Instant Reaction: Microsoft & Meta Soar After Strong Earnings

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We've got Meta platforms, Microsoft both out with earnings. Those are the big ones. There's a lot that are out there, but we want to get to We've got great team coverage here at Bloomberg and also some great outside voices.

So let's get to it with Dan Ives.

He's managing director and senior equity analyst and global head of Technology Research at Webbush Securities. We're going to start with Meta. Let's talk about it. The stocks up about eight and a half percent a year in the aftermarket. What do you like and what don't you like? Do you not like anything?

There's nothing not to wy.

I like book.

It speaks to.

You.

Go through this AI revolution, it's in his next stage of growth. And all the money that you're seeing these big tech players hat bocsw you're ultimately starting to see some of those differdence get paid. And then you think about the advertising growth and of what we saw with Alphabet, what you see with meta subscriber growth. I mean this it's goldilocks.

You know, for for tech, how how does Meta harness AI to make money? Apart from making its advertising more efficient, It's.

About the billions of users. It's about going forward, how they're going to monetize AI. They're not just spending to spend. They're going to be able to monetize from an advertising perspective. When you think about the billions of users.

They have, that's how do they do that?

Though?

Dan, And the reason Zuckerberg right now is what I do is like a wartime CEO. It's the view that when you think about AI today, this is just the beginning. You're gonna and you're gonna have AI driven search, You're going to have sort of the future that Meta alphabet are going to play huge pieces in the advertising piece.

But I want to.

Go so it's just advertising that that's where they're going to make all their money back. We know that they have been on such an aggressive AI talent grab and you know Meta.

Has hundreds of millions of dollars, Yeah, like pay individuals.

So there that's all going to pay off their return on just the beginning.

Okay, advertising advertising just to begin when you think about full what I've used sort of like fully GI and it was like the Holy graul. What Meta is trying to build, what every big tech player is trying to build, Meta is basically, we're going to create a whole nother company over the next decade. That's what they're spending on.

This is what I'm still waiting for, like you know, meta platforms. Look, no question, this was in a credible quarter. The stock is up nine point three percent in the after hours. Just to repeat the numbers. Second quarter earnings per share a huge beat, seven dollars and fourteen cents, the estimus for five dollars and eighty nine cents. Second quarter revenue a huge beat, forty seven point five billion dollars,

And you have to think about it like, what's the future in terms of robotics, in terms of software, in terms of how AI is going to play a role in the every day of a consumer. I mean Meta is thinking not in the next year, three, five, eight, ten years out.

I want to bring in man deep saying if I may of our Bloomberg intelligence team.

I don't know if it's too soon.

I know you're going through all the numbers because I want to bring into the conversation with.

Dan good quarter killer quarter. How do you see it for that?

Yeah, I mean there is a sequential acceleration in ad impressions as well as ad pricing growth, and to my mind, there is a sign of them applying AI to boost engagement. Obviously, the user growth has been almost the same every quarter, you know, four to five percent, So the fact that impressions grew eleven percent is a sign that people are spending more time on their family of apps. And then the ad pricing going up nine percent, That to me is the real tailwind, because that was the risky part.

Do you agree with Dan?

I think jenny I use case is quite prominent. We keep hearing about coding agents, customer service. Here is the precise use case for meta, and that is what they are showing in their ad pricing numbers.

Dan, come on in I saw you. You're saying something that sounds like that.

Sounds like a bullish man deep. I mean that's probably on the man deep scale. That's that's pretty both.

I like that. Hey, Dan, I noticed something striking today when I opened up Instagram. I was searching for a video from Mike Berbigley, a comedian who I really like. And what I noticed when I was just I was just looking for his profile. When I typed in his name, what appeared was as an AI answer about a biography of who he was. Information about him is the goal? What is the vision for Instagram? Is this going to be metas super app.

I mean to some extent, they're basically creating a super I mean similar to what you see in China, but an AI driven super Adit that's and you start to go through that, you look in at a four digit stop.

They tried to do this years ago with David Marcus on the messenger side. Man Deep, it didn't necessarily work. It was supposed to be payments and everything. Is that still, in your view, an area of growth for the company here or is that strategy gone?

I mean right now, it feels like they have a lot of runway with ads and there is a clear use case for Jenni with ads. I mean, they still have to fix the model. So I think the advantage that they have is really they are the best when it comes to at targeting and know with everything that's going on, I mean, they have the surface area to apply jen Ai. But look when it comes to payments and other areas, they still lack the diversification of a Microsoft or a Google. It's still a one trick set.

Dan.

You know, it's funny because I was thinking about that because we you know, we talk about all of these companies, and I think about the hyperscalers like an alphabet. We've talked about that a lot man deep about just all of their different platforms and how much data that gives them to make their model smarter and smart smarter. I mean, Dan, is it going to be okay for Meta to be kind of a one trick pony even if it's I mean it's a massive one trick pony, But is it enough?

Well?

I mean, like, look, I think if you think about like on a packing scale of course, like Nvidio the top Microsoft, and you'll get these numbers just just unbelievable in terms of across the board. You look at Meta, Yeah, you call one trick pony ish, but that's but they're going to significantly expand that over the coming years.

I mean, at least for now, there is no proof. I feel they are under earning by twenty percent because of all the losses in reality labs, But the street doesn't care because their ad business is really going gangbusters. When the ads slow down and the comps will get tougher and there will be a point when ads will not grow twenty percent, That's when I think the question will be asked why are they losing twenty billion dollars on reality labs because it's not making any money.

When will it start making money?

Dan?

And does it matter?

I mean, look, that's it's going to be okay, it's going to be a while. But the whole point is right now, that's background noise. Like you know, it's like Street wants them to continue to in fast and vast builders further out and at the end of the day,

I mean, the one other data point I would want to bring in is token counts. So Google and Microsoft have shared the GENII consumption, the token count We don't know how much metas models are being used. Yes, their AT targeting is great, which is why AT pricing was such a solid number this quarter. But at the end of the day, if you're investing seventy billion dollars in capex, you want to see your model being used and the

Dan.

I know you got to go, but thirty seconds, last question for you. What's the one question you'd ask Mark Zuckerberg tonight.

Look, I think it's really about cap back trajectory because I think that's even though that was slow a bit, they're putting as they continue to spend, you know what, That shows confidence and that's what we saw on Alphabet. That's what you've seen the Microsoft, and that means it continues to be like the AI revolution is AI party. It's ten pm, was nine pm, party goes to four am.

Hey, listen before you go. I know we said last question, but not that we lie. But you know you're here in your Dan ives Microsoft you said that was also a big, big, big killer report. I mean the stock was just crazy in the aftermarket's up about six point eight percent.

Scotti Scheffer like results, right. I mean the point is like massive beat on cloud. You see more and more of these use cases, these hyper scalers, those are the best indicators. That just shows where the next spending in AI is going. And that's why right now, if you're attagged back, you're in hibernation mode in that cave and you can't find AI in the spreadsheet.

Pretty crazy, pretty interesting.

Hey, listen, we know you're busy, we know you're bouncing around and got stuff to do, but always good to get some time with you. Dan I was managing director and senior equity analyst oft web Bush Securities, also Globe Ahead of Technology Research.

I just want to remind everybody where we've come in the last few years with Meta Platforms. There was a lot of talk in late twenty twenty two of leaving this company for dead. When they made their pivot to the Metaverse, shares were trading at eighty eight dollars.

Now it's back to the IPO. Oh sorry, yeah, I.

Mean, but I mean even a recent history. Right, it's up six hundred and eighty six percent since then. That doesn't include the surge in the after hours, which, if it holds, will be a new record for Meta Platforms tomorrow.

Yeah, and look when people were, you know, selling the stock at eighty dollars. Then they didn't really factor in you know, Meta's engagement. So what's really brought them back in such a big way is people are still spending over an hour and a half across their family of apps, so that's sort of engage. And look, that's where the real risk comes in. So Chatchipt now is about thirty minutes across its daily active users, which is much smaller

All Hell's man Deep Man, Deep seeing of course, with our Bloomberg Intelligence team. He is Bloomberg Intelligence Globalhead of Technology Research. Be sure to check out his research on the Bloomberg When it comes to Meta.

So appreciate it.

Meta shares, by the way, are up about eleven percent here in the aftermarket, the company giving us stronger than expected third quarter revenue. Four has to sign that that core AD business is still growing quickly enough to support aggressive spending on AI. Devil in the details, and we

They say they brought in more than seventy five billion.

Dollars in the past year in terms of its cloud business as the company continues to commercialize AI services.

Tim, We've got a great group of folks, a great duo to talk Microsoft and more. I want to bring in Greg Halter, director of research at the registered investment advisor Carnegie Investment Council. They've got about six and a half billion dollars in assets under management. I also want to bring in Bloomberg Intelligence senior tech analyst anurog Rana.

Thank you, Tim, and thanks for having me. We do not count the index fund holding positions in that number. If you look at our latest thirteen F filing, Microsoft is the largest individual stockholding at Carnegie.

All right, so Microsoft investors certainly like it.

In the aftermarket, as we mentioned, Greg, the stock is definitely soaring up about seven eight percent.

Now as I speak, what jumps out at you?

I think the Azure growth thirty nine percent versus the thirty four percent expected, that is huge. I'll also point out that their EPs beat of eight percent plus is the best in seven quarters. Usually they do beat. I think it's been now only three times four times over the last forty five periods they have missed on earnings, and this is a larger point of exceeding the estimate that they've had in seven periods.

All Right, I want to agree you like it? All right, Anna rag Grana, I want to bring you in here. I'm not sure. I think we all went into this week with a little trepidation.

Over everything that was coming at investors, including some of these big tech earnings. But this certainly investors like what they got from the company, and certainly with the outlook. What's your take here, what's important for investors to learn off of this release?

You know, I would go what our other guests said. I mean, the acceleration in Azure is pretty impressive. And one of the things I think it's going to do. It's case, it's going to tell people that all the capex Microsoft is spending, you know, they're getting the benefit of it on the other side of it, and they're probably the first one to recognize a bigger, you know,

Well, that's what I want to just follow Ana Rogic. You know, our preview of all of this was Microsoft Meta investors are going to be scrutinizing over the AI spending bench. So for Microsoft, clearly do you we are clearly seeing the ROI when it comes to that AI spend.

Yeah, both on the top side and you know, they are doing extremely well on the expense management side. Because what happens is when you're seeing a rapid growth and Azure, which has a relatively lower gross margin than the rest of the Microsoft business. Profitability does get dented with In addition to all the AI investments that they're making, what they did this time was, you know, year over year

Also, Hey, Greg, I want to bring you back in here. Looking at the Azure growth here, the company reported better than expected growth in its cloud business, the Microsoft saying it brought in more than seventy five billion dollars in the past year. The company continues to commercialize AI services.

I don't know that you can say it's one hundred percent paying off. The reaction to the stock indicates that investors believe that it will. You know, this stock was coming into the report at thirty four times earning, so a lot has to go right and it appears that a lot is going right. So yes, you know, we've done a look at their CAPEX and R and D over the last ten twelve years or so. It's not like this is new. It's just that the numbers are big.

Hey, I do want to point out too that we see Amazon shares up about two point seven percent here in the after market, shares of alphabet or down about four tenths of a percent. But of course Amazon reporting along with Apple tomorrow, Anna Rag, I don't know, is there any any cause for concerns or things that you want to question or would question with the C suite following Microsoft's release here?

No, I think I would talk about the headcount growth for next year. You know, what are they baking because it's been almost two years where they have added very little headcount to the overall company size. And the big question over there is is this something that we should anticipate going forward, that you know, you're getting all this cloud revenue, but you're not adding a lot more headcount.

All right.

Going to leave with there, folks, thank you so much.

Anda Grana, senior tech analyst with Bloomberg Intelligence out there in Chicago, and Greg Halter are thanks to you as well, director of research at the registered investment advisor Carnegie Investment, with the latest on Microsoft and NETA.