To The Moon

$Microsoft(MSFT)$ has announced its quarterly earnings (Q4 2023) on Tue, 25 Jul 2023 after market closed. Incidentally, it was the same day that $Alphabet(GOOG)$ released their Q2 2023 earnings as well; also after market closed. As a result, it was inevitable that analysts put these 2 Mega cap companies’ results side-by-side and performed apple-to-apple comparisons: especially in overlapping areas of businesses. Namely - (a) clouding computing and (b) artificial intelligence; the “hype” that got Nasdaq all hot & sizzling again. More about this later. Microsoft Q4 2023 earnings in details: Revenue: $56.19 billion, vs. $55.47 billion as expected by Refinitiv. Operating Income: $24.25 billion; that’s a +18.12% gain YoY. Earnings: $2.69 per share, vs. $2.55 per share as expected by Refinitiv. Net Income: $20.10 billion; that’s +20% gain YoY (see below). At plain sight, this looks like a “stellar” report card. However, market is experienced to sniff out the “warning” signs. Post quarterly results & press conference, they are letting management know explicitly, resulting in stock price dipping for the past 2 days (actuals) - Wed & Thu. Details on what has happened, leading to decline in stock price. What Caused Microsoft To Dip? (1) Azure’s Growth. Of the Top 3 Global Cloud service provider, Microsoft’s Azure ranks #2, trailing leader, $Amazon.com(AMZN)$ and ahead Google as of Q1 2023 (see above). It provides artificial intelligence capabilities and exceptional hybrid cloud experience to users. Companies with expensive facilities and large data centers can greatly be benefitted from the services of Microsoft Azure. It provides an intimate service, helping customers to design, deploy and manage applications over a worldwide network. Azure made up >50% of Microsoft's $110 Billion cloud revenue. Its recent Cloud quarterly revenue of $30.3 billion was up +21% YoY. However, it came in lower than analysts' expectations, according to a CNBC survey. Azure’s revenue growth has slowed to 26% from 27% in previous quarter. This did not sit well with investors who expected higher growth from Microsoft’s cloud segment. What Made It Worse For Azure. Google Cloud (GC) had a scintillating performance for Q2 2023. Its revenue came in at US$ 8 Billion; that is a +28% growth YoY. It also netted a profit of $395 Million. For the 2nd consecutive quarter, GC continues to register a profit proving it’s no fluke. Does this imply Google has begun nibbling into Azure’s pie? (2) Personal Computing Segment Microsoft’s More Personal Computing segment consists of the followings: Windows devices. Gaming. Search advertising. For Q4 2023, it posted a revenue of $13.91 Billion; topping Streetaccount consensus of $13.58 Billion. By all accounts this should be “good” news except that revenue actually dipped by -4% YoY; in part due to “unrealistic” induced demand for PCs during the Covid era. Do you think Wall Street cares for the reasons behind the decline? They do not. (3) Failed Marriage - Microsoft & $Activision Blizzard(ATVI)$. The “marriage” deal announced in January 2023, took the world by storm. Upon successful acquisition, Microsoft will become the 3rd largest gaming company in the world by revenue, after (a) Tencent and (b) Sony. Unfortunately, it has not been smooth sailing with the deal facing regulatory scrutiny from the Federal Trade Commission (FTC), investigating Activision Blizzard for (i) alleged antitrust violations and (ii) workplace misconduct. Outside of the US, this deal also faced anti-trust scrutiny from the EU, South Korea, China and the UK. It looks unlikely that the deal could be sealed by end 2023. Looking at the latest development (see below), it is still very much a work-in-progress. (4) Artificial Intelligence Profits. After the much ado about nothing hype on “artificial intelligence” with punters already liquidated their positions and made off with their big-fat profits, reality began to seep in. Investors are looking for directions on when Microsoft would be able to commence milking its AI-cash cow. Analysts “spooked” by what was mentioned during post “earnings” conference? CFO Amy Hood has said “… as Microsoft invests to meet rising demand for AI services, the company should see the impact of higher revenue in the second half of the 2024 fiscal year rather than the first half. CFO Amy Hood further mentioned ““… even with strong demand & a leadership position, growth will be gradual, from our AI services as Azure AI scales and our Copilots reach general availability dates. What is “interesting” though is, there is no mention of when “Copilot assistant for Microsoft 365” productivity applications will be available to paying customers. The stage & mindset has been set - do not expect profits to be forthcoming; at least not by H1 2024, period! Do you reckon that it has something to do with the White House AI-Deal (see below)? My Personal View: Now that AI-related revenue will not gushing into Microsoft’s coffer until H2 2023, investors are feeling “devastated”. Veterans may take profit and re-group for a re-purchase when the price is right. Without further news, its stock price would be influenced by market sentiments. Especially today when the Fed’s go to Personal Consumption Expenditure (PCE) data will be released. When barriers preventing Activision Blizzard acquisition are overcome, Microsoft stock price will soar. When Microsoft is able to monetize its Copilot product, it will experience a price renaissance. Will it be H2 2024 or earlier? Do you think Microsoft stock price will rise or fall in the near term? Do you think Microsoft will have more good news to announce soon? Please give a “LIKe”, “Share” & “Re-post” ok. Thanks. Rating is very important (to me). Would you consider “Follow me” and get firsthand read of my daily new posts? 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