What to know today

  • Good news from Big Tech… 
  • META gets hammered. 
  • It’s PCE Day.
markets

Alphabet Declares a Dividend

Microsoft also reports good numbers.

Alphabet $GOOGL is now a dividend stock.

And investors, traders, and speculators like it.

GOOGL surged more than 13 percent in after-hours trading Thursday following management’s release of first-quarter results, which included that announcement that the tech giant would commence a $0.20 per share quarterly payout.

Cloud revenue grew by 28 percent, as total revenue of $67.6 billion beat a consensus forecast of $66.1 billion. Earnings per share were $1.89 versus an estimate of $1.53.

Alphabet $GOOGL surged in after-hours trading on April 25 following management’s announcement that it would begin paying a dividend.

CFO Ruth Porat said during GOOGL’s earnings call that management is “really excited about the benefit from AI” for its cloud customers. Porat said Google Cloud’s results “reflect broad strength across the industry,” she added.

GOOGL’s capex budget for the first quarter was $12 billion. Porat said management expects to maintain capex at or above that level through the year.

Microsoft $MSFT posted its own set of expectations-beating first-quarter numbers, its shares rising by more than 4 percent in the post-market.

Fiscal third-quarter revenue grew by 17 percent to $61.9 billion, beating a consensus forecast of $60.9 billion. Earnings per share were $2.94 versus an estimate of $2.83.

CFO Amy Hood noted “healthy” growth across the Azure cloud computing platform, including non-AI and AI services. Hood noted that the latter dynamic “is important.” 

“While of course it’s still early in the long-term AI monetization opportunity,” Hood said, “we feel good about where we are.”

Capex for the quarter was $14 billion.

“We’re seeing the AI demand continue to grow,” Hood said, “and so we’ll continue to work to match that.”

deep dive

A Meta Problem

It’s about belief in Mark Zuckerberg.

When we talk about Meta Platforms $META “spending billions more” in its pursuit of AI dominance, it’s important to understand that the company was already spending tens of billions on this particular future technology.

That META was down as much as 19 percent during after-hours trading on Wednesday and shed another 10.56 percent during normal hours on Thursday suggests investors are unnerved by Mark Zuckerberg’s “spend to earn” approach here.

As Jack Denton of Barron’s put it, “The tech giant shocked investors with plans to spend even more aggressively on artificial intelligence.”

My question is, really?

“Shocked”?

Meta Platforms $META sold off hard after management said it would raise its capex budget to advance its AI goals.

META’s strength in 2024 certainly suggested people expected management to report stronger results. And revenue was up more than 27 percent year over year. Second-quarter guidance was softer than expected, but, again, if not quite rounding errors these are relatively insignificant figures.

Its year-to-date peak was on April 8, when it traded up to $531.49 but settled that day at $519.25.

META had been retreating from that high for two weeks heading into its earnings announcement, as people priced in their rate-cut-and-inflation disappointment. And those undercurrents resurfaced with authority on Thursday.

Sometimes selling takes on a life of its own, as people surrender their plans to the mania of the moment. Facebook and Instagram and WhatsApp are fine products that make many people happy, but what’s on offer is Mark Zuckerberg’s vision.

So, what changed about the META proposition, is my basic question.

deep dive |
April 26, 2024

A Meta Problem

MACROECONOMICS

Why the US Is No. 1

Incoming data remains complicated.

The Bureau of Economic Analysis said its advance estimate of US gross domestic product for the first quarter showed annualized growth of 1.6 percent.

It missed the consensus forecast of 2.5 percent, and it’s the first quarter below 2 percent after six straight above that rate. Fourth-quarter GDP growth was revised upward to 3.4 percent.

The BEA also said the "core" Personal Consumption Expenditures Price Index, which excludes food and energy, was up 3.7 percent in the first quarter versus a consensus estimate of 3.4 percent and a fourth-quarter reading of 2 percent.

We’ll see complete PCE Price Index data for March this morning at 8:30 a.m. ET.

Multiple economists pointed out that below-the-surface data suggest the economy remains healthy.

KPMG Chief Economist Diane Swonk noted that much of the slowdown could be attributed to a widening of the trade deficit. Swonk also cited a drop in federal spending and a further liquidation of inventories, both of which will reverse in the second quarter.

Consumer spending grew by 2.5 percent, with spending on services offsetting a decline in big-ticket spending on items like cars.

That behavior was supported by payroll employment that was rising 30 percent faster at the end of the first quarter than it was at the end of the fourth quarter.

Underlying demand remains solid.

And the US position relative to the rest of the world seems more than solid.

The US share of global gross domestic product is at its highest level in almost two decades.

As Greg Ip of The Wall Street Journal recently wrote, the US will account for 26.3 percent of global GDP this year, its highest share in almost two decades. That’s based on projections compiled by the International Monetary Fund.

“Despite trade wars, the pandemic, inflation and societal division,” wrote Greg Ip of The Wall Street Journal, “the US is gaining on its economic peers based on this admittedly simple metric.”

Ip identifies one major source of confidence and one major source of concern.

On the plus side, the US economy is structurally sound, innovating and reaping the rewards through increased productivity, with favorable terms of trade driven by rising energy output.

On the negative side, Ip notes that US growth is being supported by federal government spending and that deficits lead to higher interest rates and crowding out of investment.

Ip also notes the present danger of fiscal imbalances as well, the most obvious pressure from which is inflation. 

Economic theory holds that tight monetary policy plus loose fiscal policy will attract overseas capital and put upward pressure on the dollar, which is precisely what we’re seeing.

According to Ip, “That has often precipitated financial crises in emerging markets as exchange rates are devalued, governments default and banks fail.”

Emerging markets are less vulnerable than they’ve been in the past, but Ip warns of other potential outcomes, including protectionism.

“The US economy might still be king,” Ip concludes, “but the reign will not be harmonious.”

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