Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Cheers with Alphabet and Justice soaring in the after hours right now, Carol Hire after the company reported earnings up as we speak, another thirteen point six percent in the after hours right now. This after declaring a dividend, boosting a buyback, authorizing repurchase of up to an additional seventy billion dollars it shares first quarter ad revenue coming out above expectations first quarter. I also declared it cash dividend of twenty cents per share.
All right, so let's get to it. James chalk Mak so much to talk about. He's partnering technology analyst at Clockwise KAPITALI joins us from my a me. First of all, Alphabet feels like I can't find anything wrong here, walk us through. Is this just kind of firing and all cylinders and if you will, and then just throwing on a dividend and then throwing on in an additional buyback.
Yeah, first, thanks for having me. 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 top line growth metrics, and obviously Alphabet via Google had you know, uncertainties around their search business. And at the same time, you know this growth and capex spend, you know, is that going to translate over So you know, we were kind of debating what to do and and going into the quarter.
We actually rotated a portion of our Microsoft position to triple up our Alphabet position. But thankfully that worked out. But for Google, yeah, well yeah, they're both so yeah, I mean it worked out.
So why did you do it?
What was it that you saw, 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 hot and the expectations for Alphabet were exceedingly low. And you look at one trading at twenty two times earnings and the other ones at thirty five times earnings. So you know what kind of the risk reward is, and especially we had some sense of how things might trade if they came in on a bear kind of narrative, given how Meta traded.
So it really just boils down to that. But the fact that Microsoft was able to exceed those nose bleed expectations and the testament to the trends and the force of trends that we're seeing in the shift of the cloud and aai more broadin.
Hey, I just want to get your thoughts on Snap because it's the company you've been covering for years.
You'd love to ask about that, Eric, through the.
Good and the bad. Well, And the reason I'm asking is because shares are up, wow, surging as we speak, by more than twenty percent twenty five percent at this point. This is after the company reported.
They are down thirty two here today they are.
That's important context, Chris. The company is seeing second quarter revenue from one one point two to three billion to one point twenty six billion versus estimates of one point two one billion dollars. As Carol mentioned, it's been a brutal year so far for Snap. 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.
You know.
With Snap, you know, they were supposed to be the camera company and transformed into you know e exactly what they were initially, you know, just messaging in 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 is necessary to provide differentiation to advertisers and the return objectives in return enhancements
on the on that ad spend. So I think that the disparity 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, you know, just given the fact that they hit our target. You know, I have more opportunities because of the engagement that they bring that is likely to grow over time versus you know, stick to more static rates, which is from the likes of Snap.
All right, we've got to go back to Google. Forgive me alphabet. I keep calling it Google, but I mean firs Alphabet. I know, I know, up twelve and a half percent here, folks in the aftermarket. This stock heading into it had about a twelve percent gain on the year here in twenty twenty four. The stock was up almost sixty percent last year. But you know, when when you look at Alphabet James, and you look at its business lines and its roles, and it's play, whether it's AI,
whether it's still advertising in a big way. You know, our own man Deep Singh saying, you know, this company is all about that engagement that's kind of so valuable, and that's going to be valuable certainly in terms of machine learning and gen AI. This is really important stuff. I mean, how do you think about you know, Alphabet 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 you know, getting religion on the cost side of their business and utilizing their cash flow for 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 over the since January of twenty twenty three, it's been coming hard and fast. But the good news is on the on the behavioral aspect
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 think we have time, So I think extrapolating too much too soon is a risk, 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 twenty twenty four and twenty twenty five, 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 and making sure this search product is bulletproof.
Yeah. I mean they're throwing off tremendous amounts of cash as it is, and and they're investing a lot, and and you look at the margin disparity versus a meta. You know, they have a lot of cushion there, so and they're investing, you know, strongly as well. So I don't think it's mutually exclusive. So long as 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 the other big one that are one of the big ones. After the close, it's up about five percent here in the aftermarket. 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 rejected, lifted by corporate demand for Microsoft's cloud and AI offerings. Revenue, as we said, up seventeen percent in the third quarter, sixty one point nine
billion profit two ninety four a share. Analyst on average estimated per share earnings of two point eighty three two dollars and eighty three cents excuse me, on sales of sixty point nine billion. So again outperformance here, and we know that such an Adella has been really infusing all of Microsoft's entire product line with 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's most amazing to me is the fact that they're able to maintain the growth rates no matter how big their revenue base gets, 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 continuing to grow at the same rate, So it's not a there's no contra indicators on and you know, sales versus spending. So I think that to me, the sustainability is the
biggest and most impressive component of their operations. And and most importantly, you know, broadly, I think you can extrapolate that the themes on the data center spend and the semiconductors, like the nvideos of the world, and the direction of corporate enterprise and their appetite 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 and being at the center of it, because you can make an analogy that you want in the first inning,
third inning, or whatever. But I think the main thing is that the world is going to I think Sam Altman has this quote that he said, the technological changes that we've seen over the last five hundred years, No, the changes over the next fifty years will be greater than the technological changes over the next last five hundred, 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 aren't all at the epicenter of it.
Just want to point out Azure Microsoft's cloud computing unit revenue gaining thirty one percent in the quarter, above an average prediction of twenty nine percent, so picking up slightly from the thirty percent 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. Okay, I want to talk James just a little bit about Microsoft's legacy here and the way that it's been able to shift and embrace AI. Where's the most important part 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, 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 just continued 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, you know, on the subscription side of their software services and potentially even gaming and 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 and the corporate enterprise continues to move in that direction, more data is going to feed into it, which is going to fuel even more efficiency with respect
to the capabilities that they do. And you know, Copilot, you know, for instance, is just on the I don't want to use saying first ending of that day day two of its POTENTI so, and there's a lot of money to be paid there 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 to a certain extent, they're competing with each other when it comes to that technology. No question. Given what we're seeing from shareholders in reaction to Microsoft and Alphabet today, and given what we saw today in the session from reaction from investors to meta platforms sending shares for their worst ten months, what did the two
companies that reported today get right? Or maybe a better way to ask is what did meta platforms get wrong?
What did meta platforms get wrong? I think what they got wrong was largely related to the management of the expectations. You know, there was no indication around 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, But you know, there was no pushback whatsoever on the questions and commentary with respect to you know, how we should expect the pace of investment to ramp to justify and capitalize on
the trends that Zuckerberg talks about. So I think it was more of an expectation versus reality and mismatch that probably could have been better managed.
All right, let's just remind everybody the big earnings after the close and those that have really outperformed here and showing some studying moves to the upside. Microsoft among them. That stock, as we mentioned, it is moving up just about four point four percent here in the aftermarket, and the company coming out sales and profit beating expectations, lifted by corporate demand for the software maker's cloud and AI offerings.
We talked about Azure gaining revenue alone, gaining thirty one percent in the quarter that was above of analyst expectations. Revenue in the third quarter overall up seventeen percent to sixty one point nine billion dollars. Profit was two dollars ninety four cents a share. Analysts on average estimated per share earnings of two eighty three, so below what they actually came in with, and the estimate for sales was sixty point nine so again really hitting out of the
park when it comes to those estimates. And that is certainly one reason why you're seeing the stock or a big reason why you're seeing the stocks up. The stock of Microsoft, I should say, up at the aftermarket.
Okay, let's worth let's repeat a little bit of what we saw from Alphabet the company's first quarter Google AD revenue coming in at sixty one point sixty six billion versus estimates of sixty point one eight billion, and in the company author authorizing a repurchase of up to an additional seventy billion dollars worth of shares, also declaring a dividend,
a cash dividend of twenty cents per share. First quarter revenue excluding traffic acquisition costs sixty seven point five to nine billion, beating estimates of sixty six point oh seven billion.
To the downside, int Hell shares are down more than eight percent here, biggest maker of PC processors. 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 thirteen billion. That compares with an average analyst estimate of thirteen point six billion according to
our data here at Bloomberg. Profit again, the outlook will be ten cents a share of minus certain items versus a projection of twenty four cents, So that's a pretty big miss. We're talking with James Chockmock partner and tech analyst over at Clockwise Capital. James, is there's some underlying theme. We're not through all the MAGS seven companies. We've got what Amazon next week?
Yeah, we've gotten video in a while, right.
So we've got some other plays 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, the mag seven often who haven't always been so magnificent as of late, what they're saying and kind of their impact on the overall market, there's some big takeaway here for you.
I think the biggest takeaway is that the sellers of these data center services are the best place to be, you know, from Navidia to Dell and the server side, like we own VRT which helps with the cooling systems, comfort systems, you know. So there's a lot of these companies that play into building out the companies that are
selling to the hyperscalers. I think will continue to be in a great position now that as far as the Max seven is concerned, I do think, you know, the market is still in a state of shoppiness and 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 to 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 prioritiz is the text cycle, that means that earnings are the focus. And right now we're in this world where someday's valuations are in focus and other days earnings like today, Hey, so I think you just got to stay nimble at the end of the day.
Hey, James, last question. Thirty 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 eighteen point three percent, out performing all the benchmarks. Amazon is your second biggest holding after t bills make accounting for five percent of the portfolio. We got Amazon coming up. Thirty second preview of Amazon.
Yeah.
Amazon, it's the only of the mag seven that we feel that we haven't cut exposure to. You know, it's a five percent or give or take weight, and we're maintaining that. I think the data that you saw from Microsoft and today is really to the cloud is a very good omen. They're firing across all three other businesses, you know, on the on the grocery side, the retail side, the cloud side, and this is the first time in a while that you've seen everything going in the right direction,
and most especially on the margin. So you know, we like the risk award here. You know, I think next year you could get the two twenty five. This year probably upwards of two hundred, So you know it's one that definitely keeping the portfolio for sure.
All Right, we're going to leave it. On that note, Hey, James, thank you so much. James. Chuck mack partner and tech analyst at Clockwise Capital, joining us on Zoom from Miami. A lot of names moving here in the aftermarket.
You're listening to the Bloomberg Business Week podcast. Catch US Live weekday afternoons from two to five pm Eastern Listen on Apple card Play and then brought auto with a Bloomberg Business app or watch US Live on YouTube.
All right, we're going to call this an unwelcome combination. You have Second AMIC gross sliding to an almost two year low last quarter, while inflation jumped to uncomfortable vels. John just talking about all of this interrupting a run of strong demand and muted price pressures that had fueled optimism for that soft landing side, that soft landing tim it feels like maybe not going to happen, at least not for today.
At least not today. With more on today's data and the reaction in the US treasury market. Back with us, it's Bloomberg News International Economics and Policy correspondent Michael McKee, also Bloomberg News Rates reporter Michael mackenzie. Both here in the studio. Michael McKee. I want to start with the data on growth and inflation. Just just break it down for us and what exactly has folks so concerned.
Well, the number came in worse than forecast and certainly down from the fourth quarters three point four We had one point six percent growth in the first quarter, But it really wasn't as slow as it appears, because at least as far as people like the FED would be concerned, because a lot of it was trade. We imported a lot more than we exported, partly because of the strong dollar, and it's cheaper to bring in imports, and if imports are coming in, it does suggest that retailers and others
are anticipating this can sell the stuff. Consumer spending two point five percent, not as bad as it could have been, down from last quarter, but still reasonably good. Business investments still strong two point nine percent. Inventory is another problem. Inventories weren't as high, but inventories and trade are very volatile, so overall, it's not that bad a report. When you take out inventories and trade, you get a three point
one percent growth rate, so not too bad. What worried everybody, and this is mikes people over there is the PCE inflation numbers. Now, the government calculates this number quarterly with average of the three months, and it also does a month by month, And what ended up happening is a big jump of three tenths of eight percent in the year over year numbers for both headline and core core,
particularly concerning people. And so that's what the market's focused on and started falling out of bed because of now we get the monthly We've gotten the monthly figures for January and February. We get the monthly figure from March tomorrow, and the question is was this a problem all across the quarter, Was this a problem in January and February and they had to revise those numbers, or are we going to have a big negative surprise tomorrow.
So if March comes down, we wouldn't be so worried.
We wouldn't be so worried. If March comes in as forecast or goes a little bit lower, then you'll watch the market's melt up tomorrow.
Probably well, I don't know if I want to say a melt up, but we definitely have seen a move up once again in terms of the treasury curve and yields. So Michael McKenzie come on in on this talked about talk to us about the rate moves that we saw today.
It's a classic. You get some whole piece of data, another whole piece of inflation data in particular, which has been the story for all this year. And as Mike's just said, if you see some relief tomorrow from the March number, you might get some stability here in treasuries. It has been interesting this morning. We did get above two five percent of the twos, but the buyers came back. We're right around that five percent level still. Ten's got
above four. Seventy came back a bit as well. The seven year auction nice concession, so they took down a forty four billion of seven year notes just now. So in general, the markets, the Treasury sold over one hundred and eighty billion of coupon debt this week twos, fives,
and seven. There's a lot of supply. The problem is, of course, if the inflation numbers remained sticky tomorrow and it indicates that there is no relief near term, You've got a refunding coming next week, and that announcement's going to keep putting supply on the table, particularly because the refunding is quarterly, they set out what they're going to sell for the next three months, and I suspect the
three year will be fine. It's the ten year and the thirty year, the longer date stuff, and that was selling off a lot today as well. So you could see a further test coming here of four seventy five and higher and tens for example, because we're pricing out the rate cuts for this year now we're down to
just one. Must always been invested this morning. You always said it was going to be one this year, and they're feeling pretty cool good about this now and they're advising you should start scaling into into bonds at these levels. But as as she also said to me, don't go all in at these levels. At the moment, you still got it. There's still plenty of time to see just how the data turns and how the Fed's going to react,
particularly next week when Powell gives his press conference. Is he actually now going to say potentially there could be some changes here and that's where the mark will be really focused on from here.
Michael McKey jump in on that and what we do hear from Fed jo J. Powell with that me meeting next week.
Well, everybody's gonna be looking for him to maybe put some time frame on it. He's already said we're not going to cut rates as soon as people thought, and we're waiting for more progress on inflation. I was laughing when Michael was talking there because the small I was looking at the the Fed funds futures and the swaps rate for when markets think we're going to get rate cuts, and they priced everything out until December, and just a moment ago they priced November back in by a basis point.
Now it's going back and forth. This is what I predicted it this morning. It goes back and forth. And the funny thing is is, okay, people want to make a bet one way or another, that's fine, But the Fed doesn't know what it's going to do. And because they're data dependent and they're watching this data and it's not coming in as they thought, so they have to rethink what they want to do and when they want to do it, and they're just going to wait meeting
by meeting to get a handle on it. So whatever the Fed funds futures or swaps say at this point isn't necessarily what's going to happen.
But Michael, are the rate moves and the trader are they data dependent on? Thinking about what Luzianne Sanders or Swab said to us yesterday, and she's like, stop focusing on the debate about what's the Fed going to do? When is it gonna cut raise how many rates? Like just that's not what investors care about, Like, and she was tying, what's going on inequity markets is going is based on what's going on in the rates markets? The rates market. Are they taking their cues I mean, they
do take their cues from J. Powell. They also, though do from data points, right, they help us understand they do.
But you've got to remember there's different types of investors. I mean, the people who are trading is swaps whether and sort of trading between whether there's going to be a November cut, December cut, or maybe saying, actually November's two close elections, so maybe it's going to be a September cut, and they'll jump back in there if they get any kind of relief from the data side. They're the short term momentum players, longer term investors who you've
been telling us for weeks. God, it's so nice to see yields finally getting into that four and a half five percent zip code. We didn't have that since two thousand and seven. And so their advice is, look, you've got to start strategically allocating more and more money and scale into the bond market as itselves off. The other point to make about all this, of course, is that the market priced in a lot of rate cuts at the start of this year, in part because Powell made
the famous pivot in December. Now as the market takes that out, you're tightening financial conditions. If you keep pushing yields higher, you're going to keep tightening financial conditions, and therefore things will start to slow down again, and then the market will go back. It's kind of like a washing machine side.
But that's kind of what we saw in like August September Olobra when we saw yields move higher.
Yes, so at the moment, the Treasury Index is on course to have its worst month since last February, and in fact, it's not that far away from actually being the worst month since the dark months of twenty twenty two when things are really getting rocky. So that shock is coming through. Equities will probably take more of a hit two of yelds keep on going up, because ultimately, can this economy live with real yields going towards two fifty?
I mean, that is debatable, but I think at the end of the day, as rights keep going, that's going to actually help slow things down. So ultimately you will get some kind of cuts from the FIT. I would think if this is the direction of trouble.
What about the argument that, well, wait a minute, people, some investors are actually feeling, you know, wealthier that they've put money and you know, whether it's money markets are so and so forth, and they're getting some decent returns. Or you look at some of these megacap tech companies. You've got so much cash on their balance sheet and they're actually making money. We talked with our Bloomberg intelligence team and they said, they're actually making some real money
on all of this. How does that impact things? Well, in terms of the economic impact and a slow down.
There's a theory that the fed's high rates are actually economy, but nobody really at the FED would believe that the wealthfair And the fact is that people who have enough money to be really making money in the markets aren't going to just start spending more because the markets are going up, they're spending as they do. So I don't think there's a lot to that.
What do you say to Michael saying, really yet, the two fifty? Can the economy live with that?
It looks like it. I mean, that's the thing that the Fed is saying at this point is we don't have to because we have really yield at that level, and we have very low unemployment, and we have reasonably strong growth. Inflation is a bit of a problem, but we'll see how that goes over the next couple of months,
so we don't need to react at this point. And when you go back in history and you look at what happened after previous recessions, when the FED started raising rates before we got into the Great Financial Crisis and went to zero, this is not an unusual rate level. You know, five and a half is maybe a little bit higher than you would have seen, but you're looking at four to five percent as a kind of a normal rate. Now, it's been twenty some years since we've
been there, so people aren't used to that. But the how we function with that.
Is that the feeling that you're getting right now talking to bond investors that this level of rates is the new normal.
Yeah, they think it's a return to what we had before the financial crisis. I mean, the financial crisis was the biggest economic shot since the Group Depression. You had the biggest collapse of financial markets and of the banks since the depression era. I mean it came what ten years after the dismantled Class Steagle. So you know, again, it takes a long time to recover from those kind of huge balance sheet shocks, particularly when it's overlaid with
a massive housing bubble bursting. So you had both households and banks taking a massive hit it. You know, it took a decade to get through. And then you get COVID, which is suddenly just is a massive infusion of cash into the broad economy. And so we now have, you know, inflation picking up. FED unable to be yet to be confident enough that it can start to ease back, to ease back on those brakes and start cutting rates again, because they don't of the confidence of inflation is truly
under control. And it is a tricky period for the FED because whenever you do see a pickup in inflation, yes it will come down, but if it remains elevated, that means the economy is vulnerable to another inflation shock which kicks it back up into gear. But I think in general bond investors like what they're seeing. They do think, yes, there's potential for rates to go a bit higher from here, but in general they think we're pretty much near the top.
But it's what it's very difficult to pick a top. So this is why a lot of the longer term investors are just scaling into the market, and in particular though they are not comfortable about debt beyond ten years. And that gets back to the spending that's going on
in Washington. It gets back to the fact that whilst the tax receipts have come in strong this year, that will kind of push supply, eases the pressure on supply concerns next year and beyond, particularly given however the election shakes out, you can have another round of supply, another more pressure coming through. And the one thing I will say, if I look at the ten year and the third they really haven't truly come back to where we were
before the financial crisis. Because if you look at the very geeky bond model that says what is the risk premium, it's only still around zero for ten years. That to me is a problem because you need to have a positive risk premium. Partly that'll come about if the curve steepens. But if you talk to investors, this is why they're a bit reticent about ten year and longer debt.
I do wonder we've had a lot of guests. I feel like we've come on and just reminded us about the importance of US government debt and managing it and servicing it and the additional issuance that will be needed. Mike, I mean, go back, right, how many years that we've talked about this so much in the past and then it kind of went away. But concerns about the cost of the ballooning government debt and servicing that. How do you think about that in terms of the economic impact.
Well, the way the FED looks at it is if it has an impact on the economy, they might have to react, but they really can't do a whole lot because the government the fiscal side is not there.
Area.
We have been talking about the problems of high debt forever and we've never hit the spot where it really affects the economy.
Now.
Economic theory tells you that it will, but we don't know where that is, and we don't know how it's going to play out. This is the biggest economy the world has ever seen. We have our own printing press, so there are ways you could deal with it. But you know, you don't want inflation to break out because of that, So there isn't much the Fed can can really do. They don't have a context for it because we haven't had the problem. They just think at some
point it's unsustainable. Where that point is, we don't know.
That's why I can kind of bring it up. I feel like we used to talk about it and then it went away. Final thoughts here, Michael just got about ten to fifteen seconds.
I would think that pal speaking next week probably is more important than tomorrow's data. And then I think the job's number next week, if we still see a strong labor market that's not softening, I think the market could probably well take out rad cuts for this year in.
Wednesday.
And then you got the refunded but.
Again market I round Michael McKee and Michael McKenzie, great duos.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern not Apple Car Play and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa Play Bloomberg eleven thirty Marco Journal.
How about you let me drive?
Oh no, no, no, no, who's going to drive?
Honey?
Please, I'll travel.
I want to drive.
It's a good question.
This is the drive to the globe for me. Well on Bloomberg Radio.
All right, everybody, just about eighteen nineteen minutes left in today's trading session, getting ready to wrap up the Thursday trade. Bounce it around here. But we're definitely, as we keep saying, off our worst levels of this session down across the board, but nonetheless not as much of a risk off or negative tone as much as we saw earlier in the session.
Well, let's hear what Melissa Outo has to say about this. She's head of TMT research at the fintech firm Visible Alpha. It provides it buy and sell side research. She joins us here in the Bloomberg Interactive Broker's studio. I want to talk tech because that's like your wheelhouse and it's a perfect data. Have you on, We.
Really care about it right now in the week.
I mean, first of all, everything's tech now, but you know, the big tech players are the ones that are reporting earnings this weekend next. So we had Meta Platforms yesterday, we have Alphabet and Microsoft after the bell today. First up is Meta platforms. Is this a selloff over so is this like overdone?
First of all, thanks for having me on and what a wild day and the markets to be here speaking with you about tech. The backdrop is a jungle at the moment. I mean, there's so much happening, both from an earnings perspective and from a macro perspective. I think to address your question around Meta coming into the quarter, based on visible alpha consensus over the past couple of months, we didn't see numbers moving that much into the quarter,
which suggested that consensus was fairly stable. So when they came out and said we're actually going to move our expense numbers, those expense numbers were actually higher than expectations, which the upper the upper range. The market did not like that. And it wasn't a one off because Mark Zuckerberg came out and said this is something longer term we're going to be investing for a while. It's going to continue, and I think we're What we also heard
from him was about reality labs. Reality labs also continuing to see continued losses, and I think that was one area of the business where.
That's not a surprise though.
I mean, it's not where it wants to go, but it's kind of cost a lot of money and it's not like we're walking outside seeing people wearing these headsets around.
The investment community was probably hoping for a bit more efficiency and discipline around that area, but he essentially came out and said, no, that's not happening. And I think those two the combination of those two things. So the market didn't like it.
You know, it's interesting, right, and they certainly learned their lesson right prior to the year of efficiency, kind of get that and then kind of got their act together. A stock was often running big time last year, and we certainly have seen it move this year. You know, our own man Deep Singh saying, you know, there's a range there, and so it'll be interesting to see what they say about this quarter and whether or not they bring in that range and say, all right, so maybe
it's going to be at the lower end. We got the message kind of thing.
But I think what also Mandeep said that really stuck with me, Carol, was this idea that imagine the company making a fifty billion dollar investment or fifty billion dollar purchase of a company right and having nothing to show for it, because that's how much money it's going to end up spending in.
This Indeed, it's a lot of money.
Indeed, it's an incredible amount of money that has not really netted much ROI to shareholders.
So the researcher that you are doing now around Meta, what are you saying, you know, what are you saying that it's not a buy at this point? Are you saying it's a moment where you maybe you take some off of your holdings in Meta? Like what is it that you are advising?
The expenses around Meta and its investments in AI are going to be significant based on what the company has said and what we imagine for our consensus data is that there could be some additional upward revisions to expenses going forward this year and next year. So that's one area of the fundamentals that we're watching very closely.
Okay, I want to shift now to what we have coming later today Microsoft and Google parent Alphabet, what are you seeing consensus over at Visible Alpha.
It's a very interesting backdrop for both companies right now, and I think when we look at similarly coming into the quarter, we're not seeing a lot of movement around consensus, and that's you know, suggests from a top line and an EPs perspective that the market kind of has come out and said, Okay, this is what we think is priced in. However, when we dig beneath the surface, there's
different things happening. For example, for the Azure business, the Intelligent Cloud operating profit margin has a massive range between either forty one percent on the bear side or fifty percent on the bull side, which gives us a consensus operating profit margin based on Visible Alpha consensus of forty
five percent. But that's a pretty significant range in terms of what that business could deliver, and it's an enormous business for Microsoft, as your revenues based on Visible African sensus could be anywhere could be around seventy four billion
dollars this year, ninety four billion dollars next year. And I think what we haven't seen is that any movement of that, and going into the quarter, I'm wondering what sort of commentary Nodella is going to come out with, and what's he going to say about the open AI business, about the open Ai partnership, about as your Ai, how that's ultimately going to start to deliver an ROI and have a real meaningful business impact on these fundamentals.
So the consensus data is saying what basically that it's going to be hard for them to live up or what.
There's a lot of debate out there. There's controversy in that range because of the significant range of the operating profit margin for the intelligent cloud business. It's not it means that there could be surprises, and so that's what's really interesting, because.
What you look for is a tight range, right or as much or you know, in an ideal thing, it's one number basically. I mean, I don't know how often that happens. This is your world, how often does that happens?
It does absolutely happen. So when I look at Microsoft's overall revenue, it's in a fairly tight range. But when I go beneath the surface and look at the details, you know, for example, the intelligent cloud business, the Azure business, within the intelligent cloud business, you know those that's where you see that nuance.
How concerned should investors be about what these companies, these two companies tell us today about how much money they're investing and how much they're spending. Given what we saw from Meta, they've.
Both been spending an outrageous ab out of money.
Is it going to spook investors the way that Meta Platforms did or does Meta have that history of two years ago saying Hey, we're throwing in the towel on the Facebook product and we're switching totally to the metaphrse, So it's sort of a different type of investment.
I mean, it is one area that we have been seeing clear trends in the numbers moving upward, is that CAPEX numbers for micro Soft have been steadily increasing over the next couple of years. Those estimates continue to creep up and have been really since last year, which yeah, which implies that, you know, the CAPEX expectations continued to be positive, and I think you know that's somewhat correlated to what we hear from players like Nvidia.
Yeah, it's interesting, it's just a metric as people are building out their AI and all the players in it, right, like a different thinking about capex. You need the capital expenditors to do it. But is there a point where it becomes a little bit like, wait a minute, do we really understand are we outspending maybe the potential payoff? I guess we're kind of in that Noman's let. I'm trying to figure that out right now.
Indeed, yeah, and I think you also mentioned alphabet. Alphabet is also another interesting one. Also, the top line in EPs consensus haven't moved much, but again going beneath the
surface and really interesting movements. Also in their cloud business, the Google Cloud operating profit margin based on Visible Ephic consensus when for I'm eight point seven percent to seven point three percent the past couple of months, and that's a pretty big move one hundred and forty basis points in the virgin So it.
Implies that we get to run. We got to run, forgive us lots of numbers, but lots of things to think about as the earnings come out. Melissa Outro, she's head of TMT research at the at Visible Alpha. And this is Bloomberg.
This is the Bloomberg Business Week podcast available on Apple Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal