To The Moon

$Microsoft(MSFT)$$Alphabet(GOOG)$

US equities were dragged by disappointment from tech-giants due to worse than expected results and guidance as the slowdown in the economy is beginning to reflect in the cyclical advertising and consumer spend. $S&P 500(.SPX)$ fell -0.7% and $NASDAQ(.IXIC)$ corrected by -2% respectively.

UK’s Rishi Sunak, was appointed as the new prime minister, on 25 Oct. This was the much-needed leadership refresh the market required, sending some calm back to 10-year UK bond yields which decline to 3.6% from the peak of 4.5%.

Crude oil rose to above $88 as US exports rose on higher refinery levels and as the dollar weakened. The last tranche of oil reserve of 15 million barrels will be released from the emergency reserves by the Biden government to ease price pressures and it may consider extending further release of the emergency stockpile which stands at only 405 million barrels.

$Alphabet(GOOG)$ results were below expectation on disappointing revenue growth that was up merely 6.1% as advertising spend slows amid rising competition. TikTok, its rival in the social media space is beginning to threaten Youtube’s growth with revenue falling by -1.9% for the first time since it reported the segment. Advertising spend is clearly slowing as companies tighten their wallets with a slower economic landscape, this was also evident in the weak results of other competitors like $Snap Inc(SNAP)$ and $Meta Platforms, Inc.(META)$ . The only bright spot in the earnings was Google cloud which saw a 37.6% growth for the segment which still trails in scale of Amazon and Microsoft.

Operating profit growth is expected to be challenging this year given the economic headwinds even as the company cuts on hiring. That said, Alphabet has one of the strongest net cash positions amongst technology peers with over $112 billion dollars or 9% of its market capitalization. Valuation is trading at one standard deviation below mean at 18.9x/16.8x FY22/23 consensus price to earnings.

$Microsoft(MSFT)$ provided disappointing sales growth outlook amid slowing personal computing, advertising Azure cloud segment and the strength in the dollar. Shares of Microsoft fell by 7.7% intraday following the forecast. Microsoft margins faced pressures due to higher energy costs affecting Azure leading to a 1% cut in margins for the full year.

Despite the challenging conditions, this may not signify a structural change to the long-term trends. Microsoft’s guidance for revenue and operating profit for FY23 is expected to still maintain double digit growth. Demand for Azure while slowing qoq and recorded a miss in 1Q23 of 1ppts in growth, still grew 42% yoy. Within the Product and Business Processes segment, commercial bookings momentum also appears to be resilient with 16% yoy growth. Microsoft valuations is trading at one standard deviation below mean at 23.4x/20.1x FY23/24 consensus price to earnings.