 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 6% 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 Wikibon 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 drilldown 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 drilldown data which we'll 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 reasonably strong and holding up is inflation and 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 CIOs 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 Adele or other 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 than 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 gonna 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 ETR's 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 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 70s 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 UiPath are in the mix with numerous security companies, CrowdStrike, CyberArk, Netscope, Cloudflare, Tenable Octa, Zscaler, Palo Alto Networks, SailPoint, Fortinet, a big number of cybersecurity firms hovering at or above that 40% mark. You can see pure storage remains elevated as do pager duty and Koopa. 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 in 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 of 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 of course, most customers are concerned about getting hit with higher prices once Broadcom takes over. Well, Nutanix, despite its change in net scores and 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 VTACs 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-of-a-year in net score. Sousa, under the leadership of amazing CEO, Melissa DiDonato, 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 Sousa as a possible alternative and it's showing up in the numbers. It's a nice business. It's gonna do more than $600 million this year in revenue, Sousa, that is. It's got solid double digit growth in kind of the low teens. Its profitability is under pressure but they're definitely a player that has found a niche and is worth watching. The solar winds, what can I say there? I mean, maybe it's a dead cat bounce coming off the major breach that we saw a couple of years some of its customers maybe just can't move off the platform and constant contact we really don't follow and don't really focus on them. So not much to say there. Now, look at all the high price to earning stocks or infinite PE stocks that have no E 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, Sentinel-1, 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 longtime trader and breaking analysis contributor Chip Simington 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 bear 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 Simington pointed out the 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 2.42% annual dividend. So overall, Simington feels this rally was absolutely expected. He's cautious because we're still in a bear market but he's beginning 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. But it could bounce around for several months and remember with higher interest rates there are gonna be more options other than equities which for many years has not been the case. Obviously inflation and recession they're 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 colleague Stephanie Chan who helps me search breaking analysis. Topic sometimes and Alex Meyerson who is on production in the podcast. Kristen Martin and Cheryl Knight they help get the word out and do all of our newsletters and Rob Hoef 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 gotta 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.volante at siliconangle.com or DM me at dvolante 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 theCUBE Insights powered by ETR. Stay safe, be well and we'll see you next time.