US business activity quickens in May

The S&P Global Flash US PMI Composite Output Index rose sharply from 51.3 in April to 54.4 in May, its highest since April 2022. Output has now risen continually for 16 consecutive months, with May’s acceleration contrasting with the slowdown seen in March and April. May’s improved performance was led by the service sector, where business activity surged higher to register the fastest growth for a year, reversing the slowdown seen over the prior three months. Services activity has now risen for 16 straight months. Flash US Services Business Activity Index increased from 51.3 in April to 54.8 in May, a 12-month high.

The services sector upturn was accompanied by manufacturing output also expanding at an increased pace in May. The S&P Global Flash US Manufacturing PMI rose from 50.0 in April to 50.9 in May to signal an overall modest improvement in business conditions within the goods producing sector. Although below readings seen in February and March, the latest PMI is the third-highest recorded over the past 20 months. Both output and employment made increasingly positive contributions to the PMI compared to April, while the drags from new orders and stocks of purchases components moderated. Suppliers’ delivery times quickened marginally on average during the month, indicating less busy suppliers and hence acting as a further minor drag on the PMI. In terms of the US stock market, the S&P 500 index maintained a moderate upward trend last week. We expect the index to fluctuate between 5,100-5,500 points in the near term.

In terms of industry, tech giants such as Microsoft, Google, Meta and Amazon recently released their latest financial report. Technology stocks are expected to outperform the market in the near term.

Meta (META.US) Q1 total revenue amounted to US$36.5 billion, up 27% YoY. In terms of business segment, within the Reality Labs segment, Q1 revenue was US$440 million, up 30% YoY driven by Quest headset sales. Total Family of Apps revenue stood at US$36.0 billion, up 27% YoY. Of which, family of Apps ad revenue reached US$35.6 billion, up 27% YoY. Within ad revenue, the online commerce vertical was the largest contributor to YoY growth, followed by gaming and entertainment and media.

On a user geography basis, ad revenue growth was strongest in Rest of World and Europe at 40% and 33%, respectively. Asia-Pacific grew 25% and North America grew 22%. In Q1, the total number of ad impressions increased 20% and the average price per ad increased 6%. Impression growth was mainly driven by Asia-Pacific and the Rest of World. Pricing growth was driven by advertisers’ demand. Looking forward, Meta will make ongoing ads modeling improvements that deliver better performance for advertisers. It is recommended to buy at US$464.00, target at US$540.00, and stop loss at US$445.00.

Alphabet(GOOG.US)’s revenues in Q1 reached US$80.5 billion, up 15% YoY, driven in particular by strength in Search and Cloud, as well as the ongoing efforts to durably re-engineer the cost base. Google Services revenues amounted to US$70 billion, up 14% YoY. Search and Other revenues grew 14% YoY, led again by solid growth in the Retail vertical, with particular strength from APAC-based retailers, which began in the second quarter of 2023.

YouTube Ads revenues were up 21% YoY, driven by growth in both direct response and brand. Network revenues declined 1% YoY. In Subscriptions, Platforms and Devices, revenues increased 18%, driven again by strong growth in YouTube subscriptions. Turning to the Google Cloud segment, revenues were US$9.6 billion for the quarter, up 28%, reflecting significant growth in GCP, with an increasing contribution from AI and strong Google Workspace growth. It is recommended to buy at US$171.00, target at US$199.00, and stop loss at US$164.00.