Microsoft Disappoints a Little
The numbers weren’t all that bad.
The Federal Open Market Committee’s interest rate decision will drop at 2:00 p.m. ET today. Federal Reserve Chair Jerome Powell will follow up with a press conference at 2:30 p.m.There’s no shortage of commentary from outside observers on what the Fed will do next and when it will happen.
According to Nick Timiraos of The Wall Street Journal, “Officials are expected to revise their postmeeting statement in ways that hint that a rate cut in September is more likely than not.”
The question is “how strongly officials signal their desire to cut rates.” And that’s going to be a function of their concern about the condition of the labor market.
As much as monetary policy has captured the market’s imagination this year, price action this week reflects earnings, including recent results and future guidance.
Investors, traders, and speculators alike want to see some return on Big Tech’s investment in artificial intelligence, and they want to see it now, whether or not that’s rational.
So Microsoft’s $MSFT fiscal fourth-quarter report carried a little more weight than usual on Tuesday afternoon.
That the second-biggest publicly traded company in the world by market capitalization reported slowing sales growth for its most widely watched operating unit right now will be another anchor for Big Tech and The Magnificent Seven.
Microsoft said revenue for its Azure cloud computing business was up 29 percent year over year compared to 31 percent for its fiscal third quarter.
There was a bright spot: Eight percentage points of the increase was attributable to AI, management said, up from seven percentage points during the previous period.
Earnings per share were up 10 percent to $2.95, exceeding a consensus estimate of $2.94. Total sales were up 15 percent to $64.7 billion, exceeding a consensus estimate of $64.4 billion.
CEO Satya Nadella said during management’s conference call that customer use of Microsoft's AI offerings is soaring.
AI is now as fundamental to the business as the cloud was, Nadella said, noting that Microsoft now has more than 50,000 customers for AzureAI and that average spend per customer is growing.
Use of the AI product as a service more than doubled from March to June, and its intelligent data platform business grew by 20 percent sequentially.
Sadella also said use of the Copilot AI assistant has grown 180 percent year over year and drove more than 40 percent of Github’s growth. Copilot use with Office 365 products grew 60 percent quarter over quarter.
Still, MSFT was down nearly 4 percent in after-hours trading. Investors, traders, and speculators wanted to see bigger beats and better AI returns.
The sense of “there’s something happening here, what it is ain’t exactly clear” is reflected in the continuing rise of the CBOE Volatility Index $VIX.
The VIX spiked as much as 10.36 percent to 18.32 from its Monday close of 16.60 before settling up 6.57 percent at 17.69 on Tuesday and has finally come off a historically low-for-long base in the low teens.
Fear not, folks, because market internals continue to suggest an expanding bull market. More and more stocks are participating in the upside and making new highs.
As David Baskin noted in a recent StockPick Interview, Big Tech and The Magnificent Seven are experiencing the unwind of overenthusiasm accrued during the first half of the year.
That’s OK. In fact it’s entirely normal, even healthy, market behavior. We’ll see a readjustment of expectations. Then we’ll see a resumption of the long-term trend.
And that’s higher.
