TOP STORY
😰 Big Tech Divided After Earnings Week With Big Swings of +/- 5%

📊 It was a fascinating Big Tech earnings season this week, with 5 of the biggest tech stocks (Microsoft, Google, Apple, Meta, and Amazon) reporting their quarterly results.

🤑 All these companies have been making MASSIVE investments into AI infrastructure, with CapEx across the 5 giants more than doubling from ~$80B in 2019 to over $200B expected this year, and the big question on everyone’s minds is, are those investments paying off?

🚀 While across the board, these companies reported strong earnings, with all of them beating profit expectations, the market reactions varied widely:

• 🛍️ Amazon: +4.4% this week

• 🔍 Alphabet: +1.6% this week

• 💬 Meta: -2.6% this week

• 🍎 Apple: -4.5% this week

• 🧑‍💻 Microsoft: -5% this week

And while we won’t dive into them as much, many other popular stocks on Blossom also reported earnings, so make sure you check out some of the great posts and discussions about these company’s earnings in the community:

• 💳 Visa: +3% this week

• ☕️ Starbucks: +1.3% this week

• 🛢️ Enbridge: -0.9% this week

• 🍔 McDonalds: -1.2% this week

• 🏦 SoFi: -1.3% this week

• 🚗 Uber: -5.6% this week

• 💊 Eli Lilly: -8.4% this week

🤿 So, without further ado, let’s dive into the earnings reports and see what they tell us about the biggest picture of the markets and whether AI is living up to the hype and promise implied by the market’s soaring valuations…

😭 Microsoft stock drops 5%, the worst in 2 years, despite record earnings

📉 Starting us off, the biggest loser of the week was Microsoft, who, despite record earnings and incredibly strong growth in its Azure cloud division, saw a 5% drop in its stock price.

Here are the highlights:

• 💰 Revenue soared to $66B, up 16% from last year and beating analyst expectations by 1.6%

• 🤑 Profits also soared to $25B, up 11% from last year and beating analyst expectations by 6.3%

• ☁️ Azure Cloud Revenue led the charge, up 33%, benefiting from the surge in AI

• 🤯 Nearly 70% of Fortune 500 companies now use Microsoft 365 Copilot

• 🧑‍💻 GitHub Copilot (the most popular AI tool for developers) increased its enterprise customers by 55% this quarter

• 💸 Capital expenditures into AI have hit all-time highs, soaring to over $20B this quarter, up 79% on the year and 203% over two years.

🤔 So why the drop? It’s all in the forecast…

🔮 While this quarter’s results were excellent, as you’ll know if you’re a long-time reader of the Buzz, one of the most important metrics is what the company is forecasting for NEXT quarter.

🐢 Unfortunately for Microsoft, executives forecasted only a +31% increase in Azure’s cloud business, a slight slowdown from the +33% this quarter, which was already a deceleration from the 35% growth in the previous quarter.

💸 While that may seem like a small decrease, it comes with the backdrop of Microsoft pouring billions into AI investments - with Microsoft recently overtaking Meta (and Alphabet) to be the most aggressive investor in AI and data centers.

🚩 As a result, investors expect perfection, and even this slight slowdown is a red flag as it signals that investments might not be paying off as much as Microsoft had hoped.

👀 But while investors were disappointed by Microsoft’s AI results, Google and Amazon’s earnings told a much different story…

🤿 But before we dive into Google, Meta, Amazon, and Apple, a quick word from this week’s sponsor Guardian Capital!

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BIG TECH EARNINGS CONTINUED
🤯 Amazon Soars 5% After Smashing Profit Expectations by 62%

🤩 While Google was hurting, Amazon was flying high after an incredible earnings surprise and strong forecasts. Here’s the breakdown:

• 💰 Revenue jumped to $159B, up 11% from last year and marginally beating analyst expectations by 1%

• 🤑 Profits rocketed to $15B, up 55% from last year and smashing analyst expectations by 62%

• ☁️ Like Microsoft, the biggest driver was Amazon’s Web Services division, which jumped 19% driven by the AI wave

• 💸 Capital expenditure reached a record $22.6 billion, up 81% increase from last year, as AI investments continue to ramp up

• 🎯 Despite this, Amazon's operating margin came in at 11%, well above Wall Street's expectations of 9.34%, as Amazon was able to drive efficiencies across e-commerce and advertising to help grow margins while it spends on AI.

Overall, Amazon’s results added more fuel to the fire for executives arguing for the need to spend, spend, spend, on AI:

🚀 Google up 2%, Sundar says AI investments are ‘paying off’

📈 And Amazon wasn’t the only one the market rewarded for their AI spending. Google also saw a 2% stock boost this week, with the following highlights:

• 💰 Revenue jumped to $88B, up 15% from last year and beating analyst expectations by 2.3%

• 🤑 Profits rocketed to $26B, up 34% from last year and smashing analyst expectations by 14.6%

• ☁️ Like Microsoft, Google’s Cloud Revenues led the charge, soaring 35%, although this revenue segment still makes up only 13% of revenues compared to over 36% for Microsoft

• 🔍 Google also used AI to improve its core search ads business, reporting a 12% increase in revenue, attributing this to the integration of generative AI technologies (like AI Overviews in search results)

• 🧑‍💻 CEO Pichai boasted that ¼ of Google’s new code is being generated by AI, increasing internal efficiency. He also claims Google has seen a 30% increase in AI product adoption with existing customers

• ☢️ To help power its AI data centers, Google announced a deal with Kairos Power to build a fleet of modular nuclear reactors

• 🚖 While <1% of Google’s total revenue, Google-controlled Waymo is starting to experience massive growth, hitting 150,000 weekly rides and growing to 50,000 weekly rides every 2 months.

😬 Google is not without its challenges, though - for the first time ever, Google’s search business (which still makes up over 56% of total revenue) is under threat, with Meta now working on an AI search engine and OpenAI’s ChatGPT.

🧑‍⚖️ In August, the DOJ made a landmark decision to rule that Google had an ‘illegal monopoly’ in search, paving the way to a potential breakup of Alphabet.

😥 While some have called these factors an ‘existential threat’ to Google’s business, at least for now, Google is still riding high and seems to be relatively unphased by the potential ‘barbarians at its gates.’

📊 Apple & Meta

😅 While I’d love to dive deep into Meta and Apple in the same level of detail, I think this has already become the longest in Weekly Buzz history, so let me give a brief update on these two and then try to bring everything together and share my thoughts on the biggest picture.

🥽 Meta (fell 2.6% this week)

Like the rest of Big Tech, Meta poured billions into AI - increasing spend by 36% compared to last year. While Meta beat profits expectations by 16%, user growth fell short of expectations. Like Microsoft, investors were a bit more skeptical of whether Meta’s massive investments were paying off. But with Meta stock up 64% year-to-date, this decrease is a small bip in an otherwise incredible run-up this year. Read more here.

🍎 Apple (fell 4.5% this week)

Apple’s story was a bit different than the rest of Big Tech, where its drop was less about AI spending and more about the continued trend of declining iPhone sales in China, with revenue falling 6% this quarter. Apple Intelligence just got released this week, and Apple has been heavily banking on this to help juice sales for the iPhone 16 (and there have been some early signs of this happening already).

📸 The Big Picture

🏆 Altogether, I think this week was a win for Big Tech. The market was riding high on expectations, and while the S&P is down 1.5% this week, that drop is a tiny blip in an otherwise incredible year - with the market up 27% overall year-to-date.

🤑 The market needed tech to do one thing: signal a strong return on the billions invested in AI, and while some did this better than others (Amazon/Google vs Microsoft/Meta), overall, the soaring profits across the board certainly did not signal doom and gloom for big tech.

📈 While some cracks did show (like Microsoft’s decelerating cloud revenue), tech executives remain more bullish than ever on AI. Whether AI will ultimately pay off as much as they expect is still unclear, but at least for now, the wild spending frenzy and AI hype doesn’t seem like it will be slowing anytime soon.

🤔 Curious how should you be investing in these wild times? Make sure you join the live-streamed discussion and open Q&A with me, YouTuber Daniel Pronk and the founder of Finchat Braden Dennis on Nov 12 where we’ll be diving even deeper into this topic - register here!

🎁 If you read all the way to the end, you’re amazing! As a thank you, for the first 5 people who follow and DM me ‘Buzz’ on Instagram, I’ll send you a $10 Starbucks gift card!!

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FROM THE BLOSSOM COMMUNITY
⭐️ Featured Discussions this Week

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_{Disclaimer & Footnotes from Guardian Capital Group Limited:}

^{_{(1) Tax efficiency is dependent upon the proportion of discount bonds held by a GuardBondsTM fund, which cannot be predicted and is expected to fluctuate over time, depending on prevailing market conditions and timing of subscriptions and redemptions. When a discount bond matures at par value the price appreciation is treated as a capital gain, which is taxed more favorably than interest income earned by GICs, HISA or money market funds.}}

^{_{(2) Assumes that investors hold their investment in the GuardBondsTM fund until its maturity date. The value of the GuardBondsTM fund will fluctuate from day to day, and may be impacted by subscriptions and redemptions, and an investor will be subject to market risks if they sell their units prior to the defined maturity date.}}

^{_{(3) The high probability of the GuardBondsTM portfolio of short-term investment grade bonds maturing at par means investors are less likely to experience capital losses.}}

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