Right now, the Street is grappling with the timing of the payoff of mega Artificial (AI) Intelligence investments. There is no dispute that the investments will pay off, and they will more than likely create moots around the so-called “hyper.”  How long will it take to profit from the massive investment?

In June, Sequoia updated a report published in September 2023 on the topic. That piece was titled ‘AI’s $200B Question'.  Now, it’s a $600B question.

Gut Check Time (again)

Microsoft (MSFT)

We will get some answers to the AI question beginning this evening with the release of the second quarter financials from Microsoft. According to Tip Ranks, there are 27 buys, 0 holds and 0 sells.

Wall Street Loves Microsoft: 27 Buys 0 Holds 0 Sells

Earnings Preview

• Revenue $64.37 billion, +15%
• EPS $2.93 from $2.69
• Beat in 13/15 quarters
• Average target $507.64 ($600 high - $465 low)
• Focus on Cap -Ex investment (last guidance $73 billion for FY25)

Key Cloud Revenue Growth

• Took 13 years (2010 to 2013) to cross $100 billion
• Goal hit $200 billion by end of the FY26
• Segment share of revenue now 53%, goal FY26 63%, up from 10% in 2010

Note: the Financial release hasn’t moved the stock much in recent quarters.

Date	Surprise	1-week	1-day
4/25/24	+$0.12	-0.2%	+2%
1/30/24	+$0.15	-0.9%	-2.8%
10/24/23	+$0.34	+2%	+2.8%
7/25/23	+$0.14	-3.9%	-3.5%
4/25/23	+$0.21	+10.6%	+7%
1/24/23	+$0.02	+2.9%	-0.1%
10/25/22	+$0.03	-8.8%	-7.6%

The company will beat the consensus and offer higher guidance. The risk of a miss, or any other disappointment, is that the shares will drop to $400 before the next earnings release.

The Cap-Ex Miracle

There is no cap-ex miracle outside the investments of hyperscale to be the leaders of artificial intelligence – backed services.

This is added pressure for those names and the industrial revolution, which has been preceded by enormous hype.

Jolts Report

The June JOLTS report was released this morning.  New job openings came in at 8.18M, relatively unchanged compared to 8.23M in May, down 941,000 over the year, and above the consensus estimates at 8M.

• The number of new hires changed little, coming in at 5.3M compared to a revised 5.4M in May, down 554,000 over the year with a 3.4% hiring rate.
• Total separations were also relatively flat at 5.1M compared to a revised 5.1M in May, down 544,000 over the year at a total separations rate of 3.2%.
• The number of unemployed persons per job opening was flat at 0.8.

The notable job openings changes were:

• Accommodation and food services which rose by 120,000
• State and local government, excluding education which was up by 94,000
• Durable goods manufacturing down by -88,000
• Federal government down by -62,000

Consumer Confidence

On the economic front, consumer confidence rose to 100.3 in July, beating the consensus of 99.7. The improvement was driven by future expectations, which rose to the best level since January at 78.2.

On the other hand, the present situation fell to its lowest level since March 2021.

Comments

The PSI looks similar to the Biden Administration approval rating that started falling March of 2021. Perhaps People are more aware of the impact of Bad Administration Policy on the economy. P. Krueger on 7/30/2024 2:36:01 PM

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