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Microsoft, Alphabet Wave Large Numbers Around
Microsoft topped sales and profit estimates with fiscal year Q1 results released after the bell in the US on Tuesday.
Revenue of $56.52 billion rose nearly 13% YoY, and easily exceeded the $54.5 billion consensus expected.
It was the briskest pace of top-line growth in six quarters for Microsoft.
Amy Hood lauded "consistent execution" by the company's sales teams who, together with "partners," delivered a "strong start to the fiscal year."
Pretty much everything was a beat, but as I always
GOOG’s Search growth accelerated, and was higher than MSFT’s “Search & Ad” sub-segment. GOOG search sub-segments had easier YOY comps than last quarter, and will have easier comps again next qtr. YouTube advertiser spend has reportedly “stabilized”, and comps there are easier next qtr too. However, soft Cloud growth amid customer “cost optimization”, plus higher capex and renewed cost-cutting to make room for AI spend, are ruining the mood.
MSFT had stronger results and , I think, did a better job attributing those results to AI. MSFT can build AI into its products and claim people are using it, while GOOG has to wait for its Cloud customers to do the same. Windows, Office, and Edge will supposedly soon be bursting with AI under the “CoPilot” branding, and growth there will be AI-evidence. MSFT claims AI added +300bp to Azure growth, which was sparkling at +29%. ATVI will also boost growth from October on. Note though MSFT guided EBIT margin flat for F2024 despite being up in F1Q, implying that AI cost burdens will show up later in the fiscal year.
If the stocks that went up on AI-hype in 1H are being required to show AI-impact in 2H, perhaps investors feel GOOG failed the 3Q quiz and MSFT passed?
I’m now imagining Clippy, only AI powered to be even more annoying.
I’ll go with terrified, H. Mainly because there seems to be no meaningful restraint on the part of the big guns’ rollout despite the cacophony of experts who have advised caution. This is now a plain dash for cash and I see none of the urgency to legislate that would be necessary to take some risk off the table . Most of us who read your commentary are comfortable with the concept of market failure, but these risks are of a different order of magnitude from the stuff of economics textbooks.
As of Oct 25, my tracking of 3Q earnings is: 24% of S&P 500 (by name, not cap) have reported 3Q. Of those, 38% (again, by name) saw positive revisions to 4Q revenue estimates and 28% saw positive revisions to 4Q EPS estimates.
On July 25, my tracking of 2Q earnings was: 18% had reported, 38% +ve revisions 3Q revenue and 38% +ve revisions 3Q EPS. By the end of 2Q reporting, it was 46% and 41%.
On April 25, my tracking of 1Q earnings was: 18% had reported, 43% +ve revisions 3Q revenue and 37% +ve revisions 3Q EPS. By the end of 1Q reporting, it was 48% and 39%.
TL:DR 3Q earnings not going well – and this week is the meat of it.
“Positive [negative] revisions” means that consensus now for that name/quarter is higher than [lower than] consensus one day before its earnings report.