they intend to be spending a lot more in 2019 than they spent in 18. And a lot of that's because they have to, you know, they're trying to grow their work. They don't, they don't offer the types of corporate cloud services that the other three companies do. But because they're in a, you know, kind of a, still also a rapid expansion mode trying to expand their business. You know, they, they expect to spend, you know, somewhere between 18, 20 billion in the coming year, which is up 36% from what they spent last year. And they've said out, they've said very clearly that a lot of that's going to be going into data centers, you know, primarily into building data centers.
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A
And there you have it. Dan Gallagher, thanks as always for the check in.
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B
My pleasure.
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And that's yous money briefing. I'm Tanya Bustos in New York for the Wall Street Journal deal Replaces fragmented payroll vendors with one global system. No third parties. Hire, manage and Pay teams in 150 plus countries. Operate like a local everywhere. Visit d e l.com WSJ.