[2023 Prediction] Amazon Alphabet Meta Historic Profits

It was the Super Bowl of quarterly tech earnings today, with March-quarter results from Google, Microsoft, Amazon and Meta Platforms. The tsunami of numbers, all released within a few minutes of each other, might overwhelm even a top AI model. But for a human, what was clear was that surging demand for AI computing capacity is lifting cloud revenue growth across the industry. One wet blanket, though: Much of the computing demand is likely coming from the biggest AI firms, like Anthropic and OpenAI, so perhaps we shouldn’t get too excited. As Amazon CEO Andy Jassy said, “It’s no secret that…the AI labs are spending an incredible amount of money on compute.” He added, though, that there’s also a fair bit of regular business demand for AI, which is of course vital if the AI revolution is to pay for itself. Meanwhile, the results also showed that AI technologies are boosting the ad businesses at ad giants Meta and Google. That’s the good news. The bad news is that the investment cost to deliver computing capacity continues to rise. Both Meta and Google lifted their already-hefty projections for capital expenditures for this year by a few billion dollars—Meta now projects as much as $145 billion, while Google projected up to $190 billion. And Google said its capex would grow substantially next year as well! Investors don’t appear too worried about Google, given that its cloud business rocketed 63% in the quarter, while search advertising growth accelerated to 19%. Even better, Google said its backlog of cloud business doubled in the quarter to $460 billion, providing some assurance that Google Cloud will continue growing at a red-hot pace. And some of that is thanks to sales of its TPU AI chips. Instead of Google just using TPUs in its own data centers, it’s starting to sell them to others. Shares of Google rose 7% in after-hours trading. Meta is a different story. Meta, of course, doesn’t have a cloud business to justify its massive spending, although CEO Mark Zuckerberg told analysts it was using its new Spark AI model to improve its ad businesses. Its ad revenue growth suggests AI is helping a lot. But investors didn’t seem convinced the steadily growing capex spending is warranted: The company’s stock dropped 6.6% after hours. Investors were more comfortable with Amazon, whose big Amazon Web Services cloud business lifted its revenue growth rate four percentage points to 28%, while its massive online shopping business also showed stronger growth. Unlike the executives of Meta and Google, Amazon’s Jassy said his capex projection wasn’t changing, although the company was already planning to spend more on capex this year—$200 billion—than the others. Like Google, Amazon also has a good story to tell about demand for its Trainium AI chips. Amazon shares were up more than 3% in after-hours trading. Microsoft Azure’s growth rose by one point, to 40%, which would be a red-hot growth rate in normal times, but that rate of improvement is less impressive compared to Google’s and Amazon’s. Both of those companies are cloud providers for Anthropic, so they’re likely benefiting from surging demand for Anthropic’s Claude. Microsoft late last year struck a deal with Anthropic, so it may soon be partying as hard as Google and AWS. Microsoft CEO Satya Nadella said the Microsoft 365 Copilot AI service now has 20 million subscribers, up from 15 million in the December quarter. That’s a positive sign for the company’s ability to expand its software business with AI. But 20 million is still a small portion of its 400 million 365 customers. Investors had a lukewarm reaction to Microsoft's results—the stock was down slightly in after-hours trading. The bottom line: Google and Amazon in particular appear to be making a lot of progress. The jury is still out on Microsoft. And Meta has a lot to prove. For more details on the earnings, see here (url3396.theinformation.co..), here (url3396.theinformation.co..), here (url3396.theinformation.co..) andhere (url3396.theinformation.co..).

Is it time for another activist investor to take a run at Microsoft? Shares of the iconic software giant are down nearly 16% so far this year, making it the worst performer of the big tech names. The Financial Times reported on Friday that British hedge fund TCI (same one @Jerome Cody cited in the OP) had sold “almost all” of its stake in Microsoft, citing uncertainty about how #Artificial Intelligence could undermine the company’s big Office productivity software business. TCI isn’t the only investor lately to mutter that Microsoft’s business is laboring under some dark clouds. And with SpaceX’s giant IPO just a few weeks away, there’s reason to believe investors will fund purchases of #SpaceX 🚀 stock by selling their shares in existing big tech names. That suggests pressure on Microsoft shares could worsen in the next couple of months. While there are real questions about how AI will affect enterprise software incumbents like Microsoft, some of this negativity seems overdone. Microsoft’s Azure cloud unit is growing at close to 40% annually which is impressive given its size. The overall company’s top line is expected to expand 17% in the year to June 30, according to S&P Global Market Intelligence. For a 51-year-old giant like Microsoft, that’s not bad. Moreover, it has made a bundle—as we outlined here today—on its $13 billion investment in OpenAI, and it will continue to benefit as the ChatGPT firm grows, thanks to its shareholding. Some on Wall Street think investors have got things wrong. UBS put out a report on Monday calling out Microsoft, as well as OpenAI and Nvidia, as “key enterprise AI winners.” The company has “enormous enterprise AI credibility and distribution,” UBS said. At the very least, you could say, Microsoft seems to have a marketing problem. But some might say the conglomerate nature of its business is also an issue, causing investors to undervalue the company. Not only is Microsoft a cloud and enterprise software giant, it’s big in gaming—remember the $75 billion purchase of Activision Blizzard in 2023, which added to its Xbox business—and it has a small internet search engine in Bing. It also owns professional social media site LinkedIn. Maybe it’s time for Microsoft to restructure, carving off some of the less core pieces. For example, chances are Microsoft’s shares aren’t reflecting much if any value for the gaming unit—so spinning it off as a separate company would allow investors to better value it. This seems the sort of thing an activist would seize on, calling for a streamlining of the business. You might say Microsoft is too big for an activist—its market capitalization is $3 trillion—but we’ve been here before. In early 2013, when Microsoft stock had been stagnant for more than a decade, ValueAct Capital took a stake in it. A few months later, Steve Ballmer announced his intention to step down as CEO, paving the way for Satya Nadella to take the reins and begin a transformation that lifted Microsoft’s market capitalization to new highs. Nadella doesn’t need to step down to change investor sentiment. But Microsoft needs to do something to change the narrative. ft.com/content/ac5d90a9-b..