ππ‘ Big Tech Reports Mixed Earnings
Happy Sunday!
Tech earnings gave us a mixed bag on both extremes, with the words of the week being cloud computing and artificial intelligence. Big winners included Amazon and Microsoft; Alphabet was the big loser this week.
Lots of tech coverage this week!
Enjoy this weekβs Hump Days
- Humphrey, Tim & Rickie
Market Report
Alphabet Plummets Most Since 2020 After Cloud Earnings Shortfall
Alphabet saw its steepest decline since March 2020, after reporting lower-than-expected profits in its cloud computing segment, which stirred concerns regarding its standing in this crucial market for its future growth.
As the dominant search business of Google matures, investors are pivoting their expectations towards the cloud unit for sustained growth.
Operating income from the cloud unit was reported at $266 million, falling short of the anticipated $434 million.
This underperformance highlights a persistent lag behind market leaders Amazon and Microsoft in the cloud computing domain.
Despite Google Cloud turning profitable earlier this year and gaining traction among AI startups, the recent shortfall in expected profits signals a potential widening gap between Google and its competitors in the cloud market.
On a positive note, YouTube's revenue outperformed analyst expectations, indicating a recovery in digital advertising spending, which could provide a cushion against the underwhelming cloud business performance.
Amazon Strong Results Point Toward Boost for Cloud Business
Unlike Google, Amazon boosted investor optimism with robust sales and profit growth, particularly highlighting stabilizing momentum in Amazon Web Services (AWS), the cloud computing arm.
Despite the Q3 revenue of AWS slightly missing projections, the cloud unit exhibited a 12% sales increment to $23.1 billion, marking the first quarter-to-quarter rise in almost two years.
Jassy underscored new customer deals and a burgeoning demand for generative artificial intelligence (AI) as catalysts for AWS's future growth.
The division's operating income soared to $6.98 billion, significantly surpassing analyst expectations by about $1.3 billion. Jassy unveiled Amazon's ambitious strides in generative AI through a notable partnership with AI startup Anthropic, earmarking a hefty investment between $1.25 and $4 billion.
This move, alongside a stringent cost-cutting strategy, has been pivotal in enhancing profitability, with third-quarter revenue surging 13% to $143.1 billion and operating income rising to $11.2 billion, substantially outperforming analyst estimates.
The positive financial trajectory was mirrored in other segments like online stores, advertising, and logistics services, diversifying Amazon's revenue streams beyond its traditional e-commerce domain.
Amazon projected sales of $160 billion to $167 billion in the quarter ending in December.
Azure's Growth Fuels Microsoft's Strong Performance Amid AI Advancements
Microsoft reported robust sales in its recent quarter, driven by a resurgence in cloud-computing growth through Azure and a heightened demand for new AI products.
Microsoftβs revenue for the fiscal quarter ending on Sept. 30 grew by 13% to $56.5 billion, outperforming analysts' predictions, with Azure sales growing by 29%.
CEO Satya Nadella's strategic overhaul across Microsoft's product suite, integrating OpenAI technology, has notably appealed to corporate clients.
Microsoft's aggressive push into AI is seen in the upcoming release of Microsoft 365 Copilot, an AI assistant designed to enhance Office programs, reflecting the company's ongoing efforts to monetize AI advancements.
The substantial revenue from corporate cloud products, which rose 24% to $31.8 billion, alongside promising ventures like the integration of ChatGPT technology into Bing, showcases a broadening revenue source.
The quarter also saw the completion of the hefty $69 billion acquisition of Activision Blizzard Inc., hinting at Microsoft's expanded footprint in the gaming domain.
Rising Food Insecurity Amid Economic Discrepancies
The incidence of food insecurity in the US escalated significantly last year, reaching a level reminiscent of the aftermath of the financial crisis, despite certain positive economic indicators like a low unemployment rate.
According to the US Department of Agriculture, the proportion of households facing food insecurity rose to 12.8% from 10.2%, impacting households with children substantially as their rate spiked nearly five percentage points from the previous year to 17.3%.
The phasing out of pandemic-era aids like the child tax credit exacerbated the situation, although some alleviation was provided by increased SNAP benefits.
Americans Are Spending More While Saving Less
The recent uptick in consumer spending in the US, with personal expenditures rising by 0.7% in September, played a significant role in the strong 4.9% annualized Q3 GDP growth.
Growth in personal income lagged at 0.3%, causing real disposable personal income to dip by 0.1%, marking the fourth consecutive monthly decline.
The uptick in spending pulled the personal saving rate down to 3.4% from 4%, hinting at a potential economic risk in 2024 if this trend persists since consumers might be compelled to cut back on spending.
Furthermore, the PCE Price Index (inflation tracker) indicated steady year-over-year inflation at 3.4% but revealed a minor month-on-month increase in core PCE inflation to 0.3%, underscoring the fact that despite the strong spending-driven growth in summer, the path towards bringing down inflation remains uncertain.