Microsoft
Strong earnings for the software giant — revenue of $56.2bn, up 8 per cent from a year before, while earnings per share rose 21 per cent to $2.69. The street was expecting revenue of $55.4bn and earnings of $2.55 a share. Seeing deceleration in the cloud space, though, with Azure growth slowing to 27% from 31% the quarter previous. The company attributed this to customer’s tightening their belts. Not a great read-through…if big cloud clients are slowing spending, what’s next?
+17% growth in the Office segment, a point ahead of the company’s forecast, and its set of AI tools for office will cost $30 per month to use. Sales of hardware down 12% (compared to a 28% decline a year ago) suggesting that the hardware slow-down has largely bottomed. We’re reconsidering our rating, which is currently a buy. It’s very hard to “buy” Microsoft at the current multiples it trades at, but at the same time, the company’s outlook hasn’t changed. For now buy(underweight) feels about right — take some profit at this point in the “AI” cycle. The most interesting thing, to us, is the slow-down in the cloud space — AI should’ve increased demand (for compute) but perhaps this shows us that the AI cycle is less substance and more hype.
Alphabet Strong set of numbers here — revenue increasing 7% to $74.6bn, ahead of estimates for $72.8bn, and net profit of $18.4bn — well ahead of the $16.9bn expected by the street. Ad revenues rose 3.3% and YouTube ad revenues rose ~4% as the world’s largest advertising platform continues to see demand. Revenues of $8bn in the cloud space, which posted another profit of ~$395mn. Operating margin grew +1% in a very competitive market — hats off to management. There’s nothing to dislike here — retaining buy.
Briefly noted
Revenues at the Snapchat parent fell 4 per cent to $1.06bn in the second quarter, roughly in line with expectations, while its net loss shrank to $377mn from $422mn. We prefer GOOG to SNAP as an advertising play, and Snap’s investment in AI feels like a red herring to us. No formal view but avoid — we think this only serves to highlight the chasm between the “big” tech giants and the rest.
Spotify saw a loss of €302mn as it begins to unwind its big bet on podcasts. Revenue increased +11% to €3.2bn YoY. We prefer owning the source — UMG and WMG are better ways to get access to music and its royalty streams. LVMH saw operating profit rising 13% to €11.5bn, but saw a marked slowdown in the US, with revenues only growing 3% in the first half of the year versus +26% the year previous. EU sales grew +17% and Asia sales grew +24%. Continue to be buy rated on LVMH — it’s a diversified way to own luxury.
Chart of interest: the short-rate market is imply five rate cuts in 2024 and +12% earnings growth. How likely is this?
