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Big drop of earnings, as we mentioned, really three of the mag seven reporting you've got Microsoft down about three point three and a half percent. Let's just round it up here. You've got Alphabet it is up about four percent, So pressure on Microsoft, a rally in Alphabet. And then you've got Meta right now it is dropping in a big way. Tim, We've got that what down about six percent?
Yeah, So long term metas as it expects a significant reduction in our federal US federal cash tax payments for remainder of twenty twenty five and future years due to the implementation of the One Big Beautiful Bill Act. But they reported a net income of just two point seven to one billion. That was a huge drop from last year.
The company says that number would have actually been eighteen point six four billion if not for a one time non cash income tax charge of fifteen point nine three billion dollars.
I want to know, I don't understand it so well. It's a one time charge.
I get that they're paying it now, Okay, it reduces net income to something that looks way below what everybody.
Thought it would be.
What is this charge though, that's a question that we're going to have to ask Ivan Findsath. Why investors, we're not expecting.
This because it's not like taxes changed from the year before.
And why is Meta the company that has that has this hit and not these other companies.
That's what I'm saying, Like, I understand the big beautiful you know bill act is going to change their tax situation going.
Forward, but why they one time hit right now?
But right exactly what changed from the previous year that we're seeing all of this?
So they were very clear, it seemed like they want to be very clear in their communication. There was like this paragraph devoted to this in the earnings release, just below Mark Zuckerberg's commentary, Right, the street is not not buying that right now.
I will also say that, you know, our Kurt Wagner's pointing out here we go from the release are current expectation is that capital expenditures dollar growth will be notably larger in twenty twenty six and twenty twenty five. I have to say that that was one of the things I was looking at in terms of their expenses and so on, have gone up about thirty two percent.
Year over year.
And if they're looking at spending even more, maybe there are some concerns again about the spend, the AI spend, which many say you need, you got to get ahead of all of this to meet the demand.
But will that ultimately pay off?
Yeah, let's put some numbers there. Sixty six billion to seventy two billion as of June. That was the twenty twenty five capex guidance for the year. Things have tightened a little bit to seventy billion to seventy two billion. It's coming in at the high end of the original range.
But if that's what it's going to be for this year, and then the company says CAPEX dollar growth will be notably larger in twenty six than in twenty five, how much bigger than seventy to seventy two billion dollars is it going to be?
Exactly place to the spend.
I will point out the third quarter AD revenue that was a big fifty billion versus the estimate of forty eight point fifty nine billion.
If you recall last quarter, we got to.
This and we saw how the company was monetizing the AI spend. So there are still some more questions to be known. Again, I'm just going to pull up Meta here in the aftermarket, folks, it's down about six point six percent. Let's also talk about Microsoft because this one also under pressure, tim It's down about three and a half percent.
Yeah, first quarter revenue did beat estimates. Microsoft reported revenue for the first quarter or Azure and other cloud services revenue x FX for the first quarter that beat the average Chennalist estament. Here's some numbers. Seventy seven point six seven billion that beat estimates of seventy five point five to five billion. That was for the first quarter. Earnings per share came in at three dollars and seventy two cents.
Operating income came in above estimates at thirty seven point nine to six billion, that beat estimates Carol of thirty five point one billion dollars.
All right, let's see if the growth rates though, you know, is what does seem like the investors are a little disappointed, as we said, the stock down three and a half percent here in the after market.
What the guidance on the call. Guidance on the call.
Yeah, that's true, right, and we'll find out the outlook. This stock, keep in mind, is up almost thirty percent year to date. Here in twenty twenty five. Let's head out to our Chicago News bureau. That's where we find Bloomberg Intelligence senior technology analyst Ana Anaag. We want to give you a little time to stew over this, walk us through what we've got so far from Microsoft, because investors seem a little disappointed.
Yeah, I mean I don't. I don't really find a whole lot of mistakes. And there's these numbers and you look at Azure growth of thirty nine percent, I mean, given that size, that's pretty good. The margins actually stood out way, you know, way higher than what we were anticipating.
We thought there was going to be pressure on margins because of all the spending and then the last lea when you look at the capex number substantially higher than the thirty billion that they talked about now in you know, to some people maybe that's a disappointment, but for us, that's a good thing because I think they have so much demand coming in. They're going to add more capacity this this year, and that's something that you know, we have been saying for a while.
Well, you know, I'll ask you the same question that I asked Angelo Zino a little earlier. And maybe it's too early to tell me if we won't hear anything about on the call, But the cloud race between the three biggest providers out there, Aws, Azure, Google Cloud, is there an opportunity for Azure to get market share from from companies that might have been affected by last week's AWS outage? Is that an opportunity?
Well, I typically I would say no, because they are facing the same problem today. Frankly, so when you look at some of these large install bases, it's very difficult to change your applications. But what is the bigger opportunity, not just for Amazon or not just for Microsoft, but for all of them, including Oracle, is most companies eventually will have a backup cloud provider. They don't have it right now, but that is going to be one of the bigger growth drivers down the road after the AI
boom is done, you know. So, I mean, from our side, the market is big enough for all of them to prosper very very well in the coming use.
I mean, honor as you said that the Azure Cloud Computing Unit posted a thirty nine percent revenue in the quarter when adjusting for currency fluctuations. That did beat the street estimate of thirty seven percent. I'm reading some you know analysis that says, well, that was a disappointed the expectations were high. What what was there a whisper number in terms of growth.
On the street.
No, the consensus was thirty seven. This is what the company said. Now there is if you really want to dissect it, you know badly, then you could say, well, Google Cloud growth accelerated in the quarter compared to the previous quarter, but Microsoft it was thirty nine. It's it's still at thirty nine. But you know, they are different basis that one's you know, Microsoft is running at about seventy five percent, you know, eighty billion dollars in annual
run rate. You know, Google Cloud is still at thirty percent, and yet Azure growth is higher than Google's cloud growth. So you know, I think people are probably just splitting hairs at this point.
Yeah, and you referenced that when you were answering my question. You reference the outage that Microsoft has having right now, this global Microsoft outage. So we should note that, yeah, just cloud cloud companies are cloud companies and sometimes it's AWS that is the outage. Sometimes it's Microsoft that that
has the that has the outage. Hey, the open AI question, we talked a lot about this with you yesterday and I imagine that on the call, investors will have a lot of questions about, Okay, this close to thirty percent ownership of open II, the parent company of chat GBT, what is that going to do for Microsoft?
See?
I think from our side, the equity part is not what you know, for our concern, it's really the technology that Microsoft is holding on to that's really the critical piece because you know, one of the ways we think about is they will sell more products, they will sell more cloud services using that technology than they would just on the you know, share side of it. And that's a bigger thing for us because they have, you know, a hold of that for the next seven years.
Hey, one of the things I want to ask you, and I know this isn't typically your coverage, but you know you're.
Smart and you cover all things technology.
Meta Meta down almost eight percent here in the aftermarket as you see this, Uh, what's what's the problem. There's one tax one time tax charge. I guess we're still trying to figure this out. But is it all about that or is it just that we were caught off guard.
See I think that could be a lot of the noise then the number, and you know, I'm very sure they're going to give clarity on that. But the big question of the overheind On and Mega Meta always is, you know, how are you monetizing a You're spending all this money, where's the revenue you show for it? I think that's where management really needs to give and address that in a much more succinct way than they have.
The other side is they don't have a cloud platform just like Google does, or Amazon does or Microsoft does. So meta is the one that needs to explain these things far better than, frankly the other three.
I want to bring in Ivan find Seth, research director and chief investment officer with Tiger's Financial Partners, got over five hundred million dollars in assets under management, and pose that same question to him about meta platforms, saying that the implementation of the One Big Beautiful Bill Act led to the recognition of evaluation allowance against our US federal deferred tax assets, reflecting the impact of the US Corporate
Alternative Minimum Tax. The result of one time non cash income tax charge of fifteen point nine three billion dollars. Shares carroll down seven point eight percent. Ivan, You've had some time to dig into this a little bit on the meta platform side. What's going on here?
Well? All right, so the Big Beautiful Bill caused the recognition of a deferred tax asset. It's actually a non cast charge. And there while it caused a spike in their tax rates eighty seven percent for the quarter, it actually goes down significantly going forward. I think this is really a non event. It's an accounting issue, and I think any weakness is a buying opportunity in the STOP because there's so many positive long term trends that will continue to drive the STOP higher.
But is that why the stock is down right now because of this one time charge affecting the bottom line? Is that is that the concern? Or is it what Carol brought up the idea of CAPEX going up next and to spend well?
Now, we have seen investors make a mistake consistently in selling MATA meta platforms. On capital investment increases, they continue to invest in driving their AI capabilities, which drives increased user engagement. It drives increase return on AdSpend investment. So I like when they continue to invest. And we've seen this multiple times. If you listen to what Mark Tuckerberg does every time he invests, from the beginning from changing the company from Facebook to Meta, and when he was
investing in Mobile, the stock sold off. Now most of the people engaging in Facebook and Instagram do it on their phone, So you have to listen to him, and he says what he does, and he does what he says, and he continues to create value. So on any weakness over the increase in CAPEX. And again this is positive because there's been a fear that we're going to see this AI bubble burst, that companies are not going to
continue to invest. I've seen all three companies reporting today, Alphabet, Microsoft and Meta all increasing capital investment in AI development. And that's positive for the companies those three companies, and it's positive for the bullish AI investment theme.
You know this fifteen percent corporate Alternative minimum tax. Yeah, I'm googling some stuff here, folks, because I want to understand stand it. It came out of the Inflyflation Reduction Act of twenty twenty two, and it generally applies I think to corporations with the average annual adjusted financial statement income exceeding a billion dollars every three consecutive years.
Yeah, we're all going to be learning a little bit more about this.
But Tim, you keep bringing up like why why aren't we seeing this with maybe some of the other ones?
Yeah, why is metaplat? Why are we only talking about this with regard to meta platforms?
They may be one of the ones that has the largest deferred tax asset and that has really to do with timing and expensing of things like R and D as an example.
So you know, we're talking about a lot of things, and Ivan, we want to get you know, your view on some of the other companies that have reported ANAAG. We do want to ask you, though, what are you thinking that you want to you're going to be looking for on a call going back to Microsoft, if you will. As we continue to see that one trading lower here in the aftermarket, let me just pull it up on my Bloomberg because we have seen some pressure here the
stock continuing. It's down still about three point four percent, is it? What do you want to hear from this company?
I think I would be let me let me get.
Ana rog first, forgive me Ivan.
Okay, all right, So the biggest thing for us, who's going to be you know, what's the back half of CAPEIC spending? The CAPEX and the first sporter was very high, thirty five billion compared to thirty which they guided to. We want to know what is it going to be in the back half of the year. Are they going to slow down dramatically or is it going to keep pacing where we are right now?
All right, Anaag, we know you've got research to right We're going to let you go and look forward to reading that.
Ivan, we want to stay with you for a little bit.
We are talking with Ivan find Seth, research director and chief investment Officer with Tigris Financial Partners on a rug run. Of course, our senior tech analyst here at Bloomberg Intelligence. I've in other companies that reported Meta obviously caught our attention. We just talked with Microsoft, are talked about Microsoft at the anarog what's your take on what we got from them? Because that stucks down about three percent here in the aftermarket.
Well, right now, we're in an environment of you know, people who have been buying these stocks ahead of results. They sell into the results. But I say, I say that this AI investment theme is powerful and the companies leading it are Meta, Google and Microsoft, and you got to buy on any weakness. I want to hear from Microsoft about increase AI driven application and engagement and subscription increases,
how users are buying and implementing and using copilot. Of course, you want to see growth in all key categories like cloud Azure.
I mean, Azure was up thirty nine percent. That's pretty good, right.
Phenomenal, and that's their big growth engine and they have been announcing huge contracts so as Google. Unfortunately, Amazon had that outage was it was disappointing but didn't really set back the stock. But these are the growth drivers that the cloud hosted AI platforms.
Yeah I was. I was surprised to see Amazon stock actually higher that day, I know, but I think also speaks to the power of Amazon and like you got in a good understanding of how much it has. Remember, the company is investigating outages. This is Microsoft is investigating outages of office and game applications today also, so this
kind of goes both ways. I've ben on Microsoft one more and then we're gonna get back to some more meta platforms, I think, but a small one point two percent beat on adjusted diluted EPs on Microsoft for my You know everybody the company does not give guidance in the statement and does that on the conference call. It's doing that on the conference call. Is it like worth
even talking about it without even having it? Oftentimes we wait for the call to get more information, but in this case, like forward guidance coming from the call, it's kind of a moot point.
Well, the disconnect in the dichotomy that exists between companies and Wall Street is that companies planned for one, three and five years and Wall Street wants to measure everything on a quarterly basis. I mean, the guidance it's somewhat important, but you wanted to see consistent growth driven by their investments in technology, the adoption and use of their technology that creates their competitive advantage, and those are the key
things to look at. And we are in the first inning of the world series of AI driven economic global economic growth. And this trend is going to continue, and it's going to be powerful, and it's going to be game changing. And I think that AI is going to enhance and create many more jobs than it will eliminate.
Going back to the costing though for Meta, you know, I'm just that operating margin for the third quarter down from forty three percent last year. Is that worrisome or you think manageable?
Not really, Okay, We've looked at companies that have had huge growth trajectories while their margins we're contracting. In fact, Amazon doesn't focus on margin. They focus on revenue growth. They don't focus on return on capital actually, which is one of the key things we focus on. But they do drive a huge return. So you know, there are times where your growth margin can contract, but your economic
margin can increase. And that is the economic margin is the difference between return on capital and cost of capital. That is the most powerful driver of shareholder value creation. So it's not so much important about what happens with growth margin. It's in fact, I've seen many companies drive huge growth by lowering their growth margin because you're just becoming more competitive and they're actually making it up on return on capital.
Okay, we're going to talk about Alphabet with you in just a minute. Carol reminded me that shares are surging higher in the after hours six percent. Okay, one more on Meta platforms down eight point four percent in the after hours. Reality Labs losses for the third quarter four point four billion dollars. It's about the same as one year prior. Obviously, it's a huge investment area for meta platforms.
In the press release, Mark Zuckerberg specifically calling out the success of the eyewear and saying, essentially, I don't have it in front of you to be essentially said, if we think the future is going to be what it is, this is going to be the most exciting moment for meta platforms. Ahead of us, these will be the most exciting years for meta platforms. What is the opportunity that meta platforms has when it comes to eyewear.
This is going to be a tremendous communication and interactive platform and it's only going to get better in a few years. We're going to look back on these original glasses, the ones that they've launched from ray Band, the recent ones from Oakley, and the functionality in a few years from now is just going to be more and more incredible.
But this ability to engage with real time information, to share pictures and images and videos in real time with other people that you're talking to and while I'm up. Mark Zuckerberg believes that the glasses are going to replace your smartphone. You're just going to keep your smartphone in your pocket, and you're going to interact with data and information and people who you're communicating with these glasses. And eventually we're going to see ones that Meta just launched,
ones with displays. It's going to be all about having displays embedded in the lens so you don't even have to touch your phone. So this is going to be a huge growth opt and this is going to be what the cell phone was in the mid nineties.
No rose colored glasses there right now, because Meta shares now down near their loads in the aftermarket, down about nine percent.
I'm going to remember that Ivan said this is going to be what what cell phones were in the nineties. And by the way, he's not wearing any metaglasses right now.
Well, and I will say our markerment really really likes him as well. Hey, we do have to ask you about Alphabet because we are seeing this one actually up about six percent here in the aftermarket.
What do you like? What's what's of note? Do you think in their release.
Cloud growth, Big Cloud contract wins that they've had over the past few months with UH, with Meta, with Open AI, with other companies this you know that Meta, Amazon and Microsoft.
I'm sorry, Alphabet, Amazon and Microsoft are building the AI and cloud infrastructure that everybody is connecting to and going to continue and increasingly coming are going to be connected cars as we move through to full autonomy, So we are going to need high speed, real time, constant connectivity to the cloud, and those are huge opportunities for the three major public cloud service providers Alphabet, Google and Microsoft.
Well, and they're spending big.
They're now seeing fiscally your capex ninety one to ninety three billion. They had seen about eighty five billion dollars. So, hey, you gotta spend.
Money to make money, Carol, You got to spend money to make money.
Everybody says it's wild, right, like the number they also Gemini their app now has over six hundred and fifty monthly active users hundred fifty million, six.
Hundred and fifty million. Yeah, didn't I say that? It's a lot?
How do we how do we know that this AI thing, how do we know that all this spend is going to pay off?
Ivan? Are we still a little exuberant?
Well, because the functionality we see today is going to be blown away by the functional in the future. More and more people are going to rely on this technology for all different aspects. And I do give credit to Tom Siebel, the founder of Seble Systems and C three AI, that I believe he said it that every company is going to be an AI company. Every company is to use AI on all aspects of their business, whether it's
to manage supply chain, manage pricing, target marketing. That the functionality is going to increase and people are going to just like you said when Carol, when you wanted to understand more about Meta's tax charge, you googled it and we're going to get more information. I did also, I like perplexity. I looked up it, looked it up in Perplexity and kind of and I did understand what they said, but it gave me a little more detail.
And uh right, yeah, is it right?
Do I know what? Yes? Well, because I do understand that the tax that it's really the timing and charge and of managing your tax payment and your tax liability that you tend to offset through capital investment, through R and D and other types of things that happen. So it's really timing issues on how you're a crude tax liability or your a crewed tax asset falls versus the taxes you will eventually have do or the tax credit you will eventually aren't.
I just want to know is this Sora, Is this really Ivan find Seth. I just want to make sure it is really me Listen, perfect guest to talk about all of this so much coming at us, Ivan, Thank you so much, really appreciate it. I've Ben find Seth, Research director, chief investment officer of A Tiger's Financial Partners of a five hundred million in assets under management as of the middle of this year, joining us right here in New York City,