Instant Reaction: Alphabet, Microsoft Beat Estimates | Bloomberg Intelligence

Bloomberg audio Studios podcasts radio news chair of alphabet just soaring in the after hours right now Carol higher after the company reported earnings up as we speak uh another 13.6% in the after hours right now this after declaring a dividend boosting a buyback uh authorizing repurchase of up to an additional $70 billion in shares first quarter ad Revenue coming out uh above expectations first quarter also declaring a cash dividend of 20 cents per share all right so let's get to it James chm so much to talk about he's partner in technology analist uh at clockwise Capital he joins us from Miami um first of all alphabet feels like I can't find anything wrong here Walkers through is this just kind of firing in all cylinders and if you will and then just throwing on a dividend and then throwing on an additional buyback yeah first thanks for having me um you know for alphabet this was a tough one you know because we had the meta earnings last night you know uncertainty as it relates to the sustainability of the Topline growth metrics and obviously alphabet via Google uh had um you know uncertainties around their search business and at the same time you have this growth in cap expense you know is that going to translate over so you know we were kind of debating what to do and and uh going into the quarter um we actually rotated a portion of our uh Microsoft position uh to um triple up our alphabet position the so thankfully that worked out but I for Google well yeah they're both up so yeah I mean it worked out but so why did you do it what was it that you saw um James in the in the alphabet story that you said you wanted to do that well the main thing was the relative valuations I mean the expectations for Microsoft were exceedingly High and the expectations for uh alphabet were exceedingly low and you look at one trading at 22 times earnings and the other ones at 35 times earnings so you know what kind of the risk reward is and especially we had some sense of how things might trade uh if they came in on a on a bare um kind of narrative uh given how meta traded so um it really just boils down to that and but the fact that Microsoft was able to exceed those nose bleed expectations in a testament to the trends and the force of trends that we're seeing in the in the shift of the cloud and a AI more broadly hey I just want to get your thoughts on Snap because it's a company you've been covering for years through love to ask about that through the good and the bad well and the reason I'm asking is because Shares are up um wow surging as we speak by more than 20% uh 25% uh at at this point um this is after the company uh reported they are down 32% year to dat they are that's important context um the company seeing second quarter Revenue um from 1 1.23 billion to 1.26 billion versus estimates of 1.21 billion dollars as Carol mentioned it's been a brutal year so far for snap um how are you reading into these results and do you still you don't own snap anymore do you no no not for a long time um you know with SNAP you know they were supposed to be the camera company and and transformed into um you know exactly what they were initially you know just messaging and some content initiatives but at the end of the day you know I think it's really really hard for these Niche platforms to scale in the manner in which necessary to provide the differentiation to advertisers and the return objectives and return enhancements on the on that Aspen so I think that the disparity uh between these Niche platforms like a snap versus the likes of alphabet and meta will only increase from here the caveat being that you have companies like Pinterest which we used to own but sold um you know just given the fact that they had our Target um you know have more opportunities because of the engagement that they bring that is likely to grow over time versus you know stick to a more um static rates uh which is from the likes of snap all right we've got to go back to Google forgive me uh alphabet I keep calling it Google but I mean course alphabet I know I know uh up 12 and a half% here folks in the aftermarket this stock heading into it had about a 12% gain on the year here in uh 2024 the stock was up almost 60% last year but you know when when you look at alphabet James and you look at its business lines and its roles and its play whether it's AI whether it's still advertising in a big way you know our own Mand sing saying you know this company's all about engagement that's kind of so valuable and that's going to be valuable certainly in terms of machine learning and geni this is really important stuff I mean how do you think about you know alphabet in in kind of its future growth trajectory and kind of where it goes from here I mean these are this is a pretty impressive report but it's also right appeasing investors of saying we're going to throw some cash back to you absolutely I mean any anything with respect to returning Capital to shareholders or um you know getting religion on the cost side of their business and and utilizing their cash flow for uh more constructive purposes rather than throwing it into black holes which is the way that they have been operating for as long as I can remember that being said I think that the future for alphabet and Google you know is Still Remains a question mark we don't know and I don't think anyone can definitively say what that search environment experience is going to look like in the in the future you know when if you look out five years down the road now the good news is all of this stuff seems to be like coming at you fast right all the AI it's over the since January of 2023 it's been coming hard and fast but the good news is on the on the behavioral aspect and the and the and the consumer experience you know things have changed with chat GPT and whatnot but things aren't changing that fast overnight which affords alphabet time to really figure things out whether it's cannibalistic to their existing search business or not you know I I think we have time so I think extrapolating too much too soon is a risk um you know so as long as they can they have the time you know they might figure it out they may not but they might but I look into 2024 and 2025 and that's it could critics argue about alphabet that declaring a dividend and boosting a share buyback potentially isn't the best use of money right now perhaps they should be investing more in AI perhaps they should be investing more in making sure this search product is bulletproof yeah I mean they're throwing off tremendous amounts of cash as it is and uh and they're investing a lot and and they're and you look at the margin disparity versus uh a meta you know they have a lot of cushion um uh there uh so uh and they're investing you know strongly as well so um I I don't think it's mutually exclusive um so long as the um the the ball continues to move forward which is what we need to see and we'll see what the color commentary is on the call I think it'll be okay I think the longer term is where the questions linger shorter term it'll be fine all right so let's go to Microsoft because it's also uh the other big one that or one of the big ones uh after the close it's up about 5% uh here in the aftermarket uh this one sales and profit beat expectations on robust AI demand that's the headline on our story so quarterly sales and profit climbing more than projected lifted by corporate demand for Microsoft's cloud and AI offerings Revenue as we said up 177% in the third quarter 61.9 billion profit 294 a share analyst on average estimated per share earnings of 2.83 or $283 excuse me on sales of 60.9 billion so again um outperformance here and we know that SATA nadela has been really infusing all of Microsoft's entire product line with uh AI technology thanks to its partner open AI so thoughts on Microsoft what we got here in the quarter what it tells you about their business today and going forward yeah what what's most amazing to me is the fact that they're able to maintain the growth rates no matter how big their revenue uh base get and the fact that they're able to deliver the numbers that you just cited and do so in an efficient way where earnings are continue to grow at the same rate so it's not a um there's no Contra uh indicators on and you know sales versus spending um so I I that to me the sustainability is the um the biggest and most impressive component uh of their operations and and most importantly you know broadly I think you can extract rolate that the themes um on the data center spend and and the semiconductors like the nidos of the world and and the direction of corporate Enterprise and their appetite uh for shifting from analog to digital is as strong as ever so I think it's a very very good omen for a lot of these companies um and and being at the center of it you can make an any analogy that you want when in the first inning third inning whatever but I think the main thing is that the world is going to I think s Sam Alman had this uh quote um that he said the technological changes that we've seen over the last 500 years um um uh no the the changes over the next 50 years will be greater than the technological changes over the next last 500 right you know so that's the pace of change that we're talking and a lot of that's going to come in the first decade and these companies are all at the epicenter of just want to point out um Azure Microsoft's uh cloud computing unit um Revenue gaining 31% in the quarter above an average prediction of 29% so picking up slightly from the 30% growth in the previous period so you know that's a trend line if you're following it right you want to see I mean there's a chance we see both of the depending on what happens there's a chance we see both alphabet and Microsoft hit new records tomorrow in today's trade depending on what happens um okay I want to talk James just a little bit about uh Microsoft's uh Legacy here and the way that it's been able to shift and Embrace AI um where where's the most important part of of looking at Microsoft's growth moving forward I mean I know we obviously know Azure is incredibly important but the company has made a huge uh huge bet on AI with open AI where do you start to see that investment and its relationship with open AI manifest in earnings I think it's going to be you know exactly you'll see it in the Azure business but more broadly in the intelligent Cloud segment I mean it should continue to translate on that front but it's not just that segment it's going to have it's going to feed into other parts of their business too um you know on their subscription side uh of their software services and and uh potentially even gaming and um uh you know so there's there's a lot of levers I think that will be pulled from that relationship and as the world in corporate Enterprise continues to move in that direction more data is going to feed into it which is going to feel even more efficiency uh with respect to the capabilities that they do and um you know co-pilot you know for instance is just on the I don't want to keep saying first ining day day two of um of its potential so and there's a lot of money to be made there um that you'll see that I don't think is being appreciated at all virtually at all right now these are all different companies but they're all working on AI and uh to a certain extent they're competing with each other when it comes to that technology no question uh given what we're seeing from shareholders in reaction to Microsoft and alphabet today uh and given what we saw today in the session from uh reaction from investors to meta platforms sending shares for their worst day in months um what did the two companies that reported today get right or maybe a better way to ask is what did meta platforms get wrong um what did meta platforms get wrong um I think what they got wrong was largely related to the management of the expectations you know um there was no indication around um the pace of investment that's necessary to sustain the kind of growth I mean they talk very qualitatively about this is a big opportunity ahead you know all the metaverse and yada yada um but uh you know there was no push back whatsoever on the questions and commentary uh with respect to you know how we should expect um the pace of investment to ramp to justify and and cap FZ uh on the trends that Zuckerberg talks about so I think it was more of an expectation versus reality mismatch that probably could have been better managed all right let's just uh remind everybody uh the big earnings after the close and those that have really outperformed here and showing um some stunning moves to the upside uh Microsoft among them that stock as we mentioned it is moving up uh just about 4.4% here in the aftermarket and the company coming out sales and profit beating expectations uh lifted by corporate demand for the software makers cloud in uh AI offerings we talked about Azure gaining Revenue alone gating 31% in the quarter that was above analyst expectations Revenue in the third quarter overall up 177% to$ 61.9 Billion profit was $2.94 a share analysts on average estimated per share earnings of 283 So Below what they actually came in with and uh the estimate for sales was 60.9 so again really hitting out of the park when it comes to those estimates uh and that is certainly uh one reason why you're seeing uh the stock or a big reason why you're seeing the stocks uh up the stock of Microsoft I should say up at the aftermarket okay let's worth uh let's repeat a little bit of what we saw from alphabet uh the company's first quarter uh Google ad Revenue coming in at 61.6 six billion versus estimates of 60.8 billion and the company author authorizing a repurchase of up to an additional $70 billion worth of shares also declaring a dividend a cash dividend of 20 cents per share first quarter Revenue uh excluding traffic acquisition costs uh 67.5 billion beating estimates of 66.0 7 billion to the downside Intel Shares are down more than 8% here uh biggest maker of PC processors uh lack luster forecast from the company for the current quarter indicating it's really still struggling to kind of find its way back to the Top If You Will sales in the second quarter will be about 13 billion uh that compares with an average analyst estimate of 13.6 6 billion according to our data here at Bloomberg profit again the Outlook will be 10 cents a share minus certain items versus a projection of 24 cents so that's a pretty big Miss uh we're talking with James Chach partner in Tech analyst over at clockwise Capital uh James is there's some underlying theme we're not through all the mag seven companies uh we've got what Amazon next week and yeah we've got Nvidia in a while right so uh we've got some other players to get through but is there any themes that you're finding certainly for the investment Community when it comes to especially these big Tech names uh the mag 7 often who haven't always been so magnificent as of late uh what they're what they're saying and uh kind of their impact on the overall Market is there some big takeaway here for you I I think the biggest takeaway is that the sellers of these data center Services um are the best place to be you know from Nvidia to Dell those the server side like we own VRT uh which helps with the cooling systems um comfort systems um you know so there's a lot of these companies that play into building out the the the companies that are selling to the hyperscalers I think will continue to be uh in a great position now as far as the mag7 is concerned I do think you know the market is still um in in a state of uh choppiness and uh volatility and I think that's going to last until we have better Clarity on what the FED is going to do and you saw the GDP numbers today so there's there's mixed messages as which direction macro is going versus Tech and which one to prioritize because if you prioritize the economic cycle then that means valuations are at risk if you prioritize the tech cycle that means that earnings are the focus and right now we're in this world where some days valuations are in focus and other days earnings like todayy um so I think you just got to stay Nimble uh at the end of the day hey James last question 30 seconds here I'm looking at time us equity on the Bloomberg terminal this is the clockwise core equity and Innovation ETF it is up this year a whopping uh 18.3% outperforming all the benchmarks uh Amazon he your second biggest holding after t- bills make accounting for 5% of the portfolio um we got Amazon coming up 30 second preview of Amazon yeah Amazon it's the it's only of the mag 7 that uh we feel that we haven't cut exposure to you know it's a 5% or give or take weight and we're maintaining that um I think the data that you saw from Microsoft and uh today Rel to the cloud is a very good omen uh they're firing across all three other businesses you know on the on the grocery side the retail side the um the cloud side and this is the first time in a while that you've seen everything going in the right direction and and most especially on the margin so you know we like the risk reward here you know I think next year you could get to 225 uh this year probably upwards of 200 um so you know it's one that definitely keep in the portfolio for sure all right we're going to leave it on that note hey James thank you so much James chakmak partner and Tech Analyst at clockwise Capital joining us on Zoom from Miami a lot of names moving here in the aftermarket

Channel: Bloomberg Podcasts

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Keywords: Business, Business News, Daily News, Investing, News, bloomberg, bloomberg intelligence, bloomberg radio, business, economy, finance, finance podcast, investing, market news, markets, markets podcast, news, news podcasts

Id: 03IJyDyK2r8

Length: 18min 16sec (1096 seconds)

Published: Thu Apr 25 2024