Tech earnings in review: Yahoo Finance Reports

Some of the biggest names in tech including Microsoft (MSFT), Meta (META), and Advanced Micro Devices (AMD), reported earnings this past week. Yahoo Finance spoke with industry experts to analyze the tech market's ups and downs.

(00:00:17) Luke Stone, Winthrop Capital Management Portfolio Manager, speaking on the "Magnificent Seven" stocks said, "The Magnificent 7 stocks... [are] getting ahead of their skis on valuation."

(00:05:08) Brent Bracelin, Piper Sandler Equity Research Analyst, when discussing Microsoft's (MSFT) earnings results, explained that "there was some macro weakness... that pressured the pace of consumption."

(00:12:43) Josh Beck, Raymond James Managing Director, spoke on Meta's (META) results stating, "I think more of this disciplined investment philosophy is really a positive takeaway."

(00:19:49) Yahoo Finance's Dan Howley notes that investors are asking Microsoft (MSFT), "when are you going to start making some money on all of this investment that you've been doing on this AI infrastructure?"

For more expert insight and the latest market action, click here.

This post was written by Neil Mulcahy.

Video transcript

Some of the biggest names in tech from Microsoft to Meta and Apple reported earnings.

We take a deeper dive into the results and get expert analysis plus a look at the implications for the broader market, taking a look at Microsoft's results after the bell on Tuesday.

Adding to the so called no good, very bad month for big Tech and A G. It's the ETF that tracks the magnificent seven has been under pressure down over 3% in the month of July.

The fall way on the tech heavy NASDAQ which is on track for its worst, worst month of 2024.

So far here with more on the sector and recent earnings we got Look Stone Winthrop Capital Management, portfolio manager, Luke, it's great to have you on here.

So I want to start on Microsoft.

I know this is a stock that you hold.

It looks like there was deceleration and cloud growth off of the earnings print.

But then you listen to the call, right?

Because they really stressed this idea that there was going to be recovery in the second half of 2025.

Have you done anything with your Microsoft holdings in the last 24 hours and did that commentary on the earnings called change your long term thinking on the stock.

Yeah.

Thank you for having me.

Um I, I think first and foremost, we, we don't wanna just make an impulse decision or a snap decision based off uh one print and, and like you said, you have to wait for the call, um, and, and wait for, uh to see how the broad based market moves.

I mean, look, you, you saw Microsoft fall 4% post earnings or 3% right now and the S and P is rallying up almost a point and a half.

Um I, I think what we're starting to see is this rotation narrative move through the market where the magni magnificent seven stocks, Microsoft being one of them.

Um It is starting to uh you know, get ahead of their skis on valuation and those growth prospect prospects are, are getting very hard to hit.

So as you start to look to the broader market, uh we might start to, to look to trim the position and, and start to look elsewhere.

Uh Call it the remaining 49 493 of the S and P 500.

Luke, what would prompt you to do that?

I I, is it the results that we got last night or are you looking for a further deterioration maybe in the slowing of that growth pressure?

Yeah, I think we, we look for continued deterioration and continued deceleration.

Um You know, I think you, you start to see this narrative where investors are growing a little bit impatient that, you know, we we're taking the can down the road, right?

You know, there's, there's this giant Capex that uh Microsoft has been posting with this Azure line.

Um starting to try to say that this A I as a service is really gonna hit the ground running in the second half of 2025.

Well, I mean, that's almost a year from now, right?

So uh are, are, are we expected to sit and hold for the next 12 months and, and expect stagnation or do we pivot out and uh move to other names?

I'm curious to talk a little bit more about that because we know for example, that for every $9 spent on A I cap back from the hyper scaler, they only earning one additional dollar loop, but that's a stat that's been true for a while.

Now, why is this suddenly an issue for markets this this Capex piece?

What do you think was the catalyst for making this become a red flag to investors?

Well, I think you have to look a little bit toward the macro side of, of things.

You know, I think you're starting to see some cracks in the global macro landscape.

Uh You're seeing employment start to uh take some uh hit right now and and growth is starting to uh decelerate or, or, or, or at least there's concerns that you'll, you'll see deceleration and growth.

So, um you know, all of this Capex is great today, but if you don't have a customer base to uh you know, execute on in a year from now, or if that customer base, you know, declines from worsening economic scenarios, you're gonna run into issues uh down the road.

So I, I think that's the concern of, you know, that they're starting to build this uh this giant landscape.

Uh for nothing.

Luke, let's talk about NVIDIA.

It's a top trending ticket here at Yahoo Finance today.

We've seen this resurgence in many of the tech names that's on the back of a lot of these larger chip makers moving to the upside when you're looking at gains like you're seeing today in NVIDIA, you've got Morgan Stanley coming out naming it a top pick within the chip space saying that maybe the sell off that we had seen is a bit overdone.

Are you viewing NVIDIA at these current levels?

Is it a buying opportunity?

Yeah, I, I, when, when you look at the video right now, I mean, I think you also have to look at how A MD performed last night.

I mean, it, it, you know, knocked it out of the park and, and you're seeing a great performance there as well.

Um You know, I think you're starting to see this delineation between, you know, the, the the manufacturers or the the hardware, um these chips are killing it.

Um And as the users of the chips have to invest more and more into the product.

Um they're really struggling.

So, yes, II I do think that uh although you know, the stock has run up as well, I do think it's a good buying opportunity given the the prospects of of the broad market, Microsoft shares falling after missing on cloud revenue expectations in the fiscal fourth quarter for the company.

This and the move this morning bringing to light the impact of Wall Street's lofty expectations for A I for more on the results.

Let's bring in Brent Bracy who is the Piper Sandler Equity research analyst for cloud software and Analytics.

Brent.

Great to see you first and foremost here this morning.

You know, as I was taking a look at some of the results from the quarter and really listening to the tenor of the call and what the company was focusing in on here.

There were a few things that they wanted to really continue to put front and center and it's really about the Azure A I customers.

They're up nearly 60% year over year average spend per customer continuing to grow.

Wall Street doesn't seem too impressed though here.

Yeah, I mean, listen on the surface you're talking about the primary growth engine for Microsoft, their Azure business.

This is an $80 billion run rate, um gross load there.

Uh the same quarter that spending on cloud infrastructure and A I infrastructure searched from 14 billion to 19 billion.

Uh And, and so that's a little bit of a confusing thing for investors, right?

We are aggressively investing in cloud and A I but your as your business grows slow, I think if you peel the onion, what you'll see here is that there was some macro weakness in Europe specifically that pressured like the piece of consumption of those Azure services.

And we're talking about gross flowing from a guidance growth rate of 30 to 31% to just 30%.

The low end of their guided rate.

It is a downtick from last quarter.

Uh But again, what gives us confidence as we think about this Azure slowdown being temporary, they actually close a record number of large Azure deals when we say large $10 million deals, $100 million deals.

These are big commitments, large enterprises plan need to spend more on Azure.

Uh and with Microsoft, but the consumption isn't quite um as fast as they expected it will come.

Uh But there's clearly a disconnect between big customers signing commitments.

Uh and then how that consumption pattern is trending, which again is tied a little bit to the background Brent.

When do you expect to see that re aeration of growth?

You know what Microsoft specifically said is they feel like uh growth could be in this high 20% range uh for the for the first half of their fiscal year, which is essentially September December quarters and then actually start to re accelerate in the uh March and June quarters of next year.

So we're talking about a bit of a pause on consumption macro driven here for six months.

Uh but they have line of sight to uh a re acceleration and that a uh Azure Business uh early next year.

And so all these things considered, how much should investors continue to watch Microsoft spend and, and for the Capex that has really come into focus for the broader industry.

Uh and those who are best positioned with an A I, what is kind of the, the barometer for how much they should be spending versus, you know, where it starts to become a little bit of a head scratcher because we're not going to see that immediate return.

Perhaps the RO I on that, that investment is the, the big debate uh in the marketplace right now and has been, I'd say a, a debate for the last three months.

I think it's important to take a step back.

Look at the bigger picture here and the bigger picture is it took about 13 years for Microsoft to build a new $100 billion cloud business over that 13 year period.

Um They invested about 100 and 79 billion in Capex.

We're talking now Microsoft adding the next $100 billion in three years.

So you're gonna compress 13 years of Capex spend in three years to add the next $100 billion.

Um Microsoft's gen still generating north of 40% operating margins on that 100 billion, the next 100 billion.

So we'll generate plenty of cash flow to help uh uh justify those investments.

It's just in a very compressed period of time.

And so we're yes, we're in this elevated uh spending environment.

Micro soft understands how to manage cloud cap expenses.

They've been doing this for more than a decade.

Um It just happens to be compressed in a very short period of time.

Uh It is a debate but I would also tell you that half, about half of the, the Capex spend that Microsoft is investing in is in long life assets that will be generating cloud services and A I services for well, more than 15 years, we're talking real estate power contracts, data center shells.

So yes, the company has to invest in those things to drive the next $100 billion of revenue for the company.

I think as an investor, we want that to happen.

Um $100 billion creates lots of opportunities uh for, for, for incremental profit growth.

Uh But they have to buy the data centers, they have to have the land to do it and they're doing that internationally.

From uh first I, I guess just the, the streets read on this quarter, we're looking at losses here.

Not, not too big of a drop here, just around 1.5% of the free market.

Is that the right read?

Because it seems like there is a lot to like just from your commentary here within this report, listen, the, the stocks up 25% in the last 12 months.

Um based on optimism and this acceleration in A I and, and cloud acceleration and it was a little bit of a downtick.

So I get why expectations have been reset a little bit.

But again, as you think about the bigger picture here, we would be buyers on the pull back.

Um Yes.

Is there temporary uh slow down?

I think it is temporary and I think you're gonna see based on the the activity, the success uh a much stronger uh acceleration here going into the early part of next year.

So um yeah, we see the pullback as an opportunity to uh to buy what we think is the, the best position cloud player and the best position A I company that uh is actually generating in criminal revenue from A I today, Brett real quick while we have you, there's still lots of talk just about the fall out here from the crowd strike outage.

Clearly, it was a uh issue a bug on crowd strikes side of things.

But Microsoft caught up Bennett, there's been lots of questions about how this is going to be or how this has been perceived by investors by customers.

I'm curious how you're looking at that potential backlash for Microsoft maybe.

Listen, I I'm certainly not a lawyer or not gonna wait in the deep waters of here, of, of, of liability, but I think there is some uh blog post that Microsoft has, has, has um responded to and in some cases, uh there are some legal um uh regulatory pressures that uh limit Microsoft from trying to provide more protection.

Uh So this is a very complicated issue.

I think it's not gonna be resolved anytime soon.

Uh But uh clearly it involves regulators.

It's gonna involve lawyers.

It's gonna involve a lot of uh a lot of things at the end of the day.

Um There needs to be changes to make uh uh cloud more resilient and mores.

Let's talk a little bit more about meta because shares moving higher after its second quarter revenue rose 22% from a year ago.

The tech giant also continuing to tout its A I investments saying that it expects quote significant growth in Capex in 2025.

CEO Mark Zuckerberg commented on why tech stocks are focusing so much on A I on the earnings calls.

They are all the jokes about how all the, the tech CEO S get on these earnings calls and just talk about A I the whole time.

It's because it's actually super exciting and it's going to change all these different things over multiple time horizons.

Josh Beck, he joins us now.

He's a managing director at Raymond James.

Josh, it's great to see you here.

So, obviously the street very excited by what they heard from Zuckerberg last night.

What they saw in this latest uh earnings print.

What was your biggest takeaway from this and what this signals about meta's placement here within the A I trade?

Yeah.

Well, well, well, thank you so much.

Uh you know, for having me on a big change uh from 90 days ago, remember uh Meta actually traded off there.

I think a lot of concerns on the amount of spend particularly Capex dollars and their ability to monetize uh that Capex this quarter much more positive nar narrative.

Um I think they were very prescriptive, know about this idea of Fung Il, not probably exactly something you expect to hear on uh every tech earnings, but it's basically the idea that they're buying a lot of GP us from NVIDIA, which you mentioned earlier, but they have a lot of different use cases lined up.

So I think more of this kind of disciplined uh investment philosophy was really a positive takeaway.

And on top of it, the core ads business is just doing really well.

Uh It's growing in the low twenties percentage and it shows you that already in their core business, they're benefiting from A I.

So it was really uh uh quite a change from 90 days ago and certainly uh viewed positively by, by investors.

Do, do you think consumers are fully grasping and users of these services are fully grasping the use cases for A I?

And how much more do you think meta can extract from those A I use cases that really contributes through to the average revenue that they're seeing per user?

Yeah, I, I think, I think there's a lot of consumer interest there, there's a couple of different um layers there.

I think at the moment what you're seeing is product like reels.

Um and the recommendation engine behind that is just is is driving users to spend more time on the platform, which obviously creates a bigger advertising service.

So that, that's definitely uh in play, the newer element uh is certainly meta A I.

So this is a chatbot.

Uh They're using Instagram and Facebook to distribute it.

They also have a stand alone product, but there's starting to be kind of a new conversation on meta that you would have never really considered before.

So, hey, meta.

Can you help me plan this trip with my friends?

Not something you really would have ever um considered uh on your time on Instagram or Facebook, but it, it is completely net new.

So it's, it's driving more time.

Um It, it's helping their users kind of find a new use case on meta and uh you know, they're ambitious, they want to be one of the leaders there.

And uh you know, certainly they're tracking really well.

So I think the early consumer feedback is very good and I would also just make this other point.

Uh It's not just consumer.

Uh So one of the areas we're really constructive on is enterprise.

This has been a market that's not really been the focus for meta really at all.

But now with their new set of language models, Lama, uh they're opening a new door into enterprise budgets and we're really constructive there.

I think investors probably don't quite give them credit for it at the moment.

But that's another kind of multi year driver that it's a little bit underappreciated about the story, Josh, but when we talk about the balancing act here between investment and then the want and need at least from the streets perspective, from analysts perspective for that immediate impact to their bottom line to their financials.

Are, are, are they doing a good job balancing that because it is something that has proven to be challenging to meta in the past.

And it's also proving to be an issue and challenging here for some of its uh larger cap uh tech uh tech peers as well.

Yeah, look you, you're spot on th this is probably the biggest challenge uh facing the the tech industry and particularly the large platforms is they see a uh a multi year opportunity that's completely changing.

Um the tech stack from the way the consumer behaves to the way the enterprise apps are built.

So it's a massive change and these companies have to have to walk a pretty tight rope.

And I think what investors are holding them to is OK. You can take your cap X up, you can invest, but you need to be pretty prescriptive about where you see the monetization um in your business.

You don't necessarily have to give um investors a number in terms of gen A I revenue every quarter.

But you have to give them a pretty strong sense of where you see the returns and how you're managing that capital.

So for example, if something doesn't pan out, um you can shift those resources elsewhere and still get a good return.

And, and that was one of the real messages um from meta last night that I think was most positive.

I think, you know, some of the other tech companies have a little work to do to, to spell out their monition story and how they're thinking about um investment.

But yeah, for meta, I think today and, and kind of into the next year, they're in a really good spot just lastly, Josh, while we have you for investors this morning trying to kind of wade through the digital advertising thesis or theme within their own portfolio is meta.

The best game in town when it comes to digital advertising.

Uh certainly it's a strong buy uh for us.

Uh the digital ad market I think is, is quite healthy right now.

Uh That was certainly a investor concern coming in.

There were certainly some signs of, of weakness and certain verticals like food and beverage.

But overall retail uh ended up very strong, that's probably the most important vertical.

Um So, yes, you know, I think meta is a really good uh investment because not only are they gaining share in the digital ad market, but they have these other emerging uh opportunities in enterprise, we also like Amazon, we think they're doing really well in the advertising space and also benefiting uh from ja I on the enterprise side with Aws.

So those are some of our uh preferred plays.

Reddit is another one that we like that we think is doing really well.

Let's start with the, the Microsoft side.

They had better than expected uh earnings and revenue for the quarter.

Uh but the cloud, the intelligent cloud missed slightly and nestled in the intelligent cloud is the Azure revenue for Microsoft for every quarter.

Now, that's a big deal because everybody looks at Azure revenue.

They don't, by the way, break out Azure on itself, they put it in this kind of Azure and services, but I digress uh what they missed there uh was an opportunity to really blow away Wall Street.

And clearly the question that was on everyone's mind, at least on the earnings call was when are you gonna start making some money on all of this uh investment that you've been doing in A I infrastructure and the long and short of it was uh Amy Hood basically saying CFO look, this is for the next 15 plus years that we're pouring this money and it didn't really soothe any kind of nerves uh with Microsoft.

So you saw them drop about 7% immediately following the report.

Then throughout the day today, it was around 1%.

They were off on the flip side.

We had a MD uh which did extremely well uh beat on the top and bottom line, also beat on their data center revenue.

That's where they sell the CP US and GP U the power uh A I servers.

They also said that they expect to see uh better than expect revenue from the data center in the coming quarter.

People jumped all over that.

Uh We saw uh shares jump immediately after the report and then throughout the day today.

And oh, by the way, that also helped that little NVIDIA rally that we saw today, uh kind of a knock on effect.

People are likely figuring well if NVIDIA D A MD did well, the NVIDIA must have done great.

One of the other things worth pointing out is that Microsoft made sure to let people know that they're going to continue to spend on going forward again.

That's the, the big question, where's the money gonna come from?

But that in and of itself, that statement could have also helped a MD because AM D's chips are what helped power or at least partially AM D's chips are what helped Power Microsoft's Azure and A I capabilities.

So it's kind of, you know, this one side doing so well because the other side is spending so much.

Meanwhile, the side that's spending so much is getting smacked around because people are saying when are you gonna start making money on all this?

And then there's meta.

Yeah.

So which is so interesting, right?

Because it's also spending money on this.

But maybe as we heard from Rohit Kulkarni a little earlier, maybe they've communicated better with what they're getting out of it.

Yeah, I, I think, you know what's interesting with Meta is they have open source A I, so they can still license that right?

Uh out to, to enterprises uh make money on that.

They want a large spread adoption of it because then more people are building on their capabilities.

Uh As far as the the spending goes, you know, we just saw them say now, right?

This is Q two of 24.

They're saying that they expect to see significant capital expenditure growth in 2025.

So they really are telegraphing this way in advance and obviously, you know, kind of what you're alluding to is there getting people ready to, you know, say, look, we are going to be spending, we're spending.

Now, I think they said uh between 94 and 90 sorry, 96 and 99 billion uh of expenses this year.

Uh They told uh uh investors that last quarter that remains unchanged.

So they'll go from 96 to 99 in there.

That's what they're gonna spend uh while they build out.

But then, you know, significant.

What does that mean beyond $99 billion?

Right.

So, I mean, I think for, for Meta, it really is like you said, they're, they're messaging it, they're massaging it a little more and investors may, may like that.

I think also one of the things is, you know, meta is obviously a massive company.

They're building A I into everything, right?

They, they want to offer it as uh a product for everyone Microsoft.

However, it has to run the cloud, it has to uh build these models, it has to offer these models, uh a litany of them, they're also powering uh open A I with Azure.

So you gotta wonder how much more they're gonna spend than, than me in the long run.