In a surprise to pretty much no one, megacap tech giants Alphabet, Apple and Microsoft each comfortably beat earnings estimates for the June-ending quarter.

Carl Kawaja, a fund manager at asset management giant Capital Group and the chairman of Capital Research and Management, doesn’t have issues with any of these tech giants. But he wonders just how well all of them, as a group, can continue their terrific performance.

Apple, Microsoft, Amazon, Facebook and Alphabet collectively represent just under a quarter of S&P 500 earnings and market cap. If the so-called FAAMG group keeps growing at 15% to 20% per year over the next decade, assuming the S&P 500 as a whole doesn’t grow that much, it would collectively account for three-quarters of the index.

“And that seems unlikely to me. And so to me, that is kind of an interesting market question right now. If you were a betting man, would you take the other 495?” he said in a podcast interview with Patrick O’Shaughnessy, chief executive officer of chief executive officer at O’Shaughnessy Asset Management.

Kawaja likes what he calls “Empire Strikes Back” companies, or fallen giants that have reinvented themselves. One example he cited was General Motors
GM,
-1.38%
,
which under CEO Mary Barra is pushing electric and autonomous vehicles. “What is more Empire Strikes Back or reinventing yourself then taking the Hummer, the most kind of loathed planet killer vehicle imaginable, and making an electric version of it?” he asked.

Another is Target
TGT,
-0.96%
,
which briefly partnered with Amazon
AMZN,
-1.98%
,
but now has invested to become a retailer with fulfilment either in store or online. “We actually are seeing Target reinvent itself and adjust to it,” said Kawaja. Another retailer he likes with a similar proposition is Zara owner Inditex
ITX,
+0.32%
.
Walt Disney
DIS,
+0.43%
,
which Kawaja said he hasn’t owned, is another example of a company reinventing itself.

Two of the companies he’s held onto the longest are Taiwan Semiconductor Manufacturing
TSM,
-1.82%
,
the world’s largest contract microchip maker, and Brazilian miner Vale
VALE,
-1.64%
.

He said the insight he had with TSMC was not just about the incredibly complex making of microchips, but its ability to serve multiple customers. Brazilian iron ore product Vale is in a very different business, but like Taiwan Semiconductor has compounded at roughly 18% a year over the last two decades. The iron ore that Vale makes is of such high quality that it’s a good one to blend with domestically produced, cheaper, lower quality iron ore, and he says Vale’s competitive advantage is stronger than tech giants.

“I know that’s heresy to say that, and Facebook has an incredible moat and I love Facebook and love the stock and management and all of that, but steel has been around since the iron age, and it works really well,” he said.

Alphabet and Apple diverge

Of the tech giants, Alphabet
GOOG,
-2.04%

results rose 4% in premarket action as the company reported a 69% surge in Google advertising. The strong advertising performance may suggest a strong quarter for social-media giant Facebook
FB,
-1.25%
,
which reports after the close.

Apple
AAPL,
-1.49%

shares saw a bit of pressure as Chief Financial Officer Luca Maestri said in a conference call that the company’s revenue growth would slow from the 36% it achieved in the June-ending quarter due to foreign exchange rates, the semiconductor shortage and tougher comparisons with the previous year.

Microsoft
MSFT,
-0.87%

forecast revenue of $43.3 billion to $44.2 billion in the fiscal first quarter, which topped analysts’ average expectations for sales of $42.5 billion, led by its “Intelligent Cloud” division.

Starbucks
SBUX,
-0.02%

topped earnings estimates and raised its September-ending earnings outlook but the coffee retailer also flagged rising wages and increased supply-chain costs.

Rising costs will be a theme that Federal Reserve Chair Jerome Powell will address at his press conference when the central bank releases its latest monetary-policy decision. Most analysts expect little fireworks from the July decision as the central bank also assesses whether the delta strain of coronavirus cools off what’s been a rapid recovery.

Duolingo
DUOL,
,
the maker of language-learning and educational apps, priced its initial public offering at $102 a share late Tuesday, above its expected range.

Simone Biles has withdrawn from a second competition as the gymnastics champion considers whether to compete in other Olympics events next week.

The markets

U.S. stock futures
ES00,
+0.01%

NQ00,
+0.23%

were steady, after the S&P 500
SPX,
-0.47%

declined Tuesday to break a five-session winning run. The Hang Seng
HSI,
+1.54%

closed 1.5% higher, following consecutive 4%-plus losses for the index.

The yield on the 10-year Treasury
TMUBMUSD10Y,
1.259%

was 1.26%, and gold
GC00,
-0.12%

was trading just under $1,800 an ounce.

Random reads

Bhutan has vaccinated 90% of its adult population against coronavirus — in a week.

Would you pay £8 ($11) to go up a mound? A London council is offering refunds.

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