>> From theCUBE studios in Palo Alto in Boston
bringing you data driven insights from theCUBE and ETR.
This is breaking analysis with Dave Vellante.
>> Despite fears of inflation, supply chain issues
skyrocketing energy and home prices
and global instability caused
by the Ukraine crisis CIOs and IT buyers continue to
expect overall spending to increase more than 6% in 2022.
Now, while this is lower than our 8% prediction
that we made earlier this year in January, it remains
in line with last year's roughly six to 7% growth
and is holding firm with the expectations reported
by tech executives on the ETR surveys last quarter.
Hello and welcome to this week's
wiki bond cube insights powered by ETR
in this breaking analysis, we'll update you
on our latest look at tech spending with a preliminary take
from ETR's latest macro drill down survey.
We'll share some insights to which vendors have
shown the biggest change in spending trajectory.
And we'll tap our technical analysts to get a read
on what they think it means
for technology stocks going forward.
The IT spending sentiment among IT buyers
remains pretty solid.
>> In the past two months, we've had conversations
with dozens of CIOs, chief digital officers
data executives, IT managers, and application developers,
and across the board, they've indicated that for now
at least their spending levels remain largely unchanged.
The latest ETR drill down data
which will share shortly, confirms these anecdotal checks.
However, the interpretation of this data
it's somewhat nuanced.
Part of the reason for the spending levels being you know
reasonably strong and holding up is inflation.
Stuff costs more so spending levels are higher
forcing IT managers to prioritize.
Now security remains the number one priority
and is less susceptible
to cuts, cloud migration, productivity initiatives
and other data projects remain top priorities.
>> So where are CIO's robbing from Peter
to pay Paul to focus on these priorities?
Well, we've seen a slight uptick in certain speculative.
IT projects being put on hold
or frozen for a period of time.
And according to ETR survey data
we've seen some hiring freezes reported
and this is especially notable in the healthcare sector.
ETR also surveyed its buyer base to find out
where they were adjusting their budgets
and the strategies and tactics they were using to do so.
Consolidating IT vendors was by far the most cited tactic.
Now this makes sense as companies
in an effort to negotiate better deals
will often forego investments
in newer so-called best of breed products
and services, and negotiate bundles from larger suppliers.
You know, even though they might not be as functional,
the buyers
>> can get a better deal
if they bundle together from one of their larger suppliers.
Think Microsoft or
a Dell or other, you know, large companies.
ETR survey respondents also cited cutting the cloud
bill where discretionary spending was in play
was another strategy or tactic that they were using.
We certainly saw this with some of the largest
snowflake customers this past quarter. Where even though
they were still growing consumption rapidly
certain snowflake customers dialed down their consumption
and pushed spending off to future quarters.
Now remember in the case of snowflake, anyway,
customers negotiate consumption rates
and their pricing based on a total commitment
over a period of time.
So while they may consume less in one quarter,
over the lifetime of the contract, snowflake,
as do many other cloud companies, have good visibility
on the lifetime value of a deal.
Now this next chart shows the latest ETR spending
expectations among more than 900 respondents.
The bars represent spending growth expectations
from the periods of December, 2021
that's the gray bars,
March of 2022 survey in the blue,
and the most recent June data, That's the yellow bar.
So you can see spending expectations
for the quarter is down slightly in the mid 5% range.
But overall for the year
expectations remain in the mid 6% range.
Now it's down from 8%, 8.3% in December where it looked
like 2022 was going to really be a breakout year
and have more momentum than even last year.
Now, remember this was before Russia invaded Ukraine
which occurred in mid-February of this year.
So expectations were a little higher.
So look, generally speaking
CIOs have told us that their CFOs
and CEOs have lowered their earnings outlooks
and communicated that to Wall Street.
They've told us that unless
and until these revised forecasts appear at risk,
they continue to expect their budget levels to
remain pretty constant.
Now there's still plenty of momentum
and spending velocity on specific vendor platforms.
Let's take a look at that.
>> This chart shows the companies
with the greatest spending momentum
as measured by ETRs proprietary net score methodology.
Net score essentially measures the net percent
of customers spending more on a particular platform.
That measurement is shown on the Y axis.
The red line there that's inserted that red dotted line
at 40%, we consider to be a highly elevated mark.
And the green dots are companies
in the ETR survey that are near or above that line.
The X axis measures the presence
in the data set, how much, you know
sort of pervasiveness, if you will, is in the data.
It's kind of a proxy for market presence.
Now, of course we all know Kubernetes is not a company,
but it remains an area where organizations are spending lots
of resources and time
particularly to modernize and mobilize applications.
Snowflake remains the company which leads all firms
in spending velocity, but as you'll see momentarily,
despite its highest position relative to everybody else
in the survey, it's still down from its previous levels
in the high seventies and low 80% range.
AWS is incredibly impressive
because it has an elevated level
but also a big presence in the data set in the survey.
Same with Microsoft, same with ServiceNow
which also stands out.
And you can see the other smaller vendors like HashiCorp
which is increasingly being seen
as a strategic cross cloud enabler.
They're showing, spending momentum.
The RPA vendors you see in there
automation anywhere and UI path are in the mix
with numerous security companies, CrowdStrike,
CyberArk, Netskope, Cloudflare, Tenable Okta, Zscaler
Palo Alto networks, Sale Point Fortunate. A big number
of cybersecurity firms hovering at or above that 40% mark
you can see pure storage remains elevated
as do PagerDuty and Coupa.
So plenty of good news here, despite the recent tech crash.
So that was the good, here's the not so good. So
>> there is no 40% line on this chart
because all these companies are well below that line.
Now this doesn't mean these companies are bad companies.
They just don't have the spending velocity
of the ones we showed earlier.
A good example here is Oracle. Look how they stand
out on the X axis with a huge market presence.
And Oracle remains an incredibly successful company selling
to high end customers
and really owning that mission critical data
and application space.
And remember ETR measures spending activity,
but not actual spending dollars.
So Oracle is skewed as a result
because Oracle customers spend big bucks.
But the fact is that Oracle has a large legacy
install base that pulls down their growth rates.
And that does show up in the ETR survey data.
Broadcom is another example.
They're one of the most successful companies
in the industry, and they're not going
after growth at all costs at all.
They're going after EBITDA and of course
ETR doesn't measure EBIT.
So just keep that in mind, as you look at this data.
Now another way to look at the data
and the survey, is exploring the net score movement
over the last period amongst companies.
So how are they moving?
What's happening to the net score over time.
And this chart shows the year over year
>> net score change for vendors that participate
in at least three sectors within the ETR taxonomy.
Remember ETR taxonomy has 12, 15 different segments.
So the names above or below the gray dotted line
are those companies where the net score has increased
or decreased meaningfully.
So to the earlier chart, it's all relative, right?
Look at Oracle. While having lower net scores has
also shown a more meaningful improvement in net score
than some of the others, as have SAP and Teradata.
Now what's impressive to me here is how AWS,
Microsoft, and Google are actually holding that dotted line
that gray line pretty well
despite their size and the other ironically
interesting two data points here are Broadcom and Nutanix.
Now Broadcom, of course, as we've reported
and dug into, is buying VMware and, and of, of course
most customers are concerned
about getting hit with higher prices.
Once Broadcom takes over. Well Nutanix
despite its change in net scores, in a good position
potentially to capture some of that VMware business.
Just yesterday,
I talked to a customer
who told me he migrated his entire portfolio
off VMware using Nutanix AHV, the Acropolis hypervisor.
And that was in an effort to avoid the VTEX specifically.
Now this was a smaller customer granted
and it's not representative of what I feel is Broadcom's ICP
the ideal customer profile, but look,
Nutanix should benefit from the Broadcom acquisition.
If it can position itself to pick up
the business that Broadcom really doesn't want.
That kind of bottom of the pyramid.
One person's trash is another's treasure
as they say, okay.
And here's that same chart for companies
>> that participate in less
than three segments.
So, two or one of the segments in the ETR taxonomy.
Only three names are seeing positive movement
year over year in net score. SUSE under the leadership
of amazing CEO, Melissa Di Donato. She's making moves.
The company went public last year
and acquired rancher labs in 2020.
Look, we know that red hat is the big dog in Kubernetes
but since the IBM acquisition people have looked
to SUSE as a possible alternative
and it's showing up in the numbers. It's a nice business.
It's going to do more than 600 million this year in revenue,
SUSE that is. It's got solid double digit growth
in kind of the low teens.
It's profitability is under pressure
but they're definitely a player that is found a niche
and is worth watching.
The SolarWinds, What can I say there?
I mean, maybe it's a dead cat bounce coming off
the major breach that we saw a couple years ago.
Some of its customers maybe just can't move off the
platform. Constant contact we really don't follow
and don't really, you know, focus on them.
So, not much to say there.
Now look at all the high priced earning stocks
or infinite PE stocks that have no E and divide
by zero or a negative number and boom, you have infinite PE
and look at how their net scores have dropped.
We've reported extensively on snowflake.
They're still number one
as we showed you earlier, net score, but big moves
off their highs.
Okta, Datadog, Zscaler, SentinelOne Dynatrace,
big downward moves, and you can see the rest.
So this chart really speaks
to the change in expectations from the COVID bubble.
Despite the fact that many
of these companies CFOs would tell you
that the pandemic wasn't necessarily a tailwind for them,
but it certainly seemed to be the case
when you look back in some of the ETR data.
But a big question in the community is what's going to happen
to these tech stocks, these tech companies in the market?
We reached out to both Eric Bradley of ETR
who used to be a technical analyst
on Wall Street, and the long time trader
and breaking analysis contributor, Chip Symington
to get a read on what they thought.
First, you know the market
>> first point of the market has been off 11
out of the past 12 weeks. And bare market rallies
like what we're seeing today and yesterday,
they happen from time to time and it was kind of expected.
Chair Powell's testimony was broadly viewed as a positive
by the street because higher interest rates
appear to be pushing commodity prices down.
And a weaker consumer sentiment may point
to a less onerous inflation outlook.
That's good for the market.
Chip Symington pointed out to breaking analysis a while ago
that the NASDAQ has been on a trend line
for the past six months where its highs are lower
and the lows are lower and that's a bad sign.
And we're bumping up against that trend line here.
Meaning if it breaks through that trend
it could be a buying signal.
As he feels that tech stocks are oversold.
He pointed to a recent bounce
in semiconductors and cited the Qualcomm example.
Here's a company trading at
12 times forward earnings with a sustained 14% growth rate
over the next couple of years.
And their cash flow
is able to support their 2.4, 2% annual dividend.
So overall Symington feels this rally was absolutely
expected. He's cautious because we're still in a bear market
but he's beginning to,
to turn bullish. And Eric Bradley added that
He feels the market is building a base here
and he doesn't expect a 1970s
or early 1980s year long sideways move
because of all the money that's still in the system.
You know, but it could bounce around for several months
And remember with higher interest rates
there are going to be more options other than equities
which for many years has not been the case.
Obviously inflation and recession.
They are like two looming towers that we're all
watching closely and will ultimately determine
if, when, and how this market turns around.
Okay, that's it for today.
Thanks to my colleagues, Stephanie Chan, who helps research
breaking analysis topics sometimes, and Alex Myerson
who is on production in the podcast.
Kristin Martin and Cheryl Knight
they help get the word out and do all of our newsletters.
And Rob Hof is our Editor in Chief
over at siliconangle.com
and does some wonderful editing for breaking analysis.
Thank you.
Remember, all these episodes are available as podcasts
wherever you listen.
All you got to do is search breaking analysis podcasts.
I publish each week on wikibon.com and Siliconangle.com.
And of course you can reach me by email at
david.vellante@siliconangle.com or DM me at DVellante
comment on my LinkedIn post
and please do check out etr.ai for the best
survey data in the enterprise tech business.
This is Dave Vellante for the CUBE insights powered by ETR.
Stay safe, be well.
And we'll see you next time.
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