Mag 7 Moves: Meta and Microsoft Meaningful Metrics Miss
Following Alphabet’s (GOOG) standout report, Meta and Microsoft have provided results that have pushed a sell off of shares for both companies who are now down ~5% on the day.
Azure Disappoints on Growth Guidance
Microsoft (MSFT) reported strong fiscal Q1 results, exceeding expectations. Azure achieved 34% year-over-year growth, slightly ahead of guidance, with AI contributing 12bps, up slightly from previous quarters. However, Microsoft expects Azure growth to slow to 31-32% in Q2, with the AI contribution remaining stable. Key takeaways include ongoing supply constraints and some scrutiny around in-period revenue recognition and sequential non-AI growth deceleration, especially in contrast to Google Cloud’s accelerated growth to 35%. Despite these concerns, the outlook remains positive, with expectations for stronger growth in the second half of the year. Microsoft 365 Copilot adoption showed positive trends, although drag on estimates here remains due to higher losses in other income that is related to the company’s partnership with OpenAI.
Capex Fears Come to Fruition
Meta’s (META) Q3 results surpassed expectations, with revenue slightly over 1% above consensus and operating income nearly 10% ahead. Q4 revenue guidance is approximately 1% higher than consensus at the midpoint. Key takeaways were positive, highlighting successful AI-driven initiatives that are boosting user engagement and ad relevance. However, concerns were raised about the company’s high investment cycle, as Meta increased its 2024 capex range to $38-40Bn and indicated a likely rise in capital expenditures for 2025. Meta also expects depreciation and amortization to drive operating expenses and flagged an expected increase in Reality Labs’ losses in 2025. Specific guidance for 2025 will follow in the Q4 call.
