What are your expectations when it comes to earnings for
both Alphabet and Microsoft?
Do you believe there's anything from the meta earnings that
we can see as a read into their earnings?
Well, it's definitely going to be a very interesting day
for earnings after Meta's
disappointing outlook. One of the things that we're watching and
it's going to be a little bit different from Microsoft
versus Google.
Microsoft, we've continued to see them power ahead with 30%
growth in Azure. So there the issue is,
can they continue this same momentum?
They've seen a big pull through from AI come through
in their cloud where they're continuing to build on the
AI stack of applications, you know the GitHub Copilot,
365 Copilot, more and more of those.
And last quarter we almost saw 6%
contribution from AI applications. So Microsoft it's more about can
they continue with these high comps
and you know they've guided to the spend that they've
been investing in AI and it's not going to be
the AI spend is going to be very linear increased
ramp up in CapEx spend.
But you know, the question is can the revenue keep
up with that.
So let's, if you don't mind me jumping in,
we had a guest here in Europe,
Cyrus May Wall, who's often a guest on Worldwide Exchange.
He basically said that to be a leader in AI,
you have to also be a leader when it comes
to the hyperscaler business.
Microsoft and and and Google are both expected to show
really strong growth when it comes to their cloud business.
In your mind, how important is that growth to the
narrative of these companies going forward?
Because we saw meta have,
you know, great results. EPS doubled,
more than doubled year over year,
but it was the guidance and the,
the investments in AI, our cloud results for Alphabet and
for Microsoft are there,
are they as important as they were before the growth
there?
Absolutely. They're extremely important. I think the difference is for
Microsoft AI as an enabler and for Google as well,
their cloud business here has a chance if their cloud
business can pick up growth and show growth from AI,
especially all the contributions they've made with their own GPU
here.
So definitely the cloud growth is extremely important here.
OK, let's talk about ad spending for a minute.
Not as sexy as the cloud or AI,
but Meta actually posted a miss when it came to
their ad revenue.
They were actually six, 6%
below estimates ad revenue. It's a big part of the
business for both Alphabet and it's a growing part of
the business for Microsoft.
Should investors be concerned about right now the the digital
ad spending market and the outlook,
it's a bigger issue for Google,
for Alphabet, you know, because this is their core franchise,
this is their core business.
So what happens, you know,
can they continue? They are comping a low comp from
last year,
so we're expecting 1213% growth in their ad spending in
their ad business.
Can we see that? That would at least give some
comfort to investors that their search business is not getting
completely disrupted by AI.
You know Meta also pointed to some slowdowns coming from
China.
So that's something to watch as well.
But we would expect Alphabet at least to keep pace
with what
Meta posted here as well.
One thing I want to bounce off of you,
so if you look since April 16th,
that's when Jay Powell said that rates are going to
stay higher as long as needed.
The Magnificent 7, they've actually underperformed the broader market.
There was kind of a thought,
I want to say it's a consensus,
but maybe it wasn't that these stocks
are a bit more immune to rate pressure than the
rest of the market,
but still we're seeing a deeper decline from them.
What do you make of that?
Well, they're both the tech stocks,
especially when we talk about Microsoft and Google have excellent
balance sheets,
right. So we're not really worried about interest costs rising
for these companies and pressuring their
profitability in any way. So that itself is not an
issue.
The issue is really on the multiple here.
I think Microsoft probably a little bit more
just based on the multiple that Microsoft Office trading at
35
times PE that's a little bit more on the
sensitivity from rates less so for Google.
Google is a Alphabet is a story related to what's
going on their own business and related to the disruption
in the search business.