Latest / Bloomberg Intelligence / Instant Reaction: Alphabet, Microsoft Beat Estimates

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Instant Reaction: Alphabet, Microsoft Beat Estimates · Bloomberg Intelligence

• 0:02
  Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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  Speaker 2: Chairs of Alphabet just soaring in the after hours right now,
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  Speaker 2: Carol Hire after the company reported earnings up as we speak,
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  Speaker 2: another thirteen point six percent in the after hours right now.
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  Speaker 2: This after declaring a dividend, boosting a buyback, authorizing repurchase
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  Speaker 2: of up to an additional seventy billion dollars and shares.
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  Speaker 2: First quarter ad revenue coming out above expectations first quarter,
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  Speaker 2: also declared it cash dividend of twenty cents per share.
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  Speaker 3: All right, so let's get to it. James chalk Mak
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  Speaker 3: so much to talk about. He's partnering technology analyst at
• 0:39
  Speaker 3: Clockwise Capital. He joins us from Miami. First of all,
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  Speaker 3: Alphabet feels like I can't find anything wrong here. Walk
• 0:45
  Speaker 3: us through. Is this just kind of firing and all
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  Speaker 3: cylinders and if you will, and then just throwing on
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  Speaker 3: a dividend and then throwing on an additional buyback.
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  Speaker 1: Yeah, First, thanks for having me. You know, for Alphabet,
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  Speaker 1: this was a tough one. You know, we had the
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  Speaker 1: meta earnings last night, you know, uncertainty as it relates
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  Speaker 1: to the sustainability of the top line growth metrics, and
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  Speaker 1: obviously Alphabet via Google had, you know, uncertainties around their
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  Speaker 1: search business, and at the same time you had this
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  Speaker 1: growth and capex spend. You know, is that going to
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  Speaker 1: translate over? So you know, we were kind of debating
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  Speaker 1: what to do and going into the quarter. We actually
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  Speaker 1: rotated a portion of our Microsoft position to triple up
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  Speaker 1: our Alphabet position. But thankfully that worked out. But I
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  Speaker 1: tried to see you for Google. Yah, well yeah they're
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  Speaker 1: both out, so yeah, I mean it worked out.
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  Speaker 3: So why did you do it? What was it that
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  Speaker 3: you saw, James in the in the Alphabet story that
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  Speaker 3: you said you wanted to do that.
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  Speaker 1: Well, the main thing was the relative valuations. I mean,
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  Speaker 1: the expectations for Microsoft were exceedingly hot and the expectations
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  Speaker 1: for Alphabet were exceedingly low. And you look at one
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  Speaker 1: t trading at twenty two times earnings and the other
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  Speaker 1: ones at thirty five times earnings, So you know what
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  Speaker 1: kind of the risk reward is. And especially we had
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  Speaker 1: some sense of how things might trade if they came
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  Speaker 1: in on a bear because kind of narrative given how
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  Speaker 1: Meta traded. So it really just boils down to that.
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  Speaker 1: But the fact that Microsoft was able to exceed those
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  Speaker 1: nose bleed expectations in the testament to the trends and
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  Speaker 1: the force of trends that we're seeing in the in
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  Speaker 1: the shift of the cloud and AAI. More broadly, Hey,
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  Speaker 1: I just want.
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  Speaker 2: To get your thoughts on Snap, because the company you've
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  Speaker 2: been covering for years.
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  Speaker 1: I would love to ask about that there through.
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  Speaker 2: The good and the bad well. And the reason I'm
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  Speaker 2: asking is because shares are up, wow, surging as we
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  Speaker 2: speak by more than twenty percent, twenty five percent at
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  Speaker 2: this point. This is after the company reported.
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  Speaker 3: They are down thirty here today they are.
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  Speaker 2: That's important context, Chris. The company is seeing second quarter
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  Speaker 2: revenue from one point two to three billion to one
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  Speaker 2: point twenty six billion versus estimates of one point two
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  Speaker 2: one billion dollars. As Carol mentioned, it's been a brutal
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  Speaker 2: year so far for Snap. How are you reading into
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  Speaker 2: these results? And do you still you don't own Snap anymore?
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  Speaker 2: Do you?
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  Speaker 1: No? No? Not for a long time. You know with Snap,
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  Speaker 1: you know, they were supposed to be the camera company
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  Speaker 1: and transformed into you know, it's exactly what they were initially,
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  Speaker 1: you know, just messaging in some content initiatives. But at
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  Speaker 1: the end of the day, you know, I think it's
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  Speaker 1: really really hard for these niche platforms to scale in
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  Speaker 1: the manner in which is necessary to provide differentiation to
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  Speaker 1: advertisers and the return objectives and return enhancements on the
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  Speaker 1: on that ad spend. So I think that the disparity
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  Speaker 1: between these niche platforms like a Snap versus the likes
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  Speaker 1: of Alphabet and Meta will only increase from here. The
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  Speaker 1: caveat being that you have companies like Pinterest, which we
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  Speaker 1: used to own but sold, you know, just given the
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  Speaker 1: fact that they hit our target. You know, I have
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  Speaker 1: more opportunities because of the engagement that they've bring that
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  Speaker 1: is likely to grow over time versus you know, stick
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  Speaker 1: to more static rates, which is from the likes of Snap.
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  Speaker 3: All right, we've got to go back to Google. Forgive
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  Speaker 3: me Alphabet. I keep calling it Google, but I mean
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  Speaker 3: your first alphabet. I know, I know, up twelve and
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  Speaker 3: a half percent here, folks, in the aftermarket, this stock
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  Speaker 3: heading into it had about a twelve percent gain on
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  Speaker 3: the year here in twenty twenty four. The stock was
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  Speaker 3: up almost sixty percent last year. But you know, when
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  Speaker 3: when you look at Alphabet James, and you look at
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  Speaker 3: its business lines and its roles and it's play, whether
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  Speaker 3: it's AI, whether it's still advertising in a big way.
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  Speaker 3: You know, our own man Deep Singh saying, you know,
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  Speaker 3: this company is all about engagement. That's kind of so valuable,
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  Speaker 3: and that's going to be valuable certainly in terms of
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  Speaker 3: machine learning and jen Ai. This is really important stuff.
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  Speaker 3: I mean, how do you think about you know, Alphabet
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  Speaker 3: in kind of its future growth trajectory and kind of
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  Speaker 3: where it goes from here. I mean, these are this
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  Speaker 3: is a pretty impressive report, but it's also right appeasing
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  Speaker 3: investors of saying we're going to throw some cash back to.
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  Speaker 1: You absolutely, I mean any anything with respect to returning
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  Speaker 1: capital to shareholders or you know, getting religion on the
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  Speaker 1: cost side of their business and utilizing their cash flow
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  Speaker 1: for more constructive purposes rather than throwing it into black holes,
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  Speaker 1: which is the way that they have been operating for
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  Speaker 1: as long as I can remember that being said. I
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  Speaker 1: think that the future for Alphabet and Google, you know,
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  Speaker 1: is still remains a question mark. We don't know, and
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  Speaker 1: I don't think anyone can definitively say what that search
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  Speaker 1: environment experience is going to look like in the future.
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  Speaker 1: You know, when if you look out five years down
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  Speaker 1: the road. Now. The good news is all of this
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  Speaker 1: stuff seems to be like coming at you fast right
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  Speaker 1: all the AI. It's over the Since January of twenty
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  Speaker 1: twenty three, it's been coming hard and fast. But the
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  Speaker 1: good news is on the on the behavioral aspect and
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  Speaker 1: the consumer experience. You know, things have changed which GPT
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  Speaker 1: and whatnot, but things aren't changing that fast overnight, which
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  Speaker 1: affords Alphabet time to really figure things out, whether it's
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  Speaker 1: cannibalistic to their existing search business or not. You know,
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  Speaker 1: I think we have time. So I think extrapolating too
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  Speaker 1: much too soon is a risk, you know, so as
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  Speaker 1: long as they can they have the time, they might
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  Speaker 1: figure it out. They may not, but they might. But
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  Speaker 1: I look into twenty twenty four and twenty twenty five,
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  Speaker 1: that's it.
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  Speaker 2: Could Critics argue about Alphabet that declaring a dividend and
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  Speaker 2: boosting a share buyback potentially isn't the best use of
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  Speaker 2: money right now. Perhaps they should be investing more in AI.
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  Speaker 2: Perhaps they should be investing more and making sure this
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  Speaker 2: search product is bulletproof.
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  Speaker 1: Yeah. I mean they're throwing off tremendous amounts of cash
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  Speaker 1: as it is, and they're investing a lot, and and
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  Speaker 1: you look at the margin disparity versus a meta you know,
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  Speaker 1: they have a lot of cushion there, so and they're investing,
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  Speaker 1: you know, strongly as well. So I don't think it's
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  Speaker 1: utually exclusive. So long as the ball continues to move forward,
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  Speaker 1: which is what we need to see, and we'll see
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  Speaker 1: what the color commentary is on the call, I think
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  Speaker 1: it'll be okay. I think the longer term is one
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  Speaker 1: of the questions linger shorter term, it'll be fine, all right.
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  Speaker 3: So let's go to Microsoft, because it's also the other
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  Speaker 3: big one that are one of the big ones. After
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  Speaker 3: the close, it's up about five percent here in the
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  Speaker 3: aftermarket this one. Sales and profit beat expectations on robust
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  Speaker 3: AI demand. That's the headline on our story. So quarterly
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  Speaker 3: sales and profit climbing more than projected, lifted by corporate
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  Speaker 3: demand for Microsoft's cloud and AI offerings. Revenue, as we said,
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  Speaker 3: up seventeen percent in the third quarter, sixty one point
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  Speaker 3: nine billion profit two ninety four a share. Analyst on
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  Speaker 3: average estimated per share earnings of two point eight three
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  Speaker 3: two dollars and eighty three cents. Excuse me, on sales
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  Speaker 3: of sixty point nine billion, So again outperformance here, and
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  Speaker 3: we know that such an Adella has been really infusing
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  Speaker 3: all of Microsoft's entire product line with AI technology thanks
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  Speaker 3: to its partner open Ai. So thoughts on Microsoft, what
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  Speaker 3: we got here in the quarter, what it tells you
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  Speaker 3: about their business today and going forward.
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  Speaker 1: Yeah, what's most amazing to me is the fact that
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  Speaker 1: they're able to maintain the growth rates no matter how
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  Speaker 1: big their revenue base gets, and the fact that they're
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  Speaker 1: able to deliver the numbers that you just cited and
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  Speaker 1: do so in an efficient way where earnings are continuing
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  Speaker 1: to grow at the same rate, so it's not a
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  Speaker 1: there's no contra indicators on and you know, sales versus spending.
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  Speaker 1: So I think that to me, the sustainability is the
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  Speaker 1: biggest and most impressive component of their operations, and most importantly,
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  Speaker 1: you know, broadly, I think you can extrapolate that the
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  Speaker 1: themes on the data center spend and the semiconductors like
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  Speaker 1: the NVIDIAs of the world, and the direction of corporate
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  Speaker 1: enterprise and their appetite for shifting from analog to digital
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  Speaker 1: is as strong as ever. So I think it's a
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  Speaker 1: very very good omen for a lot of these companies
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  Speaker 1: and being at the center of it. Because you can
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  Speaker 1: make an analogy that you want in the first inning,
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  Speaker 1: third inning, or whatever. But I think the main thing
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  Speaker 1: is that the world is going to I think Sam
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  Speaker 1: Altman has this quote that he said, the technological changes
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  Speaker 1: that we've seen over the last five hundred years, No,
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  Speaker 1: the changes over the next fifty years will be greater
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  Speaker 1: than the technological changes over the next last five hundred, right,
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  Speaker 1: you know. So that's the pace of change that we're
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  Speaker 1: talking and a lot of that's going to come in
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  Speaker 1: the first decade, and these companies are all at the
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  Speaker 1: epicenter of it.
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  Speaker 3: Just what and point out Azure Microsoft's cloud computing unit
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  Speaker 3: revenue gaining thirty one percent in the quarter, above an
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  Speaker 3: average prediction of twenty nine percent, so picking up slightly
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  Speaker 3: from the thirty percent growth in the previous period. So
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  Speaker 3: you know that's a trend line if you're following it, right,
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  Speaker 3: you want to see I.
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  Speaker 2: Mean, there's a chance we see both of the depending
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  Speaker 2: on what happens. There's a chance we see both Alphabet
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  Speaker 2: and Microsoft hit new records tomorrow in today's trade, depending
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  Speaker 2: on what happens. Okay, I want to talk James just
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  Speaker 2: a little bit about Microsoft's legacy here and the way
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  Speaker 2: that it's been able to shift and embrace AI. Where's
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  Speaker 2: the most important part of looking at Microsoft's growth moving forward.
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  Speaker 2: I mean, I know, we obviously know Azure is incredibly important,
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  Speaker 2: but the company has made a huge, huge bet on
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  Speaker 2: AI with open Ai. Where do you start to see
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  Speaker 2: that investment and its relationship with open Ai manifest in earnings.
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  Speaker 1: I think it's going to be, you know, exactly, you'll
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  Speaker 1: see it in the Azure business, but more broadly in
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  Speaker 1: the intelligent cloud segment. I mean, it just continued to
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  Speaker 1: trans on that front, but it's not just that segment.
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  Speaker 1: It's going to have It's going to feed into other
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  Speaker 1: parts of their business too, you know, on the subscription
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  Speaker 1: side of their software services and potentially even gaming, and
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  Speaker 1: you know, so there's there's a lot of levers I
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  Speaker 1: think that will be pulled from that relationship. And as
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  Speaker 1: the world and the corporate enterprise continues to move in
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  Speaker 1: that direction, more data is going to feed into it,
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  Speaker 1: which is going to fuel even more efficiency with respect
• 11:29
  Speaker 1: to the capabilities that they do. And you know, Copilot,
• 11:33
  Speaker 1: you know, for instance, is just on the I don't
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  Speaker 1: want to use saying first end of that day, day
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  Speaker 1: two of its potential. So and there's a lot of
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  Speaker 1: money to be paid there that you'll see that. I
• 11:44
  Speaker 1: don't think it is being appreciated at all, virtually at all.
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  Speaker 2: Right now, these are all different companies, but they're all
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  Speaker 2: working on AI, and to a certain extent, they're competing
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  Speaker 2: with each other when it comes to that technology. No question, uh.
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  Speaker 2: Given what we're seeing from shareholders in reaction to micros
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  Speaker 2: oft in alphabet today, and given what we saw today
• 12:02
  Speaker 2: in the session from reaction from investors to meta platforms
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  Speaker 2: sending shares for their worst ten months, what did the
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  Speaker 2: two companies that reported today get right? Or maybe a
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  Speaker 2: better way to ask is what did meta platforms get wrong?
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  Speaker 1: What did meta platforms get wrong? I think what they
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  Speaker 1: got wrong was largely related to the management of the expectations.
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  Speaker 1: You know, there was no indication around the pace of
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  Speaker 1: investment that's necessary to sustain the kind of growth. I mean,
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  Speaker 1: they talk very qualitatively.
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  Speaker 4: About this is a big opportunity ahead, you know, all
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  Speaker 4: the metaverse and YadA YadA, But you know, there was
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  Speaker 4: no pushback whatsoever on the questions and commentary with respect
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  Speaker 4: to you know, how we should expect the pace of
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  Speaker 4: investment to ramp to justify and capitalize on the trend
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  Speaker 4: that Zuckerberg talks about.
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  Speaker 1: So I think it was more of an expectation versus
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  Speaker 1: reality in mismatch that probably could have been better managed.
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  Speaker 3: All right, let's just remind everybody the bigger earnings after
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  Speaker 3: the close and those that have really outperformed here in
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  Speaker 3: showing some studying moves to the upside, Microsoft among them.
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  Speaker 3: That stock, as we mentioned, it is moving up just
• 13:24
  Speaker 3: about four point four percent here in the aftermarket, and
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  Speaker 3: the company coming out sales and profit beating expectations, lifted
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  Speaker 3: by corporate demand for the software maker's cloud and AI offerings.
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  Speaker 3: We talked about Azure gaining revenue alone gaining thirty one
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  Speaker 3: percent in the quarter that was above analyst expectations. Revenue
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  Speaker 3: in the third quarter overall up seventeen percent to sixty
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  Speaker 3: one point nine billion dollars. Profit was two dollars ninety
• 13:50
  Speaker 3: four cents a share. Analysts on average estimated per share
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  Speaker 3: earnings of two to eighty three, so below what they
• 13:56
  Speaker 3: actually came in with, and the estimate for sales was
• 13:59
  Speaker 3: sixty point so again really hitting out of the park
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  Speaker 3: when it comes to those estimates, and that is certainly
• 14:05
  Speaker 3: one reason why you're seeing the stock or a big
• 14:07
  Speaker 3: reason why you're seeing the stocks up. The stock of Microsoft,
• 14:10
  Speaker 3: I should say up at the aftermarket.
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  Speaker 2: Okay, let's worth let's repeat a little bit of what
• 14:14
  Speaker 2: we saw from Alphabet the company's first quarter Google AD
• 14:17
  Speaker 2: revenue coming in at sixty one point six six billion
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  Speaker 2: versus estimates of sixty point one eight billion, in the
• 14:22
  Speaker 2: company author authorizing a repurchase of up to an additional
• 14:25
  Speaker 2: seventy billion dollars worth of shares, also declaring a dividend,
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  Speaker 2: a cash dividend of twenty cents per share. First quarter
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  Speaker 2: revenue excluding traffic acquisition costs sixty seven point five to
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  Speaker 2: nine billion, beating estimates of sixty six point oh seven billion.
• 14:39
  Speaker 3: To the downside, Intel shares are down more than eight
• 14:42
  Speaker 3: percent here, biggest maker of PC processors. Lacklow luster forecast
• 14:47
  Speaker 3: from the company for the current quarter, indicating it's really
• 14:49
  Speaker 3: still struggling to kind of find its way back to
• 14:53
  Speaker 3: the top, if you will. Sales in the second quarter
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  Speaker 3: will be about thirteen billion. That compares with an average
• 14:57
  Speaker 3: analyst estimate of thirteen point six billion a quarter to
• 15:00
  Speaker 3: our data here at Bloomberg Profit Again, the outlook will
• 15:03
  Speaker 3: be ten cents of share minus certain items versus a
• 15:06
  Speaker 3: projection of twenty four cents, So that's a pretty big miss.
• 15:10
  Speaker 3: We're talking with James chockmock partner and tech analyst ever
• 15:12
  Speaker 3: at Clockwise Capital. James, is there's some underlying theme. We're
• 15:16
  Speaker 3: not through all the MAGS seven companies. We've got what
• 15:19
  Speaker 3: Amazon next week?
• 15:20
  Speaker 2: Yeah, we've gotten video in a while, right, so.
• 15:23
  Speaker 3: We've got some other plays to get through. But is
• 15:25
  Speaker 3: there any themes that you're finding, certainly for the investment
• 15:28
  Speaker 3: community when it comes to especially these big tech names
• 15:32
  Speaker 3: the mag seven often who haven't always been so magnificent
• 15:35
  Speaker 3: as of late, what they're saying and kind of their
• 15:39
  Speaker 3: impact on the overall market. Is there some big takeaway
• 15:41
  Speaker 3: here for you?
• 15:44
  Speaker 1: I think the biggest takeaway is that the sellers of
• 15:47
  Speaker 1: these data center services are the best place to be,
• 15:51
  Speaker 1: you know, from Navidia to Dell. The server side, like
• 15:56
  Speaker 1: we own VRT, which helps with the cooling system comfort systems,
• 16:03
  Speaker 1: you know, so there's a lot of these companies that
• 16:05
  Speaker 1: play into building out the companies that are selling to
• 16:09
  Speaker 1: the hyperscalers. I think will continue to be in a
• 16:12
  Speaker 1: great position now that as far as the Max seven
• 16:15
  Speaker 1: is concerned, I do think, you know, the market is
• 16:18
  Speaker 1: still in a state of shoppiness and volatility, and I
• 16:24
  Speaker 1: think that's going to last until we have better clarity
• 16:26
  Speaker 1: on what the FED is going to do. And you
• 16:27
  Speaker 1: saw the GDP numbers today, so there's there's mixed messages
• 16:31
  Speaker 1: as to which direction macro is going versus tech and
• 16:34
  Speaker 1: which one to prioritize, because if you've prioritize the economic cycle,
• 16:38
  Speaker 1: then that means valuations are at risk. If you prioritize
• 16:41
  Speaker 1: the text cycle, that means that earnings are the focus.
• 16:44
  Speaker 1: And right now we're in this world where some days
• 16:48
  Speaker 1: valuations are in focus and other days earnings like today,
• 16:52
  Speaker 1: So I think you just got to stay nimble at
• 16:54
  Speaker 1: the end of the day.
• 16:55
  Speaker 2: Hey, James, last question thirty seconds. Here, I'm looking at
• 16:58
  Speaker 2: time US Equity on the Bloomberg terminal. This is the
• 17:01
  Speaker 2: clockwise Core Equity and Innovation ETF. It is up this
• 17:04
  Speaker 2: year a whopping eighteen point three percent, out performing all
• 17:08
  Speaker 2: the benchmarks. Amazon is your second biggest holding after T
• 17:12
  Speaker 2: bills make accounting for five percent of the portfolio. We
• 17:17
  Speaker 2: got Amazon coming up. Thirty second preview of Amazon.
• 17:22
  Speaker 1: Yeah. Amazon, it's it's the only of the mag seven
• 17:25
  Speaker 1: that we feel that we haven't cut exposure to. You know,
• 17:28
  Speaker 1: it's a five percent or give or take weight, and
• 17:31
  Speaker 1: we're maintaining that. I think the data that you saw
• 17:35
  Speaker 1: from Microsoft and today is the really to the cloud
• 17:38
  Speaker 1: is a very good omen. They're firing across all three
• 17:41
  Speaker 1: other businesses, you know, on the on the grocery side,
• 17:44
  Speaker 1: the retail side, the cloud side, and this is the
• 17:48
  Speaker 1: first time in a while that you've seen everything going
• 17:50
  Speaker 1: in the right direction and most especially on the margin.
• 17:53
  Speaker 1: So you know, we like the risk loard here. You know,
• 17:56
  Speaker 1: I think next year you could get the two twenty five.
• 17:59
  Speaker 1: This year the upwards of two hundred, So you know,
• 18:02
  Speaker 1: it's one that definitely keeping the portfolio for sure.
• 18:05
  Speaker 3: All Right, we're going to leave it on that note. Hey, James,
• 18:07
  Speaker 3: thank you so much. James. Chuck Mack, partner and tech
• 18:10
  Speaker 3: analyst at Clockwise Capital joining us on Zoom from Miami.
• 18:13
  Speaker 3: A lot of names move in here in the aftermarket,