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Market Rally Roars, 5 Growth Stocks Near Buy Points; Apple, Big Earnings Due

The market rally has stepped up on Fed pivot hopes. Snowflake is among 5 high-growth stocks near buy points. Apple headlines a huge week of upcoming earnings.

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Dow Jones Futures Signal Market Rally To Extend Gains; Tesla Cuts Model 3, Y Prices In China Futures signaled further market rally gains. Snowflake leads 5 growth stocks near buy points. Tesla cut Model 3 and Y prices in China. Futures signaled further market rally gains. Snowflake leads 5 growth stocks near buy points. Tesla cut Model 3 and Y prices in China.

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Can Earnings Boost Microsoft (MFST) Stock?

Wall Street wants to see Microsoft produce strong earnings for the quarter and more importantly reaffirm its FY23 guidance as the economic downturn and operating environment has worsened since the company gave its outlook.

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Can Earnings Boost Microsoft (MFST) Stock? Microsoft’s MSFT Q1 fiscal 2023 earnings release on October 25 will be one of the most-watched during a busy week full of big tech reports. The software titan is one of the premier tech stocks due to its diverse technology products which include cloud services, server applications, business solutions, management tools, and video games. Trading 31% off its highs, it will be important to see if Microsoft was able to sustain growth in the majority of its business segments. Image Source: Zacks Investment Research Last quarter, Microsoft said it expects double-digit revenue and operating income growth in FY23. Investors were delighted about the outlook despite the company mentioning forex (FX) volatility could slightly decrease total revenue growth, cost of goods sold (COGS), and operating expense growth. Outside of currency headwinds, Wall Street will be monitoring Microsoft’s prior outlook that weakness in PC market demand and lower advertising spend will impact Windows OEM, Surface, and LinkedIn. Acquisitions & Cloud Growth Acquisitions have helped boost Microsoft’s growth, the company has shown the ability to acquire popular companies like LinkedIn and many others over the years. Investors hope that LinkedIn can continue adding to Microsoft’s revenue and that operating costs can be contained. Last quarter LinkedIn revenue increased by $3.5 billion year over year, up 34%.This was driven by a strong job market and advertising demand in its Marketing Solutions business. It will be important to see if this can continue with many social media companies such as Meta Platforms’ META Facebook also warning of slower advertising spending. Investors will also be looking for confirmation on the planned close of the Activision Blizzard deal. As of now, Microsoft’s guidance for FY23 does not include any impact from Activision Blizzard. Microsoft has been expecting the $68.7 billion acquisition to close by the end of FY23. Microsoft hopes that Activision Blizzard can bring in additional revenue streams to go along with LinkedIn and its growing cloud technology Azure. In its most recent quarter, Microsoft Cloud services brought in revenue of $25 billion, up 28% year over year. The company saw strong demand, gained market share, and increased customer commitment to its cloud platform. It will be important to see if Microsoft was able to keep taking market share in cloud services from other big tech competitors like Amazon AMZN, and Alphabet GOOGL. Despite Azure’s year over year growth, it slowed from the previous quarter and missed analysts’ expectations last quarter. Fiscal Q1 Outlook The Zacks Consensus Estimate for MSFT’s fiscal Q1 earnings is $2.30 a share, which would represent a 1% increase from Q1 2022. Sales for the quarter are also expected to be up 9% at $49.57 billion. However, it is important to note that estimates for the quarter have gone down in the last week and are lower than the $2.44 per share expectations at the beginning of the quarter. Year over year, MSFT is projected to post 8% earnings growth in fiscal 2023 with its FY24 earnings set to grow another 15%. Solid top line growth is also expected, with FY23 sales projected to climb 10% and another 13% in FY24 to $247.57 billion. Performance & Valuation Year to date MSFT is down -28% near the S&P 500’s -24% drop. However, over the last decade, MSFT is up +760% to crush the benchmark. Investors will hope that MSFT can get back to its dominant performance despite the tougher operating environment. Image Source: Zacks Investment Research Trading around $242 a share, MSFT has a P/E of 23.4X. This is near the industry average and much lower than its decade high of 37.4X and close to its median of 23.2X. MSFT trades a discount relative to its past but an earnings beat and reaffirming FY23 guidance will be key for investors to see in the current unfavorable market conditions for tech stocks. Image Source: Zacks Investment Research Bottom Line Despite missing fiscal Q4 earnings expectations, MSFT stock rallied after the quarterly report as investors became optimistic about its better than expected FY23 guidance. With earnings estimates revisions trending down throughout the quarter much of the optimism began to fade. Wall Street wants to see Microsoft produce strong fiscal Q1 results and more importantly reaffirm its FY23 guidance as the economic downturn and operating environment has worsened since the company gave its outlook. MSFT currently lands a Zacks Rank #4 (Sell) in correlation with the downward earnings estimate revisions for the current quarter, fiscal 2023, and FY24. Microsoft’s Computer-Software Industry is also in the bottom 48% of over 250 Zacks Industries. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Microsoft Corporation (MSFT) : Free Stock Analysis Report Amazon.com, Inc. (AMZN) : Free Stock Analysis Report Alphabet Inc. (GOOGL) : Free Stock Analysis Report Meta Platforms, Inc. (META) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research

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S&P 500 Weekly Earnings Update: Big Week For MegaCap Tech

The top 4 names in the S&P 500 report their calendar Q3 ’22 earnings this week, although for Apple it’s their fiscal Q4 ’22.

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S&P 500 Weekly Earnings Update: Big Week For MegaCap Tech Summary - The top 4 names in the S&P 500 report their calendar Q3 ’22 earnings this week, although for Apple it’s their fiscal Q4 ’22. - The forward 4-quarter estimate slid sequentially again this week to $232.61 from the prior week's $233.02. The forward 4-quarter estimate (FFQE) has now only increased sequentially 3 times in the last 17 weeks. - The PE ratio is now 16x vs 15.4x last week thanks to the 5% weekly gain for the S&P 500. The top 4 names in the S&P 500 report their calendar Q3 ’22 earnings this week, although for Apple (AAPL) it’s their fiscal Q4 ’22. These four names comprise about 20% of the S&P 500’s market cap as of the close of trading last night, Thursday, October 20, ’22. This blog will be out with a preview of all 4 names – probably on Sunday – but here’s the weekly update for S&P 500 EPS numbers, sourced from IBES data by Refinitiv. (Meta (META) reports this week too, although it’s market cap rank has fallen to 15th in the S&P 500 as of last night.) These three graphs should be interesting to readers since it’s the S&P 500 “net income” and not EPS which leads me to think the Refinitiv title is a little misleading to readers. While it’s horrible nit-picking, “earnings per share” is not net income, although “earnings” is net income. - The bottom graph is the trend in quarterly net income for Q1 ’22 earnings, as of 4/22/22. - The middle graph is the trend in quarterly net income for Q2 ’22 earnings, as of 7/22/22. - The top graph is the trend in quarterly net income for Q3 ’22 earnings as of 10/24/22. The point being – excluding the impact of fully diluted shares outstanding – readers can see the noticeable slowing in earnings or net income graphically as 2022 has progressed. As my old boss used to ask, “What’s the point?” The point is we see a whole lot of net income or earnings this week with Apple, Amazon (AMZN), Microsoft (MSFT) and Alphabet (GOOG) (GOOGL), not to mention Meta reporting their Q3 ’22 calendar results. Here’s the list of report dates this coming week: - Tuesday, 10/25: Alphabet and Microsoft (AMC) - Wednesday, 10/26: Meta (AMC) - Thursday, 10/27: Apple and Amazon (AMC) AMC – after market close S&P 500 data: - The forward 4-quarter estimate slid sequentially again this week to $232.61 from the prior week's $233.02. The forward 4-quarter estimate (FFQE) has now only increased sequentially 3 times in the last 17 weeks. - The PE ratio is now 16x vs 15.4x last week thanks to the 5% weekly gain for the S&P 500. - The S&P 500 earnings yield fell to 6.2% this week from 6.5% last week. The 10-year Treasury yield increased 20 basis points (bps) this week and 42 bps since 9/30/22 and yet the S&P 500 still has a slight gain in October, month-to-date. That’s an interesting tell. Rate of change update: The interesting thing about this week is that all 3 “rates of change” buckets i.e. sequential, 4-week and 12-week improved this week versus last week, and the energy reports from Friday morning, 10/24, like Schlumberger (SLB) are not yet in the numbers. Summary/conclusion: The interesting thing about this week’s trade wasn’t just the 5% pop in the S&P 500, but that the S&P 500 is rising in the face of a 20 bp increase in the 10-year Treasury yield and is still up month-to-date after a 42 bp increase in the 10-year Treasury yield. That’s a change in character and investors have to sit up and take note when relationships like that change. Also, the S&P 500 closed at 3,674 the week of June 17th, 2022, when the S&P 500 printed that June ’22 low of 3,636 (various guests on CNBC keep saying 3,666, which is not right) and this week closed at 3,752.75. The 10-year Treasury yield spiked to 3.50% with the 3,636 low in mid-June ’22, and is now at 4.22% and yet the S&P 500 is flat. The equity market is either predicting a turn in the inflation stats to reflect lower inflation or more downside is ahead for the S&P 500. The fact that the S&P 500 looks like it’s been bottoming for 4 months should tell investors which way I’m leaning in terms of “higher” or “lower” stock prices. Still, a lot depends on how these key earnings reports for what is 20% of the S&P 500 market cap in 5 names turns out. Meta fascinates me in the sense that it’s trading at 5x cash flow (ex balance sheet cash) and 8x free cash flow and yet is still the 15th largest name in the S&P 500 by market cap. Some select clients have very small positions but it’s now entering “deep value” territory. Who’d have ever thought we’d be talking about Meta at a 2.7x book value valuation. Has growth become too cheap? Has value become too expensive? For Q3 ’22 earnings so far, the actual results are better than the poor sentiment we saw approaching earnings (again). The plan is to write a lot more over the weekend but sometimes life gets in the way. There is a definite preview of the big tech companies reporting this week coming Saturday or Sunday. Take everything written here with a healthy dose of skepticism. Past performance is no guarantee of future results and none of this is recommendation to buy, sell or hold anything, although the goal is to give the reader some sense of how I’m approaching certain market themes, which readers are free to follow or not. IBES data by Refinitiv is the primary data source for S&P 500 earnings while Briefing.com is the primary source of economic data and economic releases. Markets and opinions can change quickly for better or worse and this blog may not be updated. Thanks for reading. More to come this weekend. Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors. This article was written by Comments (13) Thanks for the article !!! JC The stomach - grumbling. The money system - no longer cheap The gubmint - dysfunctional and uncaring. The future - non-existent. My defense stocks have done exceedingly well - LMT, NOC, BAE Systems. The world is going to re-arm majorly in this decade. The walls are coming up and the magazines being loaded. Maybe cause it's a blog,or maybe not..Have a good one !!

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Weekly Roundup

The volatile week ended with a rally that gave most our positions a boost, but we made no new trades and added no new names to the portfolio.

Yahoo

Weekly Roundup The volatile week ended with a rally that gave most our positions a boost, but we made no new trades and added no new names to the portfolio. The volatile week ended with a rally that gave most our positions a boost, but we made no new trades and added no new names to the portfolio.

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Megacap earnings to test fledgling U.S. stock rebound

Earnings reports from the four biggest U.S. companies by market capitalization in the coming week may test a nascent rally that has seen stocks claw their way back from yet another low. Investors view the growth giants as bellwethers for how corporate America is faring during a year in which inflation has soared, pushing the Federal Reserve to quickly enact a series of jumbo-sized rate hikes that bruised markets and raised fears a recession may be coming.

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Megacap earnings to test fledgling U.S. stock rebound By Lewis Krauskopf NEW YORK (Reuters) - Earnings reports from the four biggest U.S. companies by market capitalization in the coming week may test a nascent rally that has seen stocks claw their way back from yet another low. Apple, Microsoft, Google-parent Alphabet and Amazon account for a combined 20% of the weight of the S&P 500 and more than a third of the Nasdaq Composite. Investors view the growth giants as bellwethers for how corporate America is faring during a year in which inflation has soared, pushing the Federal Reserve to quickly enact a series of jumbo-sized rate hikes that bruised markets and raised fears a recession may be coming. “If these megacaps can’t do well, then the question is: who can do well?” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management. (Graphic: Megacaps market values vs stock market, https://fingfx.thomsonreuters.com/gfx/mkt/zdvxdydxzvx/Pasted%20image%201666369186528.png) The S&P 500 is up nearly 5% from its Oct 12 closing low for the year after posting its biggest weekly gain since late June. Even with stocks' latest rebound, the index has dropped 21% so far in 2022, on track for its biggest decline since 2008. Resilient corporate profits have been one bright spot this year, though doubts are growing over how sustainable they will be. With the bulk of S&P 500 companies still to report, third-quarter profits are estimated to have climbed 3.1% versus the year-ago period, which would be the weakest performance in two years, according to Refinitiv IBES, while earnings growth expectations for 2023 have fallen to 7.2% from 7.8% on Oct 1. Next week's reports from the four megacaps may show whether companies with dominant positions can post solid performance despite worries of a potential economic downturn. Because of their heavy weightings, "if those stocks don’t get it done, that puts pressure on the indices to continue to go down," said Chuck Carlson, chief executive officer at Horizon Investment Services. Microsoft and Alphabet are due to report on Tuesday, with Amazon and Apple set for Thursday. Apple shares are the only ones of the megacaps that have outperformed the broader market this year. Shares of the iPhone maker, which account for a 7% weight in S&P 500, are down about 17% in 2022; Microsoft and Amazon are each off roughly 28%, Alphabet is down 30%. (Graphic: Megacaps vs the U.S. stock market, https://graphics.reuters.com/USA-STOCKS/MEGACAPS/gkvlwmwlepb/chart.png) Despite those steep losses, investors have maintained exposure to the megacap stocks. Actively managed U.S. mutual and exchange-traded funds held 11.41% of their portfolios in those four stocks combined as of the most recently available data, versus 11.44% at the end of 2021, according to Morningstar Direct. Investors have been drawn to the large companies broadly because of their financial strength and competitive advantages that, in theory, will drive profits even during uncertain economic times. Still, only Apple has topped analyst estimates for earnings and revenue in both of their most recent quarterly reports, according to Refinitiv data. "The bar is higher for Apple because it has outperformed and because you haven’t seen the earnings blink yet,” said Walter Todd, chief investment officer at Greenwood Capital. Questions loom over the other companies' key market areas, including personal computers for Microsoft, advertising spending for Alphabet and consumer strength for Amazon. All three rely on cloud computing businesses, which will be in focus next week, according to Charlie Ryan, partner and portfolio manager at Evercore Wealth Management. “Cloud would be the pillar that one would put their hopes on when they report,” Ryan said. “It has been continued strength for quite some time now and any deviation from that would be a concern.” Meanwhile, soaring U.S. bond yields are pressuring valuations and complicating the picture for tech and other growth stocks, whose expected future earnings are discounted steeply by higher yields. Yields continued to rise this week, with the yield on the benchmark 10-year Treasury note hitting a fresh 14-year high. All four stocks command higher valuations than the S&P 500, which trades at nearly 16 times forward earnings estimates. The P/Es for Apple and Microsoft are both about 22 times, Alphabet trades at 17.5 times, while Amazon sits at 60 times, according to Refinitiv Datastream. “Those stocks have typically sold at earnings multiples that are on the higher side,” said Carlson, of Horizon Investment Services.“How they are going to continue to perform from here gives some insight into what investors are ultimately willing to pay for growth stocks.” (Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and David Gregorio)

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10 Best Video Conferencing Stocks To Buy

In this article, we will look at the ten best video conferencing stocks to buy. You can skip our detailed analysis of the video conferencing industry and go directly to the 5 Best Video Conferencing Stocks To Buy. According to recent research by Grand View Research, Inc., the size of the worldwide video conferencing market […]

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10 Best Video Conferencing Stocks To Buy In this article, we will look at the ten best video conferencing stocks to buy. You can skip our detailed analysis of the video conferencing industry and go directly to the 5 Best Video Conferencing Stocks To Buy. According to recent research by Grand View Research, Inc., the size of the worldwide video conferencing market is anticipated to reach $19.73 billion by 2030, showing a CAGR of 12.5% from 2022 to 2030, reported Bloomberg. The significant growth is attributable to the growing use of cloud technologies and video conferencing as a service (VCaaS ). The software segment is predicted to see the highest CAGR of more than 13.0% over the forecast term due to increased cloud-based subscribers on many platforms. Video conferencing services are being widely accepted by small- and medium-sized businesses in order to quickly grow their global operations by implementing a centralized communication platform that makes use of cutting-edge technologies like 4G, 5G, and VoIP. Some of the best video conferencing companies to invest in include Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOGL), and Adobe Inc. (NASDAQ:ADBE). Photo by lucas law on Unsplash Our Methodology We scanned our database of 895 elite hedge funds and picked top 10 companies that have notable offerings in the video conferencing market. Best Video Conferencing Stocks To Buy 10. Logitech International S.A. (NASDAQ:LOGI) Number of Hedge Fund Holders as of Q2, 2022: 12 Logitech International S.A. (NASDAQ:LOGI) has shown dividend growth for the past nine years. It declared an annual dividend of $0.97 per share on July 12, an increase of approximately 10% compared to the FY21 dividend. The stock has a forward dividend yield of 2.20% with a payout ratio of 25.17% as of October 18. As of October 20, the stock has a PE ratio of just over 13, compared to the software industry average PE ratio of 45. According to Insider Monkey’s Q2 data, Logitech International S.A. (NASDAQ:LOGI) was found in the public stock portfolios of 12 hedge funds, with collective stakes in the company worth $123.660 million. Here is what VGI Partners has to say about Logitech International S.A. in its Q4 2021 investor letter: “We did progressively resume single-stock shorting throughout the year in addition to using baskets to avoid the risk of short squeezes. Logitech, the manufacturer of office and gaming equipment, was an example of a successful short for us during 2021. The business was a large beneficiary of stay-at-home orders which drove a demand spike for home office and video communication equipment as most employees shifted to working remotely. This not only drove a pull-forward of growth, but margins also experienced a step-up due to the lack of promotions. The market started to extrapolate these dynamics as a permanent change in Logitech’s economics, whereas we took the opposite view which has proved closer to reality given a string of disappointing results.” 09. ON24, Inc. (NYSE:ONTF) Number of Hedge Fund Holders as of Q2, 2022: 17 Rather than being a new upstart, ON24, Inc. (NYSE:ONTF) has been around for over two decades but enjoyed accelerated interest and growth thanks to the Covid-19 pandemic, which prompted it to finally go public 23 years after its founding. ON24, Inc. (NYSE:ONTF) provides a cloud-based digital experience platform that allows businesses to convert customer engagement into revenue through interactive webinars, virtual events, and multimedia content experiences globally. ON24, Inc. (NYSE:ONTF) recently witnessed a decline in its revenue. The company's management has planned to reduce its workforce by 5% and is hopeful about witnessing growth in revenue in 2023. On September 12, KeyBanc analyst Thomas Blakey initiated coverage of ON24, Inc. (NYSE:ONTF) with a Sector Weight rating and no price target. At the end of the second quarter of 2022, 17 hedge funds in the database of Insider Monkey held stakes worth $176.24 million in ON24, Inc (NYSE:ONTF), compared to 21 in the preceding quarter worth $241.281 million. Along with Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOGL), and Adobe Inc. (NASDAQ:ADBE), ON24, Inc. (NYSE:ONTF) is one of the best video conferencing stocks to buy. 08. 8x8, Inc. (NYSE:EGHT) Number of Hedge Fund Holders as of Q2, 2022: 26 8×8, Inc. (NYSE:EGHT) is engaged in providing contact-center-as-a-service and unified-communications-as-a-service software applications. Its unified platform helps in enabling omnichannel communication to help employees communicate through voice, video, text, chat, and contact centers. In addition to other services, the company provides unified communications, team collaboration, video conferencing, contact center, data and analytics, and communication APIs. It offers 8x8 Work, a self-contained end-to-end unified communications solution, which offers enterprise voice with connectivity to the public switched telephone network, video meetings, and unified messaging, as well as direct messages, open and closed team messaging rooms, short and multimedia services, and more. 8x8, Inc. (NYSE:EGHT) has a market capitalization of $370.69 million as of October 18. The company is expected to announce its next quarterly results on October 27. It was able to comfortably surpass analysts' expectations about revenue and EPS in the previous quarter. 8x8, Inc. (NYSE:EGHT) revenue showed a decent growth of 21% in the previous year. Here is what Meridian Funds specifically said about 8×8, Inc. (NYSE:EGHT) in its Q2 2022 investor letter: “8×8, Inc. (NYSE:EGHT) is a cloud communications provider that offers businesses a unified voice, contact center, video, and chat platform. The company hired a new CEO in late 2020 who has since refocused the company on areas of the market where 8×8 has competitive advantages and the potential to earn higher margins. In conjunction with this change in strategy, the company exited low-growth and low-margin product lines, which has led to what we believe is a temporary slowdown in revenue growth. A recent acquisition that decreased 8×8’s cash position also weighed on investor sentiment. We believe the company will overcome these short-term issues and that, at its current price, the stock is attractively valued. We are willing to be patient as the company works through these setbacks and trimmed our position in the stock during the period.” 07. RingCentral, Inc. (NYSE:RNG) Number of Hedge Fund Holders as of Q2, 2022: 42 RingCentral, Inc. (NYSE:RNG) is an American company that provides a software as a service (SaaS) platform that allows businesses to communicate with each other. The service includes several features such as video calls and SMS messaging. The company is headquartered in Belmont, California. The communications market for RingCentral, Inc. (NYSE:RNG) is anticipated to increase at a compound annual growth rate (CAGR) of 13% and reach $69 billion by the end of 2028. In its third fiscal quarter, the firm reported 28% annual revenue growth, while at the same time, subscription revenue increased by 32% annually. In September 2022, Credit Suisse projected that the company's shares would be worth $40, noting that it was operating in a very lucrative market. Here is what RiverPark Funds specifically said about RingCentral, Inc. (NYSE:RNG) in its Q2 2022 investor letter: “RingCentral, Inc. (NYSE:RNG) is a software-as-a-service (SaaS) provider of communications solutions to large enterprises. The company’s solutions replace legacy office phone systems or Private Branch Exchanges (PBX) with a cloud-based virtual solution that enables a customer’s employees to communicate via voice, text, video/web conferencing, and fax over multiple devices including cell phones, tablets, and computers from any location. This cloud-based phone systems market, typically referred to as Unified-Communication-as-a-Service (UCaaS) is a roughly $10 billion market today and is projected to grow to over $100 billion over the next ten years as companies move their communications systems to the cloud. The move to UCaaS adoption is being driven by both the obsolescence of PBX hardware underlying current office phone systems, and, like cloud adoption across the software stack, cloud-based phone systems being less expensive, more feature rich, and accessible anywhere. RingCentral (which went public in 2013) is the leading vendor to the UCaaS market and has enjoyed greater than 28% revenue growth in every year since its IPO, a growth rate that continued in the company’s recently reported 1Q22 in which it grew revenue 33%. We believe the company can continue to grow revenue north of 25% for many years to come, driven by the global conversion of more than 400 million on-premises phone systems to the cloud. RingCentral is well positioned to continue to win the lion’s share of this UCaaS migration, as the company has partnered with many of the largest legacy PBX vendors (including Avaya, Atos, AlcatelLucent, and Mitel) to be their recommended cloud solution for customers whose maintenance period on their installed systems ends (and the vendors no longer support them). RNG has also partnered with communications giants like Vodafone, AT&T and Verizon to sell co-branded cloud solutions into their customer bases. As the company’s revenue scales, we expect gross margin to continue to improve from its already strong 80%, while we expect the company to continue to expand its EBITDA margin from 18% in 2022, toward typical SaaS margins of 40% or higher over the next several years…” (Click Here to read the full text) 06. Zoom Video Communications, Inc. (NASDAQ:ZM) Number of Hedge Fund Holders as of Q2, 2022: 44 Zoom Video Communications, Inc. (NASDAQ:ZM) provides a unified communications platform worldwide. During the Covid-19 pandemic, Zoom Video Communications, Inc. (NASDAQ:ZM) revenues increased by more than 5 times and it has kept these gains and profits. Famous hedge fund managers like Jim Simons, Ken Fisher and Cathie Wood has major stakes in the company. At the end of the second quarter of 2022, 44 hedge funds in the database of Insider Monkey held stakes worth $2.96 billion in Zoom Video Communications, Inc. (NASDAQ:ZM), compared to 43 in the previous quarter worth $3.2 billion. In its Q1 2022 investor letter, Horos Asset Management, an asset management firm, highlighted a few stocks and Zoom Video Communications, Inc. (NASDAQ:ZM) was one of them. Here is what the fund said: “What about the other asset class that has attracted the most attention from the investment community in recent times? Here we can distinguish three major groups. First, those companies without earnings that had convinced investors of their great future growth prospects, pushing up their valuations to irrational levels. A clear example of this, which we mentioned almost two years ago (see here) is Zoom Video Communications, Inc. (NASDAQ:ZM) (“Zoom”), whose market cap exceeded that of companies such as IBM or came close to that of Cisco Systems. Well, from the time we wrote about this odd situation until today, Zoom shares have collapsed nearly 80%. Therefore, if interest rates rise (or are expected to rise), company valuations are negatively impacted. This is especially true for those businesses that generate little cash today and the market expects them to generate a lot of cash in the future. Hence the severe losses in companies that promised a lot of cash generation in the future (such as Zoom).” Click to continue reading and see the 5 Best Video Conferencing Stocks To Buy. Suggested articles: Disclosure. None. 10 Best Video Conferencing Stocks To Buy is originally published on Insider Monkey.

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The Final Call: MSFT & UUP

The traders make their final trades of the week. With CNBC's Frank Holland and the Options Action traders, Carter Worth, Mike Khouw and Dennis Davitt.

CNBC

Credit Cards Loans Banking Mortgages Insurance Credit Monitoring Personal Finance Small Business Taxes Help for Low Credit Scores Investing SELECT All Credit Cards Find the Credit Card for You Best Credit Cards Best Rewards Credit Cards Best Travel Credit Cards Best 0% APR Credit Cards Best Balance Transfer Credit Cards Best Cash Back Credit Cards Best Credit Card Welcome Bonuses Best Credit Cards to Build Credit SELECT All Loans Find the Best Personal Loan for You Best Personal Loans Best Debt Consolidation Loans Best Loans to Refinance Credit Card Debt Best Loans with Fast Funding Best Small Personal Loans Best Large Personal Loans Best Personal Loans to Apply Online Best Student Loan Refinance SELECT All Banking Find the Savings Account for You Best High Yield Savings Accounts Best Big Bank Savings Accounts Best Big Bank Checking Accounts Best No Fee Checking Accounts No Overdraft Fee Checking Accounts Best Checking Account Bonuses Best Money Market Accounts Best CDs Best Credit Unions SELECT All Mortgages Best Mortgages Best Mortgages for Small Down Payment Best Mortgages for No Down Payment Best Mortgages with No Origination Fee Best Mortgages for Average Credit Score Adjustable Rate Mortgages Affording a Mortgage SELECT All Insurance Best Life Insurance Best Homeowners Insurance Best Renters Insurance Best Car Insurance Travel Insurance SELECT All Credit Monitoring Best Credit Monitoring Services Best Identity Theft Protection How to Boost Your Credit Score Credit Repair Services SELECT All Personal Finance Best Budgeting Apps Best Expense Tracker Apps Best Money Transfer Apps Best Resale Apps and Sites Buy Now Pay Later (BNPL) Apps Best Debt Relief SELECT All Small Business Best Small Business Savings Accounts Best Small Business Checking Accounts Best Credit Cards for Small Business Best Small Business Loans Best Tax Software for Small Business SELECT All Taxes Best Tax Software Best Tax Software for Small Businesses Tax Refunds SELECT All Help for Low Credit Scores Best Credit Cards for Bad Credit Best Personal Loans for Bad Credit Best Debt Consolidation Loans for Bad Credit Personal Loans if You Don't Have Credit Best Credit Cards for Building Credit Personal Loans for 580 Credit Score or Lower Personal Loans for 670 Credit Score or Lower Best Mortgages for Bad Credit Best Hardship Loans How to Boost Your Credit Score SELECT All Investing Best IRA Accounts Best Roth IRA Accounts Best Investing Apps Best Free Stock Trading Platforms Best Robo-Advisors Index Funds Mutual Funds ETFs Bonds

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Cramer’s week ahead: Earnings season heats up and companies could 'keep flying' barring a severe slowdown

CNBC's "Mad Money host" Jim Cramer on Friday told investors that stocks will likely continue to do well as long as the economy holds up.

CNBC

Cramer’s week ahead: Earnings season heats up and companies could 'keep flying' barring a severe slowdown - CNBC's Jim Cramer on Friday told investors that stocks will likely continue to do well as long as the economy holds up. - "Many companies have battened down the hatches, so to speak, and prepped for a recession. So if we don't get a severe slowdown, they will indeed keep flying," the "Mad Money" host said. CNBC's Jim Cramer on Friday told investors that stocks will likely continue to do well as long as the economy holds up. "Many companies have battened down the hatches, so to speak, and prepped for a recession. So if we don't get a severe slowdown, they will indeed keep flying," he said. He also previewed next week's slate of earnings. All earnings and revenue estimates are courtesy of FactSet. Monday: Logitech - Q2 2023 earnings release at 9 p.m. ET; conference call on Tuesday at 8:30 a.m. ET - Projected EPS: 85 cents - Projected revenue: $1.2 billion Cramer said the stock could take a hit because of the slowdown in the PC market. Tuesday: Halliburton, Coca-Cola, Alphabet, Microsoft - Q3 2022 earnings release at 6:45 a.m. ET; conference call at 9 a.m. ET - Projected EPS: 56 cents - Projected revenue: $5.34 billion Halliburton's stock could soar after it reports earnings, he predicted. - Q3 2022 earnings release at 6:55 a.m. ET; conference call at 8:30 a.m. ET - Projected EPS: 64 cents - Projected revenue: $10.52 billion Cramer said he expects the company to have a strong quarter, similar to Pepsi-Co's. - Q3 2022 earnings release at 4 p.m. ET; conference call at 5 p.m. ET - Projected EPS: $1.27 - Projected revenue: $71.08 billion The Google parent company will likely report a solid quarter due to the strength of YouTube, he predicted. - Q1 2023 earnings release at 4:05 p.m. ET; conference call at 5:30 p.m. ET - Projected EPS: $2.31 - Projected revenue: $49.66 billion Cramer said he expects the stock to jump after the company reports. Wednesday: Meta, Ford - Q3 2022 earnings release at 4:05 p.m. ET; conference call at 5 p.m. ET - Projected EPS: $1.90 - Projected revenue: $27.47 billion He called himself the "only believer" of the Facebook parent company. - Q3 2022 earnings release at 4:05 p.m. ET; conference call at 5 p.m. ET - Projected EPS: 27 cents - Projected revenue; $37.46 billion While the demand is there for Ford's vehicles, supply isn't, Cramer said. Thursday: Apple, Amazon - Q4 2022 earnings release at 4:30 p.m. ET; conference call at 5 p.m. ET - Projected EPS: $1.27 - Projected revenue: $88.79 billion Cramer said he's sticking to his mantra of "own it, don't trade it" when it comes to Apple. - Q3 2022 earnings release at 4 p.m. ET; conference call at 5:30 p.m. ET - Projected EPS: 22 cents - Projected revenue: $127.49 billion Cramer said he likes the company, especially because its cloud business seems to be doing well. Friday: Colgate-Palmolive - Q3 2022 earnings release at 7 a.m. ET; conference call at 8:30 a.m. ET - Projected EPS: 73 cents - Projected revenue; $4.47 billion There are better consumer packaged-goods plays than Colgate, he said. Disclaimer: Cramer's Charitable Trust owns shares of Halliburton, Alphabet, Microsoft, Meta, Ford, Apple and Amazon. Sign up now for the CNBC Investing Club to follow Jim Cramer's every move in the market. Questions for Cramer? Call Cramer: 1-800-743-CNBC Want to take a deep dive into Cramer's world? Hit him up! Mad Money Twitter - Jim Cramer Twitter - Facebook - Instagram Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

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Stock Market Today: Dow in Best Week Since June as Hopes on Slowing Hikes Emerge

By Yasin Ebrahim

Yahoo

Stock Market Today: Dow in Best Week Since June as Hopes on Slowing Hikes Emerge By Yasin Ebrahim Investing.com -- The Dow rallied Friday, to close out its best week since June as hopes that the Federal Reserve could slow the pace of rate hikes helped cool the surge in Treasury yields and bolstered growth sectors of the market including tech. The Dow Jones Industrial Average gained 2.5% or 748 points, the Nasdaq was up 2.31%, and the S&P 500 rose 2%. Growth sectors of the market rebounded following a slump a day earlier as Treasury yields eased from session highs on bets that the Fed may consider slowing the pace of rate hikes. “[I]nvestors are now considering a December hike of 50-75 bps,” Janney Montgomery Scott said. “Prior to today, sentiment was closer to a 75-100bps potential hike at the next meeting. This recalibration of expectations is what’s helping stocks today.” Apple (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) rose, with the latter up more than 2% ahead of earnings from big tech next week. Microsoft’s cloud business Azure is likely to take on added investor attention amid concerns the weakening macroeconomic backdrop is weighing on global enterprise and cloud spending. Snapchat parent company Snap (NYSE:SNAP), however, slumped 28% after the social media company reported quarterly results that missed on the bottom line and withdrew fourth quarter guidance amid slowing advertising spend. Snap is likely to be “range bound" amid ongoing macro headwinds, Goldman Sachs said in a note. Other social media stocks fell sharply, with Twitter (NYSE:TWTR), Pinterest (NYSE:PINS) and Meta Platforms (NASDAQ:META) in the red. Consumer discretionary stocks were driven higher by a rise in Amazon (NASDAQ:AMZN) and a rebound in Tesla Inc (NASDAQ:TSLA) following a slump a day earlier. Tesla’s rebound comes even as concerns mount that chief executive officer Elon Musk may be forced to sell more shares to fund the deal to buy Twitter. Musk may need to sell an additional “$5 billion to $10 billion of Tesla stock” should financing talks fall through this week, Wedbush said in a note on Friday. Energy was also among the biggest sector gainers, led by a more than 10% rise in Schlumberger NV (NYSE:SLB) after the oil field services firm reported better-than-expected quarterly results. Related Articles Stock Market Today: Dow in Best Week Since June as Hopes on Slowing Hikes Emerge Today's Most Important Initiations

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Digital Turbine: The Bubble Is Still Bursting

Digital Turbine continued to underperform by -6.57%, since June 2022. See why we rate APPS stock as a Buy, only at the high single digits.

SeekingAlpha

Digital Turbine: The Bubble Is Still Bursting Summary - The decreased advertising spending has affected multiple ad-tech and mar-tech companies, with analysts slashing forward estimates and, therefore, affecting their stock prices thus far. - However, we do not expect this pessimism to lift in the short term, with rising inflationary costs further tightening belts and impacting profitability. - APPS' upcoming FQ2'23 earnings call on 01 November 2022 would also provide more color on the market sentiments, though we do not expect many positive catalysts indeed. - While one may argue the baked-in pessimism pointing to APP's near-bottom levels, we all know that the Fed's whipping is far from over. Investment Thesis Digital Turbine, Inc. (NASDAQ:APPS) has continued to underperform by -6.57%, since our previous Hold analysis in June 2022. In the meantime, with the worsening macroeconomics and analysts continually slashing estimates, we expect the stock market to remain pessimistic for a while longer. Other software/ mar-tech companies such as Microsoft (MSFT) and Salesforce (CRM) have both embarked on cost-cutting strategies while laying off workers. Evidently, top-line growth continues to be impacted post-reopening cadence. With more and more companies tightening their belts and the rising inflation remaining sticky, APPS' stock performance may further languish ahead. There are also minimal catalysts for recovery, since the Feds are expected to aggressively hike interest rates through 2023, with 92.3% of analysts projecting a 75 basis points hike in November and likely, December as well. The terminal rate may also be raised to over 5%, beyond the original projection of 4.6%. Analysts also predict a 100% recessionary chance, with the world already in the midst of the worsening geopolitical storm. Nonetheless, we continue to be bullish about APPS' prospects, due to the ongoing digital transformation post-COVID-19 pandemic. The lower ad-tech spending is only temporarily impacted, with things optimistically picking up by 2024 once macroeconomics improves and consumer demand returns. This time of maximum pain only gives interested investors an attractive entry point for long-term investing and portfolio growth. The time to add is soon. Mr. Market Continues To Be Bearish About APPS Forward Execution For its upcoming FQ2'23 earnings call, APPS is expected to report revenues of $175.7M and EBIT margins of 11.3%, indicating notable QoQ declines of -6.83% and -1.7 percentage points, respectively. Thereby, impacting its profitability, with net incomes of $34M and net income margins of 19.4% for the next quarter. It represents another fall of -12.14% and -0.9 percentage points QoQ, respectively. As a result, impacting its FQ2'23 EPS by -10.52% QoQ to $0.34. However, APPS investors must not be discouraged, since the company is still expected to report improved Free Cash Flow (FCF) generation of $37.9M and an FCF margin of 21.5% for FQ2'23. This is mostly attributed to its reduced capital expenditure and improved synergy from its acquisitions. Thereby, potentially indicating an excellent QoQ improvement of 25.49% and 5.5 percentage points, respectively. The company also continues to put its excess capital to good use by repaying $60.5M of its debt obligations in FQ1'23, indicating a -9.7% moderation in its long-term debts to $472.98M. Meanwhile, APPS is expected to report revenue and net income growth at a slower CAGR of 14.63% and 22.72% over the next two years, respectively, compared to pandemic levels of 132.15%/59.92%. It is apparent that by now that Mr. Market is more bearish than expected, with the continued downgrades in its top and bottom line growth by -16.90% and -27.37% since our last analysis in June 2022. Nonetheless, APPS investors must still note that their margins remain relatively excellent, from 21.17% in previous estimates to 19.6% at the time of writing. This is mostly attributed to the worsening macroeconomics impacting ad spending, instead of its fundamental performance. In the meantime, the company is expected to report FY2023 revenues of $753.88M and net incomes of $147.95M, indicating a further downgrade of -11.30% and -17.80% from previous estimates. It is no wonder then, that the stock has continued to underperform after the release of its underwhelming forward FQ2'23 guidance in its previous earnings call. Nonetheless, we must also point out the astounding growth in APP's profitability despite the changes in the accounting method, from adj. net income/FCF margins of 12.6%/20.8% in FY2020, to 22.8%/8.2% in FY2022, and finally to 21%/18.5% by FY2024. Furthermore, Mr. Market expects the company to continue its deleveraging efforts by -21.27% in FY2023 and -38.61% in FY2024, indicating a massive moderation of -50.65% from current levels of $398.15 in net debts. Impressive indeed, given the impacted top and bottom line growth over the next year. Nonetheless, it is apparent that there is still a wide gap with its competitor, such as ironSource (IS), given the latter's projected profitability of 29.5%/26.2% at the same time. Thereby, explaining the difference in their valuations, with IS boasting an EV/NTM Revenue of 3.43x and NTM P/E of 14.66x, compared to APPS at 2.45x and 10.84x, respectively. In the near term, we expect to see further corrections in APP's stock valuations as Mr. Market persists in its overly bearish sentiments, with the S&P 500 Index already plunging below its previous June lows thrice. In the meantime, we encourage you to read our previous article on APPS, which would help you better understand its position and market opportunities. - Digital Turbine: FQ1 2023 Performance Will Be Key To Its Recovery - Not A Buy Now So, Is APPS Stock A Buy, Sell, or Hold? APPS 5Y EV/Revenue and P/E Valuations APPS is currently trading at an EV/NTM Revenue of 2.45x and NTM P/E of 10.84x, lower than its 5Y mean of 4.60x and 43.62x, respectively. The stock is also trading at $14.07, down -85.02% from its 52 weeks high of $93.98, though at a premium of 15.42% from its 52 weeks low of $12.19. Nonetheless, consensus estimates remain bullish about APPS' prospects, given their price target of $37.33 and a 165.32% upside from current prices. APPS 5Y Stock Price However, due to the above factors, we expect APPS to continue retracing moderately over the next few months, as we enter a brutal stock market winter ahead. Therefore, we rate APPS stock as a Buy, only at the high single digits. Even then, investors need to size their portfolios accordingly in view of the potential volatility. This article was written by Analyst’s Disclosure: I/we have a beneficial long position in the shares of MSFT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. The analysis is provided exclusively for informational purposes and should not be considered professional investment advice. Before investing, please conduct personal in-depth research and utmost due diligence, as there are many risks associated with the trade, including capital loss. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (15) I suggest, buying small lots at new lows on the way down, overweight your allocation if necessary, and wait for the rise (which will be vertical) when the Fed pauses or bonds bottom, then trim your position to equal weight by selling the most expensive lots first.... IMHO

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S&P 500 Rising on Hopes of Fed Mulling Slowdown in Rate Hikes

By Yasin Ebrahim

Yahoo

S&P 500 Rising on Hopes of Fed Mulling Slowdown in Rate Hikes By Yasin Ebrahim Investing.com -- The S&P 500 jumped Friday, as hopes that the Federal Reserve could slow the pace of rate hikes offset mixed quarterly results. The S&P 500 rose 2%, the Dow Jones Industrial Average gained 2% or 641 points, and the Nasdaq was up 1.84%. Growth sectors of the market rebounded following a slump a day earlier as Treasury yields eased from session highs on bets that the Fed may consider slowing the pace of rate hikes. “[I]nvestors are now considering a December hike of 50-75 bps,” Janney Montgomery Scott said. “Prior to today, sentiment was closer to a 75-100bps potential hike at the next meeting. This recalibration of expectations is what’s helping stocks today.” Apple (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) rose, with the latter up more than 2% ahead of earnings from big tech next week. Microsoft’s cloud business Azure is likely to take on added investor attention amid concerns the weakening macroeconomic backdrop is weighing on global enterprise and cloud spending. Snapchat parent company Snap (NYSE:SNAP), however, slumped 29% after the social media company reported quarterly results that missed on the bottom line and withdrew fourth quarter guidance amid slowing advertising spend. Snap is likely to be “range bound" amid ongoing macro headwinds, Goldman Sachs said in a note. Other social media stocks fell sharply, with Twitter (NYSE:TWTR), Pinterest (NYSE:PINS) and Meta Platforms (NASDAQ:META) in the red. Consumer discretionary stocks were driven higher by a rise in Amazon (NASDAQ:AMZN) and a rebound in Tesla Inc (NASDAQ:TSLA) following a slump a day earlier. Tesla’s rebound comes even as concerns mount that chief executive officer Elon Musk may be forced to sell more shares to fund the deal to buy Twitter. Musk may need to sell an additional “$5 billion to $10 billion of Tesla stock” should financing talks fall through this week, Wedbush said in a note on Friday. Energy was also among the biggest sector gainers, led by a more than 10% rise in Schlumberger NV (NYSE:SLB) after the oil field services firm reported better-than-expected quarterly results. Related Articles UAW wants U.S. to bar loans, subsidies for Hyundai over workplace issues TSX posts biggest weekly gain since July as rate hike fears ebb

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Netflix's cloud gaming plan is a tall order — just ask Google

Netflix might be getting into the cloud gaming business. But it'll be hard to pull off.

Yahoo

Netflix's cloud gaming plan is a tall order — just ask Google Netflix (NFLX) is diving deeper into gaming. During TechCrunch Disrupt earlier this week, VP of gaming Mike Verdu said it's “seriously exploring a cloud gaming offering.” Sounds like a surefire win right? Not necessarily. Take a look at Google (GOOG, GOOGL), which announced last month it’s axing its own cloud gaming service Stadia due to a lack of players. Cloud gaming is still in its early stages. It requires huge infrastructure, no latency, and plenty of games. Consumers generally tolerate a bit of lag when starting up a show, but that won’t fly with cloud gaming. Even the slightest slowdown or lag in your connection can ruin your gaming experience. And while Netflix is a massive organization with huge resources at its disposal, even that isn’t enough to win over gamers "Google has a lot of things theoretically in place that would make you think they could succeed at a cloud streaming gaming service,” IDC research director of gaming, eSports and VR/AR Lewis Ward told Yahoo Finance. “Even [Amazon’s] (AMZN) Luna, 18 months past its official launch date, isn't exactly crushing it either with all of Amazon's resources." He added, "So I just think it's very tough to make these things succeed.” Cloud gaming is more difficult than streaming movies While cloud gaming might be a powerful way to keep customers from ditching their subscriptions when they finish their favorite shows, running a successful cloud gaming business poses major challenges. Cloud gaming allows users to stream games to low-powered devices like Chromebooks, phones, and smart TVs. The latency issue can be huge. Imagine you’re in a tense standoff with another player and just as you’re about to make your move, your connection freezes for two seconds. Next thing you know, your character is dead and the 11-year-old you were playing is laughing at you in your headset. Even if companies have the technology, success in cloud gaming has proven relatively elusive. Microsoft (MSFT) and Nvidia (NVDA) seem to be performing well in the area, though they don’t release exact user numbers. Microsoft’s cloud games augment its library of downloadable games, giving users more options to play and a better reason to stick around. Nvidia lets you stream games you already own. Both services essentially give you the option of playing games on your console or PC and then jumping to the cloud when you don’t have an available TV or are on the go. Still a growth opportunity If Netflix does get into cloud gaming, it’s going to need to ensure it has the technology to do so, and provide gamers with something akin to Microsoft or Nvidia’s services. But if Netflix can pull it off, a cloud gaming offering could boost a company that's just now pulling out of a post-COVID tailspin that sent customers fleeing and shares plummeting 57% over the last 12 months. During the pandemic, when millions became one with their couches, Netflix saw its user numbers explode. In the first quarter of 2020, the company had 182.86 million global subscribers. By the fourth quarter of 2021, it had 221.84 million. But that growth was untenable; between the first and second quarter of 2022, Netflix lost 1.17 million subscribers. While Netflix added 2.41 million subscribers in the third quarter, it's going to need to keep working to retain the subscribers it has. That’s where gaming comes in. “The challenge is when the content schedule is a little more uneven, when there's not content that people are urgently wanting to watch, that’s where you see churn tick up, and people cut off their service for a while,” Dave Heger, Edward Jones senior equity analyst, told Yahoo Finance Live. Gaming could keep people engaged with Netflix during those lulls between show debuts. It’s not just about holding on to existing subscribers, though. Netflix could also use its cloud gaming business to attract younger consumers who are more interested in gaming than simply watching TV and movies. “They're looking at trends of where people are spending their entertainment time — they're seeing gaming rise faster than linear TV shows, or streaming TV shows, [video on demand],” Ward said. “And, oh, by the way, the demographics looking forward are going to favor gaming in the sense that those users tend to be younger overall.” That combination has likely led Netflix to view cloud gaming as a growth opportunity — even with its challenges. Sign up for Yahoo Finance's Tech newsletter More from Dan Microsoft CEO explains the 'paradox' of the remote work debate Microsoft CEO: 'Software is ultimately the biggest deflationary force' for businesses Google’s Pixel 7 and Pixel 7 Pro: Top tier smartphones with tons of Google smarts Got a tip? Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley. Click here for the latest technology business news, reviews, and useful articles on tech and gadgets Read the latest financial and business news from Yahoo Finance

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US Earnings to Watch This Week: Apple, Microsoft, Boeing, Exxon, Biogen

(Bloomberg) -- Schlumberger’s rosy report Friday -- including its best profit in seven years and a boost to its full-year guidance -- supports expectations for oil giants Exxon and Chevron to continue their earnings expansion streak when they deliver results at the end of the week. Meanwhile, the technology megacap companies reporting this week will look to shake off souring sentiment on digital advertising rates, after Snap’s slowest quarterly sales growth triggered a sell off that wiped out $3

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US Earnings to Watch This Week: Apple, Microsoft, Boeing, Exxon, Biogen (Bloomberg) -- Schlumberger’s rosy report Friday -- including its best profit in seven years and a boost to its full-year guidance -- supports expectations for oil giants Exxon and Chevron to continue their earnings expansion streak when they deliver results at the end of the week. Meanwhile, the technology megacap companies reporting this week will look to shake off souring sentiment on digital advertising rates, after Snap’s slowest quarterly sales growth triggered a sell off that wiped out $35 billion in market cap for social media stocks. Most Read from Bloomberg Blinken Warns of Consequences If Nuclear Weapon Used in Ukraine Even with lowered earnings estimates for the third quarter, the proportion of S&P 500 companies beating expectations two weeks into the reporting season has been mostly in line with the level at this point last quarter, but is trending below that of the prior year. Of the almost 20% of companies that have reported so far, roughly 58% posted positive surprises in both revenue and EPS, according to data compiled by Bloomberg. Goldman Sachs, Bank of America and Netflix were among last week’s better-than-expected results, assuaging fears for now about the health of the consumer even as executives remain cautious about the economic outlook. The concerns were more evident in American Express’s earnings, however, as the credit card provider set aside more money to cover bad loans than analysts expected. Tesla also reported lackluster results and said it will miss broad annual growth targets on EV demand concerns in China and Europe. US stock futures rose Monday ahead of the busy earnings week, which will see reports from tech giants Apple, Amazon, Alphabet, Microsoft and Meta Platforms. Caterpillar, Boeing, General Electric, 3M and General Motors are also due to report. In the UK, former chancellor Rishi Sunak took a step closer to becoming the next prime minister after Boris Johnson pulled out of the race to succeed Liz Truss, who stepped down last week. To subscribe to earnings coverage across your portfolio or other earnings analysis, run NSUB EARNINGS. Click to see the highlights to watch this week from earnings reports in Europe and Asia See the ESG Stock Watch for a selection of the environmental, social and governance themes that may come up on this week’s earnings calls. Follow results, analysis and market reaction to reports by Apple, Amazon, Alphabet, Meta, Exxon, Chevron, GM, GE, UPS, 3M, and Raytheon in real-time on the TOPLive blog Earnings highlights to look for this week: Monday: Cadence Design (CDNS US), a software maker for semiconductor designs, is expected to post modest sequential revenue growth in the third quarter when it reports after-market, thanks to secular trends favoring a greater number of chip designs and their heightened complexity. Analysts from Bloomberg Intelligence and KeyBanc Capital Markets are bullish on the firm’s long-term drivers, potential new customer streams and business prospects, with BI likening “Cadence to selling the paint and the brushes into a semiconductor renaissance.” The company is expected to give comments on the impact of the recently announced US chip-export rules against China, though BI said that could be minimal given peer Synopsys said it didn’t expect material earnings impact. Tuesday: Microsoft (MSFT US) is projected to report its slowest year-over-year revenue growth since late 2017 when it delivers fiscal 1Q results after the market close. Guggenheim analysts cast doubt on the company’s ability to maintain full year guidance, saying its target of double-digit reported revenue growth is at risk if the dollar continues to strengthen and macro conditions weaken further. Still, a rebound in cloud spending could help it beat expectations in 2024, according to Bloomberg Intelligence. Biogen (BIIB US) reports before the opening bell. The drugmaker’s next steps for the jointly-developed Alzheimer’s treatment lecanemab may steal the limelight from the results themselves, Bloomberg Intelligence wrote, given the positive findings from the phase 3 trial last month. Baird analysts said the company could face questions about its regulatory and pre-launch effort with Eisai for the treatment, also noting investors’ interest on pricing plans. They expect third-quarter results to largely meet the Street’s consensus, which is guiding for a low-double-digit contraction in both the top and bottom lines for the quarter. Wednesday: Boeing (BA US) will report before the bell. Analysts are projecting a return to positive free cash flow and a sequential growth in operating cash generated for the fiscal third quarter, reinforcing comments last month made by Chief Financial Officer Brian West. On the earnings call, Cowen analysts are expecting the planemaker to address supply chain and labor concerns. Seagate (STX US) is due before the market open. Having cut its revenue forecast in August due to worsening economies and supply-chain snarls, the computer hard drive maker should post a top line for the fiscal first quarter that meets its updated guidance, Bloomberg Intelligence wrote. The sharp sales drop -- consensus implies about a 32% decline compared with a year ago -- may trigger cost-cutting measures as a margin remedy, they added. Thursday: Apple (AAPL US), releasing its fourth-quarter results after the bell, could be hit harder than expected by the effects of the stronger dollar and weakness in China. “Unfavorable foreign-exchange movement may have driven high-single-digit growth in services both for the fourth quarter, with potential for similar gains in the first quarter of 2023, compared with an average of 19.7% over the past four quarters,” Bloomberg Intelligence said. IPhone sales could match or beat consensus of about 9.8% growth year-over-year, thanks to an extra week of new-iPhone sales, but total iPhone revenue in 2023 is projected to rise only about 2.7%. Apple withdrew plans to ramp up iPhone 14 production late last month, as an anticipated surge in demand did not materialize. Caterpillar (CAT US) will report premarket. The heavy machinery maker is set to post accelerated growth in revenue, driven by factors BI identified as its elevated backlog, solid underlying demand and easing supply constraints. Most of its dealers in North America are expecting further price hikes in 2023 as demand is out-running supply, according to Citigroup analysts. Management’s view on inflation pressures, supply chain and China demand will be closely watched after its CEO in August said there had been no broad improvements on these macro challenges. Friday: Exxon (XOM US) and Chevron (CVX US) are both due before the opening bell. The two oil giants are projected by consensus to continue the bottom-line expansion streak they’ve seen over the past year, thanks to oil prices that remained elevated for most of the third quarter. The producers’ fourth-quarter outlooks will be key, as Bloomberg Intelligence raised the possibility of weaker cash flow for Exxon due to falling crude and gas prices, as well as a potentially slower profit growth for Chevron. --With assistance from Rafael Mendes. Most Read from Bloomberg Businessweek What the Alzheimer’s Drug Breakthrough Means for Other Diseases From Bedrooms to Kitchens, Europe Ponders How Cold Is Too Cold California’s Tech Millionaires Can’t Agree About Tax to Fund EVs ©2022 Bloomberg L.P.

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What Lies Ahead for Big Tech ETFs in Q3 Earnings?

Most of the tech titans are expected to report slowing profit and revenue growth, or even year-over-year declines, for the three months ending in September, according to the analyst estimates.

Yahoo

What Lies Ahead for Big Tech ETFs in Q3 Earnings? We are in the peak of the third-quarter earnings season and tech giants are in the spotlight next week. The five biggest tech players — Apple AAPL, Amazon AMZN, Meta Platforms META, Alphabet GOOGL and Microsoft MSFT — are set to report. These five companies currently account for about 23% of the total market capitalization of the S&P 500 Index. Most of these are expected to report slowing profit and revenue growth, or even year-over-year declines, for the three months ending in September, according to the analyst estimates. The technology sector, which was hit the hardest by soaring yields and a hawkish Fed, has shown some strength lately. However, their earnings are expected to take a hit from the strength in the U.S. dollar, which is currently trading at its highest level in two decades (read: Dollar at 20-Year High: ETFs to Gain & Lose). Both Microsoft and Alphabet are scheduled to release their earnings on Oct 25, while Meta Platforms and Apple will report on Oct 26 and Oct 27, respectively. Amazon is also slated to report on Oct 27. Microsoft Microsoft has a Zacks Rank #4 (Sell) and an Earnings ESP of -0.65%. According to our methodology, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter. The Zacks Consensus Estimate indicates substantial earnings growth of 1.3% and revenue growth of 9.4% from the year-ago quarter. Microsoft’s earnings track is impressive, with the last four-quarter earnings surprise being 4.53%, on average. However, the stock witnessed negative earnings estimate revision of a penny for the to-be-reported quarter over the past 30 days. Analysts decreasing estimates right before earnings — with the most up-to-date information possible — is not a good indicator for the stock. Microsoft belongs to a top-ranked Zacks industry (top 33%) and has lost about 12% over the past three months (see: all the Technology ETFs here). Alphabet Alphabet has a Zacks Rank #3 and an Earnings ESP of -2.07%. It saw no earnings estimate revision over the past seven days for the to-be-reported quarter. The company’s earnings surprise track over the past four quarters is good, with the beat being 6.77%, on average. Earnings are expected to decline 10.7%, while revenues are expected to grow 8.8% from the year-ago quarter. Alphabet falls under a top-ranked Zacks industry (top 20%). The Internet behemoth has shed about 12% in the past three months (read: Apple ETFs in Focus Post iPhone 14 Launch). Meta Platforms Meta Platforms has a Zacks Rank #4 and an Earnings ESP of -3.21%. The social media giant saw a negative earnings estimate revision of couple of cents for the to-be-reported quarter over the past seven days. The current Zacks Consensus Estimate for the yet-to-be reported quarter indicates a substantial year-over-year earnings decline of 43.5%. Revenues are expected to decrease 5.4%. Meta Platforms delivered an earnings surprise of 0.80%, on average, in the last four quarters. The stock belongs to a top-ranked Zacks industry (top 27%). Shares of META have lost about 21% in the past three months. Apple Apple has a Zacks Rank #3 and an Earnings ESP of +0.79%. The stock saw positive earnings estimate revision over the past 30 days for fourth-quarter fiscal 2022, and its earnings surprise history is strong. It delivered an earnings surprise of 5.67%, on average, over the past four quarters. Apple is expected to report a modest earnings growth of 1.6% from the year-ago quarter and revenues are expected to increase 6.1% year over year. It belongs to a bottom-ranked Zacks industry (bottom 6%). The stock has declined 8% in the past three-month timeframe. Amazon Amazon has a Zacks Rank #4 and an Earnings ESP of -27.66%. The stock saw a positive earnings estimate revision of a penny over the past 30 days for the third quarter. The Zacks Consensus Estimate represents a substantial year-over-year earnings decline of 22.6% and revenue growth of 15.6%. Amazon’s earnings surprise history is impressive, with an average beat of 124.7% for the last four quarters. The stock falls under a top-ranked Zacks industry (top 20%). The online e-commerce behemoth has witnessed a share price fall of 5% in the past three months. ETFs to Tap Given this, investors may want to play these stocks with the help of ETFs. Below, we have highlighted six ETFs having the largest exposure to these tech giants. MicroSectors FANG+ ETN FNGS: This ETN is linked to the performance of the NYSE FANG+ Index, which is equal-dollar weighted and designed to provide exposure to a group of highly traded growth stocks of next-generation technology and tech-enabled companies. The note accounts for a 10% share in each of the FAANG stocks and has a Zacks ETF Rank #3 (read: Netflix Returns to Growth, Shares Spike: ETFs to Tap). Blue Chip Growth ETF TCHP: This fund focuses on companies with leading market positions, seasoned management and strong financial fundamentals. It accounts for a combined 46.6% in the five firms. Vanguard Mega Cap Growth ETF MGK: This ETF offers exposure to the largest growth stocks in the U.S. market and has a Zacks ETF Rank #3. The five firms account for a combined 42.9% share in the basket. iShares Evolved U.S. Technology ETF IETC: This fund employs data science techniques to identify companies with exposure to the technology sector. The five firms account for a combined 42.9% share in the basket. Invesco QQQ QQQ: This ETF focuses on 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalization. This fund makes up for 37.3% share in the in-focus firms and has a Zacks ETF Rank #3 with a Medium risk outlook. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN) : Free Stock Analysis Report Apple Inc. (AAPL) : Free Stock Analysis Report Microsoft Corporation (MSFT) : Free Stock Analysis Report Invesco QQQ (QQQ): ETF Research Reports Alphabet Inc. (GOOGL) : Free Stock Analysis Report Vanguard Mega Cap Growth ETF (MGK): ETF Research Reports iShares Evolved U.S. Technology ETF (IETC): ETF Research Reports MicroSectors FANG ETN (FNGS): ETF Research Reports T. Rowe Price Blue Chip Growth ETF (TCHP): ETF Research Reports Meta Platforms, Inc. (META) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research

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Microsoft Corporation (MSFT) is Attracting Investor Attention: Here is What You Should Know

Microsoft (MSFT) has been one of the stocks most watched by Zacks.com users lately. So, it is worth exploring what lies ahead for the stock.

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Microsoft Corporation (MSFT) is Attracting Investor Attention: Here is What You Should Know Microsoft (MSFT) has been one of the most searched-for stocks on Zacks.com lately. So, you might want to look at some of the facts that could shape the stock's performance in the near term. Shares of this software maker have returned -2% over the past month versus the Zacks S&P 500 composite's -5.1% change. The Zacks Computer - Software industry, to which Microsoft belongs, has lost 1.6% over this period. Now the key question is: Where could the stock be headed in the near term? Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision. Earnings Estimate Revisions Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock. Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock's fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements. For the current quarter, Microsoft is expected to post earnings of $2.30 per share, indicating a change of +1.3% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.4% over the last 30 days. For the current fiscal year, the consensus earnings estimate of $9.99 points to a change of +8.5% from the prior year. Over the last 30 days, this estimate has changed -1%. For the next fiscal year, the consensus earnings estimate of $11.51 indicates a change of +15.2% from what Microsoft is expected to report a year ago. Over the past month, the estimate has changed -1.4%. With an impressive externally audited track record, our proprietary stock rating tool -- the Zacks Rank -- is a more conclusive indicator of a stock's near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #4 (Sell) for Microsoft. The chart below shows the evolution of the company's forward 12-month consensus EPS estimate: 12 Month EPS Projected Revenue Growth While earnings growth is arguably the most superior indicator of a company's financial health, nothing happens as such if a business isn't able to grow its revenues. After all, it's nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it's important to know a company's potential revenue growth. In the case of Microsoft, the consensus sales estimate of $49.57 billion for the current quarter points to a year-over-year change of +9.4%. The $218.02 billion and $247.57 billion estimates for the current and next fiscal years indicate changes of +10% and +13.6%, respectively. Last Reported Results and Surprise History Microsoft reported revenues of $51.87 billion in the last reported quarter, representing a year-over-year change of +12.4%. EPS of $2.23 for the same period compares with $2.17 a year ago. Compared to the Zacks Consensus Estimate of $52.31 billion, the reported revenues represent a surprise of -0.86%. The EPS surprise was -2.19%. Over the last four quarters, Microsoft surpassed consensus EPS estimates three times. The company topped consensus revenue estimates three times over this period. Valuation Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects. While comparing the current values of a company's valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), with its own historical values helps determine whether its stock is fairly valued, overvalued, or undervalued, comparing the company relative to its peers on these parameters gives a good sense of the reasonability of the stock's price. The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to grade stocks from A to F (an An is better than a B; a B is better than a C; and so on), is pretty helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued. Microsoft is graded D on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that have driven this grade. Bottom Line The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Microsoft. However, its Zacks Rank #4 does suggest that it may underperform the broader market in the near term. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Microsoft Corporation (MSFT) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research

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2 Reddit Stocks to Buy and Hold for Years

Reddit stocks get a bad rap. Sure, the social media platform where retail investors sometimes swap stock tips has helped spur the curious multiple rises and falls of GameStop, AMC Entertainment, and Bed, Bath and Beyond. Sure, there are plenty of dubious names on the list, but you'll also find a few stocks that are great long-term investments, or as Reddit users and cryptotraders like to say, "HODLS."

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2 Reddit Stocks to Buy and Hold for Years Reddit stocks get a bad rap. Sure, the social media platform where retail investors sometimes swap stock tips has helped spur the curious multiple rises and falls of GameStop, AMC Entertainment, and Bed, Bath and Beyond. Sure, there are plenty of dubious names on the list, but you'll also find a few stocks that are great long-term investments, or as Reddit users and cryptotraders like to say, "HODLS."

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Want to Get Richer? 3 Top Stocks to Buy Now and Hold Forever

These innovative tech companies will likely continue growing for decades, making their stocks excellent long-term holds.

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Want to Get Richer? 3 Top Stocks to Buy Now and Hold Forever These innovative tech companies will likely continue growing for decades, making their stocks excellent long-term holds. These innovative tech companies will likely continue growing for decades, making their stocks excellent long-term holds.

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Zuckerberg's Metaverse Bet Is More Than Experimental - It's Key to Meta's Survival

Don't be a hater until you understand why the metaverse matters so much to Meta in the first place.

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Zuckerberg's Metaverse Bet Is More Than Experimental - It's Key to Meta's Survival Don't be a hater until you understand why the metaverse matters so much to Meta in the first place. Don't be a hater until you understand why the metaverse matters so much to Meta in the first place.

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Seven Springs Wealth Group, LL - GuruFocus.com

GuruFocus Article or News written by insider and the topic is about:

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Seven Springs Wealth Group, LLC recently filed their 13F report for the third quarter of 2022, which ended on 2022-09-30. The 13F report details which stocks were in a guru’s equity portfolio at the end of the quarter, though investors should note that these filings are limited in scope, containing only a snapshot of long positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They are not required to include international holdings, short positions or other types of investments. Still, even this limited filing can provide valuable information. 340 SEVEN SPRINGS WAY, SUITE 710 BRENTWOOD, TN 37027 As of the latest 13F report, the guru’s equity portfolio contained 57 stocks valued at a total of $184.00Mil. The top holdings were DGRO(25.84%), CI(25.57%), and VWO(5.75%). According to GuruFocus data, these were Seven Springs Wealth Group, LLC’s top five trades of the quarter. iShares Floating Rate Bond ETF During the quarter, Seven Springs Wealth Group, LLC bought 124,310 shares of BATS:FLOT for a total holding of 159,482. The trade had a 3.4% impact on the equity portfolio. During the quarter, the stock traded for an average price of $50. On 10/22/2022, iShares Floating Rate Bond ETF traded for a price of $50.31 per share and a market cap of $9.16Bil. The stock has returned 0.10% over the past year. There is insufficient data to calculate the stock’s financial strength and profitability ratings. Cigna Corp Seven Springs Wealth Group, LLC reduced their investment in NYSE:CI by 25,448 shares. The trade had a 3.36% impact on the equity portfolio. During the quarter, the stock traded for an average price of $281.41. On 10/22/2022, Cigna Corp traded for a price of $301.34 per share and a market cap of $91.94Bil. The stock has returned 41.38% over the past year. GuruFocus gives the company a financial strength rating of 5 out of 10 and a profitability rating of 7 out of 10. In terms of valuation, Cigna Corp has a price-earnings ratio of 17.93, a price-book ratio of 2.08, a price-earnings-to-growth (PEG) ratio of 0.82, a EV-to-Ebitda ratio of 10.94 and a price-sales ratio of 0.53. The price-to-GF Value ratio is 1.10, earning the stock a GF Value rank of 3. iShares MBS ETF The guru sold out of their 60,577-share investment in NAS:MBB. Previously, the stock had a 2.96% weight in the equity portfolio. Shares traded for an average price of $96.75 during the quarter. On 10/22/2022, iShares MBS ETF traded for a price of $88.86 per share and a market cap of $19.27Bil. The stock has returned -16.30% over the past year. There is insufficient data to calculate the stock’s financial strength and profitability ratings. iShares Core Dividend Growth ETF During the quarter, Seven Springs Wealth Group, LLC bought 82,583 shares of ARCA:DGRO for a total holding of 1,068,851. The trade had a 2% impact on the equity portfolio. During the quarter, the stock traded for an average price of $48.88. On 10/22/2022, iShares Core Dividend Growth ETF traded for a price of $46.69 per share and a market cap of $22.47Bil. The stock has returned -9.78% over the past year. There is insufficient data to calculate the stock’s financial strength and profitability ratings. In terms of valuation, iShares Core Dividend Growth ETF has a price-earnings ratio of 14.89 and a price-book ratio of 2.75. Microsoft Corp Seven Springs Wealth Group, LLC reduced their investment in NAS:MSFT by 5,711 shares. The trade had a 0.73% impact on the equity portfolio. During the quarter, the stock traded for an average price of $264.05. On 10/22/2022, Microsoft Corp traded for a price of $242.12 per share and a market cap of $1,805.70Bil. The stock has returned -21.29% over the past year. GuruFocus gives the company a financial strength rating of 8 out of 10 and a profitability rating of 10 out of 10. In terms of valuation, Microsoft Corp has a price-earnings ratio of 25.12, a price-book ratio of 10.85, a price-earnings-to-growth (PEG) ratio of 1.22, a EV-to-Ebitda ratio of 17.60 and a price-sales ratio of 9.21. The price-to-GF Value ratio is 0.78, earning the stock a GF Value rank of 9. Please note, the numbers and facts quoted are as of the writing of this article and may not factor in the latest trading data or company announcements. Want to provide feedback on this article? Have questions or concerns? Get in touch with us here, or email us at [email protected]! This article is general in nature and does not represent the opinions of GuruFocus or any of its affiliates. This article is not intended to be financial advice, nor does it constitute investment advice or recommendations. It was written without regard to your individual situation or financial goals. We aim to bring you fundamental, data-driven analysis, The information on this site is in no way guaranteed for completeness, accuracy or in any other way.

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Top 5 3rd Quarter Trades of Aa - GuruFocus.com

GuruFocus Article or News written by insider and the topic is about:

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Aaron Wealth Advisors LLC recently filed their 13F report for the third quarter of 2022, which ended on 2022-09-30. The 13F report details which stocks were in a guru’s equity portfolio at the end of the quarter, though investors should note that these filings are limited in scope, containing only a snapshot of long positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They are not required to include international holdings, short positions or other types of investments. Still, even this limited filing can provide valuable information. 515 N. STATE ST. CHICAGO, IL 60654 As of the latest 13F report, the guru’s equity portfolio contained 221 stocks valued at a total of $542.00Mil. The top holdings were MSFT(9.75%), VONV(7.70%), and IEFA(5.58%). According to GuruFocus data, these were Aaron Wealth Advisors LLC’s top five trades of the quarter. Microsoft Corp During the quarter, Aaron Wealth Advisors LLC bought 153,318 shares of NAS:MSFT for a total holding of 227,155. The trade had a 6.58% impact on the equity portfolio. During the quarter, the stock traded for an average price of $264.05. On 10/22/2022, Microsoft Corp traded for a price of $242.12 per share and a market cap of $1,805.70Bil. The stock has returned -21.29% over the past year. GuruFocus gives the company a financial strength rating of 8 out of 10 and a profitability rating of 10 out of 10. In terms of valuation, Microsoft Corp has a price-earnings ratio of 25.12, a price-book ratio of 10.85, a price-earnings-to-growth (PEG) ratio of 1.22, a EV-to-Ebitda ratio of 17.60 and a price-sales ratio of 9.21. The price-to-GF Value ratio is 0.78, earning the stock a GF Value rank of 9. Zuora Inc The guru sold out of their 1,472,439-share investment in NYSE:ZUO. Previously, the stock had a 3.31% weight in the equity portfolio. Shares traded for an average price of $8.62 during the quarter. On 10/22/2022, Zuora Inc traded for a price of $7.12 per share and a market cap of $939.13Mil. The stock has returned -66.64% over the past year. GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 3 out of 10. In terms of valuation, Zuora Inc has a price-book ratio of 4.89, a EV-to-Ebitda ratio of -8.61 and a price-sales ratio of 2.41. The price-to-GF Value ratio is 0.43, earning the stock a GF Value rank of 4. Vanguard Russell 1000 Value Index Fund During the quarter, Aaron Wealth Advisors LLC bought 277,181 shares of NAS:VONV for a total holding of 699,484. The trade had a 3.05% impact on the equity portfolio. During the quarter, the stock traded for an average price of $65.47. On 10/22/2022, Vanguard Russell 1000 Value Index Fund traded for a price of $62.84 per share and a market cap of $6.05Bil. The stock has returned -11.24% over the past year. There is insufficient data to calculate the stock’s financial strength and profitability ratings. In terms of valuation, Vanguard Russell 1000 Value Index Fund has a price-earnings ratio of 14.11 and a price-book ratio of 2.00. International Business Machines Corp During the quarter, Aaron Wealth Advisors LLC bought 118,649 shares of NYSE:IBM for a total holding of 145,110. The trade had a 2.6% impact on the equity portfolio. During the quarter, the stock traded for an average price of $131.23. On 10/22/2022, International Business Machines Corp traded for a price of $129.9 per share and a market cap of $117.32Bil. The stock has returned 11.34% over the past year. GuruFocus gives the company a financial strength rating of 4 out of 10 and a profitability rating of 8 out of 10. In terms of valuation, International Business Machines Corp has a price-earnings ratio of 94.83, a price-book ratio of 5.84, a EV-to-Ebitda ratio of 31.31 and a price-sales ratio of 2.49. The price-to-GF Value ratio is 1.09, earning the stock a GF Value rank of 5. Barrick Gold Corp The guru established a new position worth 800,842 shares in NYSE:GOLD, giving the stock a 2.29% weight in the equity portfolio. Shares traded for an average price of $15.78 during the quarter. On 10/22/2022, Barrick Gold Corp traded for a price of $15.01 per share and a market cap of $26.31Bil. The stock has returned -19.46% over the past year. GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rating of 7 out of 10. In terms of valuation, Barrick Gold Corp has a price-earnings ratio of 14.37, a price-book ratio of 1.20, a price-earnings-to-growth (PEG) ratio of 2.57, a EV-to-Ebitda ratio of 4.09 and a price-sales ratio of 2.45. The price-to-GF Value ratio is 0.73, earning the stock a GF Value rank of 9. Please note, the numbers and facts quoted are as of the writing of this article and may not factor in the latest trading data or company announcements. Want to provide feedback on this article? Have questions or concerns? Get in touch with us here, or email us at [email protected]! This article is general in nature and does not represent the opinions of GuruFocus or any of its affiliates. This article is not intended to be financial advice, nor does it constitute investment advice or recommendations. It was written without regard to your individual situation or financial goals. We aim to bring you fundamental, data-driven analysis, The information on this site is in no way guaranteed for completeness, accuracy or in any other way.

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Microsoft Corp. stock rises Friday, outperforms market

Shares of Microsoft Corp. advanced 4.02% to $235.87 Friday, on what proved to be an all-around great trading session for the stock market, with the S&P 500...

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Shares of Microsoft Corp. MSFT, +0.19% advanced 4.02% to $235.87 Friday, on what proved to be an all-around great trading session for the stock market, with the S&P 500 Index SPX, +0.67% rising 2.46% to 3,901.06 and the Dow Jones Industrial Average DJIA, +0.93% rising 2.59% to 32,861.80. The stock's rise snapped a two-day losing streak. Microsoft Corp. closed $113.80 below its 52-week high ($349.67), which the company reached on November 22nd. The stock demonstrated a mixed performance when compared to some of its competitors Friday, as Apple Inc. AAPL, -0.28% rose 7.56% to $155.74, Alphabet Inc. Cl A GOOGL, +0.59% rose 4.41% to $96.29, and SAP SE ADR SAP, +1.07% rose 0.28% to $97.71. Trading volume (40.5 M) eclipsed its 50-day average volume of 27.8 M. Editor's Note: This story was auto-generated by Automated Insights, an automation technology provider, using data from Dow Jones and FactSet. See our market data terms of use.

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A $3 trillion loss: Big Tech's horrible year is getting worse

Big Tech companies took a heavy beating this week, to the tune of more than $255 billion in lost market capitalization that helped make a bad year even worse...

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Big Tech companies are taking a heavy beating this week, to the tune of more than $255 billion in lost market capitalization that’s helped make a bad year even worse for the once-beloved sector. The five tech giants that posted results this week have now lost a combined $3 trillion in market cap on the year, according to Dow Jones Market Data, showing that Big Tech isn’t immune to the macroeconomic storm sweeping up the broader stock market. Facebook in freefall: 5 charts that show Meta’s financial collapse The Big Five tech companies—Alphabet Inc. GOOG, Even more concerning this quarter, though, was the steep fall in net income seen nearly across the board. The five reported combined net income of $59.5 billion, down 17.8% from the $72.3 billion they logged a year before. In that year-ago quarter, income growth at the Big Five soared 39.1% in aggregate, even as Amazon’s saw its profit halved. On the whole, the Big Five raked in $1.08 trillion in revenue through the first nine months of the year, up 9.2% from a year before, though both net income and free-cash flow turned lower. The gang recorded $178 billion in aggregate net income in the first three quarters of 2022, down 19.7% from a year before, along with $150 billion in free-cash flow, down 10%. All five companies logged declining net income when looking at the first nine months of 2022, while Apple and Microsoft were the lone two to see growth in free-cash flow. Tech companies, like others across the S&P 500 SPX, “I want to acknowledge that we are still living through unprecedented times,” Apple Chief Executive Tim Cook told analysts on the company’s call on Thursday. “From war in Eastern Europe to the persistence of COVID-19, from climate disasters around the world to an increasingly difficult economic environment, a lot of people in a lot of places are struggling.” Yet Apple was the standout this quarter, not just because it was the only Big Tech company to register a post-earnings bump in its stock price, but also because it was the only member of the gang to actually grow net income. (Apple’s stock was in fact heading to its best single-day gain since September 2020 amid a 7% Friday rally.) The smartphone giant’s 0.8% increase in September-quarter net income was nothing to write home about compared with the 62.2% bump that Apple saw in the year-earlier quarter, but it was notable relative to the “carnage” of its Big Tech peers. Apple’s slight rise in net income came even as the company declined to raise prices on its iPhone 14 family despite supply-chain pressures and other challenges. When zooming out, Apple’s net income is down on the year, however, off 1.1% through the first nine months, according to Dow Jones Market Data. Chief Executive Tim Cook said on the company’s earnings call that the company has seen “inflation related to logistics” and with some silicon components. The internet sector, though, made Apple’s results shine even brighter, amid competitive and macroeconomic challenges that have been compounded, from a financial perspective, by the determination of Meta and Alphabet to push forward with aggressive spending plans. Meta was the only Big Tech company to post a revenue decline (-4.5%) in the latest quarter, while at the same time the company’s losses in its Reality Labs business ballooned to nearly $10 billion over the last nine months. Net income in the quarter dropped in half and its stock sunk to its lowest level in six years on Wednesday. The report marked an even grimmer chapter in a tough year for the company, which has now seen revenue rise only 0.2% through the first nine months of the year, as net income has plummeted more than 36% and as free-cash flow has nearly halved. Meta’s financial challenges could continue as Chief Executive Mark Zuckerberg vowed to plow more money into its metaverse ambitions with Reality Labs spending projected to “increase meaningfully again” next year. Like Meta, Alphabet is determined to spend, even though it’s shown some signs that it will depart from the ways of old. Executives told analysts on their conference call that they would slow hiring levels in the fourth quarter, to half of the hires brought in during the third quarter. At least one Wall Street analyst said the internet search and ad giant should instead be freezing its hiring, and our colleagues at Barron’s declared that Alphabet needs to go on a diet. Whereas investors once rewarded fast-growing tech companies for efforts to expand their businesses further, now Wall Street has sent a caution signal. At least two Big Tech companies are paying attention. Amazon Chief Financial Officer Brian Olsavsky told analysts the company was “taking action to tighten our belt,” and Microsoft executives made similar comments in the latest quarter. “While we continue to help our customers do more with less, we will do the same internally,” Microsoft Chief Financial Officer Amy Hood, said as she noted that Microsoft’s operating-expense growth should “moderate materially” as the fiscal year goes on. Adding more pressure to Big Tech was the fact that one of the golden sectors of tech — cloud computing — was also slowing down. The top two cloud service companies, Amazon’s AWS and Microsoft’s Azure, saw revenue growth deceleration in the September quarter, while Google Cloud saw revenue slow from the first and fourth quarter of 2021. It’s worth asking at this point what should comprise Big Tech. Meta is worth far less than chip powerhouse Nvidia Corp. NVDA, MarketWatch periodically tabulates the results of the biggest tech companies to show the scale and performance of these market titans, but perhaps it’s worth removing Meta from the Big Tech gang as its valuation plummets. With or without Meta, it’s clear that Big Tech’s fortunes have turned. The big high-double-digit growth days appear to be behind the group and investor expectations have now changed: Wall Street looks increasingly ready to reward companies for their ability to rein in expenses and generate free-cash flow. For now, heady growth is over.

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Cloud Stocks Fall After Earnings Results From Amazon, Microsoft

The disappointing earnings results are weighing on stocks such Snowflake, MongoDB, and Datadog.

MarketWatch

This week’s earnings reports from both Microsoft and Amazon are raising new questions about the health of the cloud computing sector, pressuring shares of Snowflake, MongoDB, and other companies closely tied to the cloud. On Tuesday, Microsoft (ticker: MSF) said its Azure cloud business grew 35% in the September quarter, or 42% adjusted for currency, coming in a point or two below Street estimates. Even worse, the company projected that December quarter growth would drop five percentage points on a currency adjusted basis, well below analysts’ expectations. And Amazon (ticker: AMZN) reported on Thursday 27% growth in the September quarter for Amazon Web Services, about five percentage points below Street expectations. The company said that by the end of the quarter, the growth rate was down to the mid-20% range. Amazon Chief Financial Officer Brian Olsavsky told investors on the company’s earnings conference call that current macroeconomic pressures have spurred “an uptick in customers focused on controlling costs.” He said Amazon is “proactively working to help customers cost optimize,” echoing a comment Microsoft made earlier in the week. Both companies rely on consumption-based business models—and both made it clear that some companies are slowing down on that as they respond to a softening economic environment. That has investors in other cloud-related companies with similar business models losing ground on Thursday. The AWS results are weighing heavily on shares of Snowflake (SNOW), a cloud-based data warehouse and analytics company with a consumption-based model. Snowflake shares on Friday were down 6%, increasing the stock’s decline for the year to 53%. MongoDB (MDB), which provides cloud-based database software, was down 3% on the day, and now 65% lower for the year. Also taking a hit were Datadog (DDOG) and Elastic (ESTC), both 3% lower, and Digital Ocean (DOCN), off 1%. “It seems pretty clear that customers are looking to throttle down consumption given the macro uncertainty and this is pressuring near-term growth,” Evercore ISI analyst Kirk Materne wrote in a research note Friday. “There is no getting around the fact that the most recent data points to a downtick and that’s going to create concerns as it relates to all the consumption-based SaaS [software as a service] names.” Materne says the next key event for the cloud software group will be next week’s Datadog earnings report, due to be announced Nov. 3. Amazon shares on Friday were down 8%, to $101.76. The stock had declined as much as 20% in after hours trading on Thursday. Write to Eric J. Savitz at eric.savitz@barrons.com

MSFT

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Off To The RACES: FAANG Crushed

The historic capital that began as a quiet murmur in 2020 and 2021, and rose to full throated roar in 2022, has continued, this time with FAANG crushed.

SeekingAlpha

Off To The RACES: FAANG Crushed Summary - The historic capital that began as a quiet murmur in 2020 and 2021, and rose to full throated roar in 2022, has continued, this time with FAANG crushed. - Meanwhile, energy equities continue to outperform on both an absolute and relative basis. - Going forward, there's still a lot of room for energy equity revaluation higher, while the much ballyhooed FAANG stocks have further room for multiple compression. - Investors as a whole are still underweight in the energy sector, so there is further room for a majority of market participants to follow in Buffett's footsteps in embracing the energy sector. - The real driver of the secular bull market is the capital cycle, and this is underappreciated right now. - This idea was discussed in more depth with members of my private investing community, The Contrarian. Learn More » If everybody indexed, the only word you could use is chaos, catastrophe… the markets would fail. - John Bogle, May 2017 Try to buy assets at a discount rather than earnings. Earnings can change dramatically in a short time. Usually, assets change slowly. One has to know much more about a company if one buys earnings. - Walter Schloss Introduction Watching the after hours price action of Amazon (AMZN) shares last night, when the stock fell over 20% due to lowered guidance, my mind drifted to the ongoing historical capital rotation from growth to value, from loved to unloved, with the latest move in this ratio occurring from the most ballyhooed stocks getting pummeled. On that note, earlier this week, we saw Meta Platforms (META) fall 25% post their third quarter earnings, and both Alphabet (GOOGL), (GOOG), and Microsoft (MSFT) shares fell sharply too after their respective third quarter earnings results. As a contrarian, value-oriented investor, the sheer magnitude of the drop in Meta Platform shares, which are down a staggering 70.9% year-to-date in 2022 alone, certainly gets my research interest flowing. Looking back, this may be the start of a buying opportunity, specifically in META, which I will go into more detail later in a future, different article. Having said that, technology stocks are far from cheap on a relative basis as the following Bank of America (BAC) graphic illustrates, comparing technology stocks to the broader S&P 500 Index (SP500). Investors looking to buy the dip in technology stocks have to look at the chart above, and at least take a pause, at a minimum. Speaking from the experience of someone who has been too early buying a value trap previously, secular bear markets can be drawn out affairs, with Microsoft's price action from 2000-2009 being a prime example, where the largest market capitalization company went through an extended bear market despite generally robust growth. Conversely, energy equities remain remarkably cheap, with price to earnings ratios well below the broader market. Thus, remarkably, after almost three years of significant cumulative outperformance, the more prominent contrarian opportunity may still be in energy equities, and not in the newly discounted technology leaders, which still have further room to see their relative valuation multiples compress. Said another way, buy the dip, just not in the sectors that investors usually apply that approach. Energy Equities Have Outperformed Significantly In 2022 Energy equities have outperformed significantly year-to-date in 2022, with the Energy Select Sector SPDR Fund (XLE) up 65.4% year-to-date in 2022, which is a significant percentage gain from their 45.3% gain for XLE through April 15th, 2022, which was the last entry in this article series. The last update was actually published on April 15th, 2022, but the percentage gains were through the close of April 14th, 2022. The very strong absolute performance of XLE YTD compares very favorably to a 19.1% YTD decline in the SPDR S&P 500 ETF (SPY), which was down 7.5% as of April 14th, a 31.1% YTD decline in the Invesco QQQ Trust (QQQ), which was down 14.8% through April 14th, a 33.2% YTD decline in the iShares 20+Year Treasury ETF (TLT), which was down 18.2% through April 14th, and a 60.0% YTD decline in the ARK Innovation ETF (ARKK), which was down 37.6% through April 14th, 2022. Growth stocks, led by the momentum growth favorites that dominate ARKK, have been severely impaired, held back by their poor starting valuations, something I wrote about in detail on August 10th, 2021, with the article titled, "ARKK Implosion Is On The Horizon." Since that article was published, ARKK shares are down an eye opening 68.8%, which is a further loss from the 51.2% decline in the April 2022 update. For a comparative basis, the S&P 500 Index is down 14.2% (it was down 1% on April 14th, 2022 from the original article's publication for perspective), as illustrated in the image below. With the benefit of hindsight, obviously, growth stocks have really struggled in 2022, and really since ARKK peaked in February of 2021. This has occurred as rising interest rates across the yield curve, but particularly at the longer end of the yield curve, reduce the appeal of the longest duration assets. A Historical Capital Rotation Is In Progress, Exemplified By Exxon Mobil Versus Salesforce.com On the opposite side of the ledger, high free cash flow yielding companies are being rewarded, and many of these free cash flow standouts reside in the commodity equity sector, particularly in the energy sector. Taken together, meaning the downturn in technology stocks, and the surge in out-of-favor commodity equities, a historical capital rotation is underway. This historic capital rotation is something I have chronicled on a regular basis, documenting the flow of money from the "Haves" to the "Have Nots." These public articles below reference this historical capital rotation. - "A Historic Capital Rotation Is On Tap" - Published October 18th, 2020 - "A Historic Capital Rotation Is Happening Hidden In Plain Sight" - Published November 25th, 2020 - "The Historic Capital Rotation Is Continuing" - Published December 4th, 2020 - "Goldman Is Trumpeting A New Secular Commodities Bull Market And Investors Should Listen" - Published December 16th, 2020 - "Not All Energy Stocks Are Created Equal" - Published December 24th, 2020 - "A Historic Capital Rotation Is Quietly Marching On" - Published October 29th, 2021 - "A Historic Capital Rotations Is At A Fever Pitch" - Published February 4th, 2022 Pounding in this narrative of a historic capital rotation playing out in front of our eyes as investors hidden in plain sight, with this public article, I outlined how removing Exxon Mobil (XOM) from the Dow Jones Industrial Average (DIA) and replacing the venerable, longest listed Dow Jones component with Salesforce.com (CRM) in August of 2020 would turn out to be a high water marker for the current state of the financial markets. The share price performance of Exxon and Salesforce.com shares since that removal date says everything that you need to know about the financial markets since August 2020, with the SPDR S&P 500 ETF (SPY) performance, shown in black below, as the reference point. More specifically, XOM shares are up 196.4%, before today's anticipated gains after Exxon's strong third quarter 2022 earnings results, and CRM shares are down 41.1%. Going further, to show the steady progression of the historical capital rotation, here is the same chart from the April 15th article in this series. With the benefit of hindsight, almost all market participants were crowded on one side of the boat in 2020 and early 2021, overweighting technology shares, and underweighting the left behind value stocks, particularly the downtrodden commodity equities, and more specifically the energy equities. RACES Stocks Lead The Way The best example of this seismic shift in the investment landscape has been in the performance of natural gas equities, which I affectionately coined with the term RACES, which is the first letter of each of the equities highlighted in more detail below. More specifically, these equities are Range Resources (RRC), Antero Resources (AR), CNX Resources (CNX), EQT Corp. (EQT) and Southwestern Energy (SWN). The "C" in RACES by the way, could be Coterra Energy (CTRA), which was formerly Cabot Oil & Gas before their merger with Cimarex, Chesapeake Energy (CHK), or Comstock Resources (CRK), so chose your "C" as you see fit. Collectively, as you will see further down in this article, these natural gas equities which have trounced their vaunted FAANG peers in performance terms, across a range of time frames dating to January 1st, 2020, as I will illustrate below, which is an updated fifth edition to my February 3rd, 2021 article, "Off To The RACES: Natural Gas Equities Lapping FAANG Stocks, the May 26th, 2021 follow-up, the September 10th, 2021 third edition, and the April 15ht, 2022 fourth edition. Off To The RACES Stocks Are Significantly Outperforming The following performance chart shows the total return of Range Resources, Antero Resources, CNX Resources, EQT Corp., Southwestern Energy, and the SPDR S&P 500 ETF from January 1st, 2020 through Thursday, April 14th, 2022. Looking at the same performance chart below from the April 15th prior update in this series, with performance through April 14th, 2022, offers some clues. More specifically, Antero has appreciated slightly, while Range Resources, EQT Corp, Southwestern Energy, and CNX Resources have pulled back. Even with the recent pullback outside of Antero Resources, all of these natural gas equities have significantly outperformed the SPDR S&P 500 Index ETF, which has now gained 23.3% year-to-date, which is down from the 40.8% gain SPY posted since January 1st of 2020 in the prior update as the broader equity market has trended lower. Collectively, through October 27th, 2022, the "Off To The RACES" stocks have an average return of 429.8% since January 1st of 2020. This is down moderately from the 478.1% average return posted in the April 2022 update, and this simple average return is up significantly from the 190.4% average return from the September 2021 update, and the 152.6% average return since January 1st of 2020 published in the May 26th, 2021 article. Looking back to the first article in the series, the average return of 429.8% is up significantly from the average return of 80.4% from January 1st, 2020 through February 2nd, 2021. This might surprise many investors who have cast aside energy equities to the dustbin of history, yet these cast aside energy equities are significantly outperforming. FAANG Is Crushed What are the returns of the FAANG stocks over this time frame since January 1st, of 2020? By the way, I know Meta Platforms is no longer Facebook, however, when I started this series it was still Facebook, so we will stick with the FAANG acronym. The chart below illustrates this succinctly. Standing out like a sore thumb among its peers, or what I like to call the last shoe to drop, Apple (AAPL) shares are higher by 101.00 year-to-date. For perspective, looking at the chart in the last April 2022 update, even Apple shares are lower, down from their 128.8% gain shown below, however, the drops have been more severe elsewhere in this technology leading quintet. Taken all together, the new average return of the FAANG stocks since January 1st, 2020 is now a paltry 19.7% on average, even with the outlier of Apple shares, thus far. This 19.7% average return is less that the 23.3% return in the SPDR S&P 500 ETF over this timeframe. Additionally, this is a sharp decline from the April 2022 average return of 58.0%, which itself was a decline from 96.9% in the September 10th, 2021 update in this series. Bottom line, the "Off To The RACES" stocks have delivered an 429.8% average gain since the start of 2020 through October 27th, 2022, down moderately from the 478.1% average gain posted in the April 15th, 2022 update, yet significantly ahead of the FAANG average return of 19.7%. FAANG stocks have been crushed, with the 19.7% average return from January 1st, 2020 down significantly from the 58.0% average return that FAANG stocks delivered in the prior update through April 14th, 2022. That return was down from the 96.9% average gain from the September 10th, 2021 update for the FAANG equities. The return gap did not widen with this update, like it has in the past, however, it did not shrink much as FAANG declines offset some weakness in natural gas, and natural gas equities. A Long Time In Development and The Start Of A Longer-Term Opportunity Researching, chronicling, and tracking the opportunity in one of the most out-of-favor corners of the market has been a time-consuming initiative over the last couple of years, though it has proved worthwhile in terms of relative and absolute opportunity. The following partial list of public articles chronicles my thought process on the targeted natural gas equities, including Antero Midstream (AM), and the broader developing opportunity in commodity equities over the past year. - "Southwestern Energy: A Misunderstood Natural Gas Producer" - Published December 13th, 2019 - "Range Resources Continues Capex Cuts, Validates Appalachia Advantage" - Published January 8th, 2020 - "Antero Resources Is A Generational Buy: Dispelling The Myth Of Antero As High-Cost Producer" - Published February 19th, 2020 - "Antero Midstream Shares Are Significantly Undervalued Too" - Published February, 20th, 2020 - "The Long Oil, Short Natural Gas Trade Is Officially Dead" - Published March 9th, 2020 - "The United States Natural Gas Fund Was Up On A Historic Down Day For Energy" - Published March 10th, 2020 - "EQT Corp. Surges As The Bearish Natural Gas Thesis Is Dead" - Published March 17th, 2020 - "EQT Leading The Forthcoming Move Higher In Natural Gas Prices" - Published July 24th, 2020 - "Antero Resources Is A Generational Buy: Working Through The Near-Term Debt Maturities" - Published July 19th, 2020 - "Antero Midstream Has Outperformed All Other Midstream Firms Year-To-Date" - Published July 29th, 2020 - "Antero Resources Is A Generational Buy: Mapping Out The Free Cash Flow" - Published October 28th, 2020 - "Antero Resources Leading The Way In A Historic Energy Equity Rally" - Published December 11th, 2020 - "Not All Energy Stocks Are Created Equal" - Published December 24th, 2020 - "Antero Resources: Buy The Forgivable Dip" - Published August 2nd, 2021 - "EQT Corp.: Buy The Forgivable Dip At A 20% Free Cash Flow Yield" - Published August 4th, 2021 - "U.S. Steel: A Breakout Stock For 2022" - Published January 26th, 2022 - "Peabody Energy: A Breakout Stock For 2022" - Published January 28th, 2022 If you read through the articles above that chronicle this journey, there was pessimism and skepticism in the commentary sections, especially in the beginning. This skepticism and pessimism was evident publicly, and privately, where many struggled to embrace such a poor performing group of stocks. In my contrarian mindset, the continued pessimism and skepticism, which still exists today to an extent, think Cathie Wood of ARK Innovation ETF fame calling for a commodity crash in the second half of 2021, and subsequently doubling and tripling down on this call. This is a call I have vehemently disagreed with, and the boldness of investors that have gotten it completely wrong confirms that we're still in the early innings of this opportunity in natural gas equities, commodities, and commodity equities. On that note, if you look at the relative performance chart of a broad based index of commodities vs. the SPDR S&P 500 ETF, the size and scale of the relative opportunity quickly become apparent. For perspective here was the last chart posted in the April 15th, 2022 article. For reference, here was the same chart posted in the September 10th, 2021 update in this series. Closing Thoughts: More And More Investors Are Starting To Recognize The Potential Of A Secular Commodity Bull Market With Buffett piling into Chevron (CVX), and Occidental Petroleum (OXY), another stock that was a battleground stock where we were early on, many investors are starting to open their eyes to the developing potential in commodities, and commodity equities. For the moment, the energy sector remains a relatively paltry roughly 5% of the S&P 500 Index, however, as relative outperformance continues, the passive fund flow headwinds will become tailwinds. The untold story with the rise in energy equities is that this is a supply side story. Going further, the capital cycle is playing out in real time as energy equities collectively emphasize shareholder returns, specifically buybacks and dividends, diverting operating cash flows that used to almost entirely be reinvested back into operations. This, along with still low valuations, has interrupted the normal capital and created a backdrop for a secular bull market. With the broader equity market still exposed to the potential of a further drawdown, or perhaps seven years of running in place, because of historically poor starting valuations, there's a need for investors to consider alternative asset classes. Importantly, a further drawdown in the broader markets, which could be fueled by rising long-term interest rates rising because of supply side commodity inflationary pressures combined with building wage pressures, could accelerate fund flows into commodity equities. Why? Simply put, investors will be looking for non-correlated sectors and non-correlated stocks, especially if the drawdown in both stocks and bonds continues. Notably, this dual decline in stocks and bonds year-to-date in 2022 is impairing the traditionally popular 60/40 portfolio as well as the previous very in-favor risk parity strategies. On this note, commodity stocks, specifically the once loathed, and still generally unloved energy equity sector, certainly fits the bill as a portfolio diversifier, and enhancer, which we have seen play out in spades in 2022. Wrapping up, quietly at first, and now more rapidly as the capital rotation has broadened in scope, we have seen a passing of the baton of market leadership. Once the last safe-haven equities succumb to the broader bear market selling pressures, perhaps this passing of the baton will be clearer, however market phase changes like this take a long time, meaning years in the process. Will there be ebbs and flows to this process? Unequivocally yes, meaning expect relative pullbacks as investors reposition, and investors of all stripes try to re-orientate around the inflection point that is occurring real time. At this juncture, most investors are simply just becoming aware of the ongoing bear market and the leadership transition that has been taking place since the broader equity markets bottomed in March of 2020, though relative and absolute price action this year in 2022 has certainly opened more eyes. Recognizing this changing backdrop after years of study, including being too early, I have been pounding the table on the extremely out-of-favor commodity equities for several years now, and I still think we're in the early innings of what will be a longer-term secular bull market, albeit with significant volatility. Personally, I think we will supersede the capital rotation that took place from growth-to-value during 2000-2007, which also coincided with the last secular commodity bull market which ran from 2000-2008. Investors skittish of commodity equities should research cast aside financials as they also will benefit from a renewed steepening of the yield curve, which is probably forthcoming following the eventual Fed pause and pivot, whenever it occurs, which could even be a year out at this juncture. Understanding the bigger picture, then having an understanding of the bottoms-up fundamentals has been the key to outperformance, and this is a path that has not been easy with those participating confirming this reality. However, the road less taken is sometimes the better one, and I firmly believe that today, as traditional stocks, bonds, and real estate continue to offer very poor starting valuations, though they're better than at the start of this year where I opined it was better to be in cash for the next seven years, and very poor projected future real returns from today's price levels. More specifically, the out-of-favor assets and asset classes, including commodities and commodity equities and out-of-favor specific securities, are where the historic opportunity has been, and that's where it still stands, from my perspective. The Contrarian For further perspective on how the investment landscape is changing, and where to find the superior free cash flow yielding companies, consider joining our team of battle tested analysts at The Contrarian. Collectively, we have a unique history of finding under-priced, out-of-favor equities with significant appreciation potential relative to the broader market. Additionally, we have a robust investment discussion, alongside an equally robust discussion on portfolio strategy. Collectively, we make up The Contrarian, sign up here to join. This article was written by Twenty plus year career as an investment analyst, investor, portfolio manager, consultant, and writer. Founder of Koldus Contrarian Investments, Ltd, which was incorporated in the spring of 2009. Dyed in the wool contrarian investor, who has learned, the hard way, that a good contrarian is only contrarian 20% of the time, but being right at key inflection points is the key to meaningful wealth creation in the markets. I believe we are near a meaningful inflection point, perhaps the biggest one yet, for the third time in the past 15 years. Historically, I have had huge wins and impressive losses based on a concentrated, contrarian strategy. Trying to keep the good while filtering out the bad.Seeking to run an all weather portfolio with minimal volatility and index overlays to capture my strategic and tactical recommendations along with a concentrated best ideas portfolio, which is my bread and butter, but the volatility only makes it suitable for a small piece of an investor's overall portfolio. The following are a couple of my favorite investment quotes. "Life and investing are long ballgames." Julian Robertson "A diamond is a chunk of coal that is made good under pressure." Henry Kissinger "Knowledge is limited. Imagination encircles the world." Albert Einstein I’ve been on top of the world, and the world has been on top of me. I have learned to enjoy the perspective from each view, and use opportunities to persistently acquire knowledge, and enjoy the company of those around me, especially loved ones, family, and friends.At heart, I am a market historian with an unrivaled passion for the capital markets. I have had a long history and specialization with concentrated positions and options trading. Made money in 2008 with a net long portfolio, deploying capital in some of the market's darkest hours into long positions including purchases of American Express, Atlas Energy, Crosstex, First Industrial Real Estate, General Growth Properties, Genworth, Macquarie Infrastructure, Ruth Chris Steakhouse, and Vornado near their lows. Shorting, hedging, and option strategies also helped me in 2007 and 2009, and these are skills that I have developed ever since I started trading heavily in 1996.I enjoy reading, accumulating knowledge, and putting this knowledge to work in the active capital markets, learning lessons along the way.To this day, I continue to learn, and some of these learning lessons have been excruciatingly difficult ones, especially over the past several years, as I made mistakes allocating capital, including a sizable portion of my own capital (I always invest alongside my clients), to commodity related stocks. While all commodity related stocks have struggled since April of 2011, coal companies, which attracted me due to their extremely cheap valuations, and out-of-favor status (I am a strong believer in behavioral finance alongside fundamentals and technicals) have been the worst investing mistake of my career. The focus on the commodity arena has been the biggest mistake of my investment career thus far, yet in its aftermath, I see tremendous opportunity, even larger in scope than the fortuitous 2008/2009 environment.The capital that I accumulated and the confidence gained in navigating the treacherous investment waters of 2008 gave me the confidence to launch my own investment firm in the spring of 2009, right before the ultimate lows in the stock market. At the time I was working as a senior analyst at one of the largest RIA's in the country, and I felt strongly that the market environment was the best time since 1974/1975 to start an investment firm. Prior to starting my firm, I was a senior analyst for three different firms over approximately 10 years (Charles Schwab, Redwood, Oxford), moving up in responsibility and scope at each stop along my journey. Since I was a paperboy, I have always had an interest in the investment markets. I love researching and finding opportunities. I was a Chartered Financial Analyst, CFA from 2006-2018. Additionally, I have been a Chartered Alternative Investment Analyst, CAIA. After starting in the teaching program at Ball State University, I switched to a career in finance when I turned a small student loan into a substantial amount of capital. I graduated summa cum laude with a degree in finance from Ball State. Full disclosure, I am not currently a registered investment advisor, though I did serve in this capacity from 2009-2014, while owning Koldus Contrarian Investments, Ltd. Additionally, I held various securities licenses from 2000-2014 without a single formal complaint filed. At the end of 2014, I voluntarily let my state registration expire, as I transitioned the business to a different structure after going through a brutal business environment, divestiture and difficult divorce and custody battle. Prior to this, I had passed, and held, various securities exams and licenses, including the Series 7, Series 63, and Series 65 exams, in addition to others, alongside the CFA and CAIA designations. Unfortunately, I did not file the proper paperwork to withdraw my state registration, and I did not disclose a personal arrangement, and subsequent civil case, between myself and a former close personal friend and client. This arrangement was initiated informally in 2011, after a substantial period of success, as we aimed to be business partners, and it ultimately resulted in a dispute. I was unaware that I was required to disclose these items, and my securities attorney, at the time, did not advise me to do so. Previously, I had managed a portfolio for this gentleman, and we had taken an investment of approximately $7 million in 2009, and grown it to over $25 million at the beginning of 2012. After a very difficult year of performance, an employee of the firm I owned, and friend, resigned in early 2013, and took the aforementioned client to a competing firm. As a result of not filing the proper paperwork, I agreed to a settlement, with a potential $2500 fine in the future, depending on if I choose to reapply to be a non-exempt advisor. Additionally, while going through the difficult divorce and business dispute and divestiture, I did not file the proper disclosure on two of the annual CFA renewals. As a result, the CFA Institute sought a 3-Year Suspension of my right to use the CFA designation, which I appealed, since the primary investigator in the case sought a 1-year suspension of my right to use the CFA designation for a majority of the investigation. A Hearing Panel heard the case, and went against the recommendation of the CFA's Institute's Professional Conduct Department. Long story short, be careful who you trust, especially when substantial money is involved, and always disclose everything properly, which is hard to do when you are going through difficult situations, as this is the last thing you are probably thinking of at the time. In closing, I have had more experience in the markets, business, and life than most, yet I am grateful & thankful for every day. Additionally, I have learned through success and failures that you have to move forward, and if you can do this, your life will form a rich tapestry of stories. Analyst’s Disclosure: I/we have a beneficial long position in the shares of AM, AR, BAC, CHK, CNX, CRK, CTRA, CVX, EQT, OXY, RRC, SWN, XOM AND I AM SHORT AAPL, SPY, AND TLT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Every investor's situation is different. Positions can change at any time without warning. Please do your own due diligence and consult with your financial advisor, if you have one, before making any investment decisions. The author is not acting in an investment adviser capacity. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC filings. Any opinions or estimates constitute the author's best judgment as of the date of publication, and are subject to change without notice. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (89) now FANG crushing RACES, we haven't heard anything from you for long time. are you still holding RACES or time to move on while NG is trying to go under $2 when will wave 3 starting? My feeling is that after Nov 8 it will become clear Fed will slow down then stop rising rates as this was an attempt to manipulate oil prices before the midterm and then the inverse rotation from outperforming energy share to underperforming technology will start again? I have loaded up on fintech, such as STNE, AFRM, NU , SOFI, MELI and on Brazil stocks such as NTCO, BRFS, AZUL this summer from the proceeds of sale of energy shares ( I was 100% in energy shares from March 2020 to June 2022, then rotated to beaten down fintech), but still keeping some energy allocation at about 30%, FTI, PBR, VET and Gazprom (the latter transferred to Russian brokerage to avoid trading restrictions elsewhere). So far, I would have done better if I did not rotate, but it is too early to say, we will be able to tell by the end of next year. I plead the Fifth on that! I’d like to go heavier into energy; which 2 or 3 tickers are the biggest laggards that are ready to catch up, in your opinion?As always, thank you and enjoy the upcoming holidays with your family! Your article should be required reading for all SA authors. If they can't package information like you, they should write elsewhere. Some authors do, but not most. I’m told constantly that I’m a leading natural gas producer. I like PAGP. This the the general partner for Plains. PAGP does not report on a k1 as does the partnership. WMB Williams will also be around for a long time though at a more modest dividend %. KMI will also be good long term/ You have brilliantly chronicled this rotation (out of tech and into energy, out of growth and into value) and I think you are the best analyst and PM in the country for thoughtfully identifying it. I bought AR early because of your "generational opportunity" note and it has been a huge winner for our clients. Another great call of yours is the panning of Catherine Wood and ARKK. What I would like to know is where beyond nat gas and oil (energy) that you see deep value. I believe there is a great rotation in the capital goods cycle which should benefit the Green Infrastructure beneficiaries like green commodity manufacturers. eg BHP, RIO... ALB (for lithium) and also CCJ for Nuclear. I see energy demand for nuclear, hydrogen and LNG. What names do you like there? I like TELL for LNG, but they have had delays and difficulty putting it together. What cheap names do you like there?? Anyone who is not a subscriber, should subscribe to the Contrarian. Tyson Halsey, CFA I'm with you in TELL but it is now the longest of long shots. I have great expectations for LEU in nuclear and GTLS in the LNG arena, as well as FLNG for transport. OSSIF is interesting re: pipeline emissions detection. Not endorsements but cos to look into. --- Yeah, XOM is blaming inflation when in actuality they are price gouging on an oil price half that of its previous highs. I agree inflation is affecting some industries but then, nearly all of those other industries are dependent on fossil fuels to deliver their product. This comment displays a deep ignorance or misunderstanding of the O&G industry and its markets. Applied to corn, semi chips, or uranium, it would immediately be seen as specious but somehow it has traction in O&G. Keep up the good work. LONG AR and a whole lot more....

MSFT

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Ama-Gone: Why The Fed Is Still Not Bailing Your Poor Investments, Including Amazon

In May of 2022 we wrote why those expecting a Fed Put, would be put to the test as Amazon's fluff was unlikely to support a price even 50% lower. Read more here.

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Ama-Gone: Why The Fed Is Still Not Bailing Your Poor Investments, Including Amazon Summary - In May of 2022 we wrote why those expecting a Fed Put, would be "put" to the test. - Amazon's fluff was unlikely to support a price even 50% lower and we remained extremely bearish. - The stock cracked on the Q3-2022 results and we tell you why we are not done yet. - I do much more than just articles at Conservative Income Portfolio: Members get access to model portfolios, regular updates, a chat room, and more. Learn More » When we last gave our opinion on Amazon (NASDAQ:AMZN) it was poorly received by the cheerleaders. We did not like the valuation and felt the stock would drop at least 50% from the top. Last time when AMZN's super bubble burst, the Federal Reserve had eased aggressively. We don't see any prospects for that this time and certainly there is far less room to ease compared to what was done there. So if AMZN dropped 92%, then don't be surprised if we get at least a 50% drop this time. Source: Ama-Gone, Why The Fed Is Not Bailing Your Poor Investments, Including Amazon And we are almost there... We actually hit the down 50% mark in the post-market action after the results. So where do we go from here for this once vaunted high flyer? Q3-2022 Net sales were lower than expected and came in with an increase of 15%. AMZN made sure everyone knew that exchange rates were making them take a bath and without the strong dollar, their sales would be up 19%. The big hit was in international where their sales were down 5% year over year. The much-vaunted AWS segment had sales move up by 28%, and this was a bit lower than the cloud growth from Microsoft Corporation (MSFT) or Alphabet Inc. (GOOG) (GOOGL). Both those names reported 30% plus growth rates in constant currency. Of course, sales tell a small part of the story. Nobody has been worried about Amazon to sell you things. Making money on the other hand is a very different story. North America reported a $400 million operating loss, compared to almost $1 billion in profit in 2021. International had a $2.5 billion operating loss, worsening 171% year over year. If there is one thing consistent about AMZN, it is that it likely has no idea how to get the international segment to even come close to an operating profit. At least you don't get whiplash modeling those numbers. Cash burn was stunning across all levels. Free cash flow was an outflow of about $20 billion. AMZN's presentation actually led off with the slide below. The 871% drop is one that should send shivers down even the most optimistic spines. Free cash flow less principal repayments on finance leases was an outflow of $28.5 billion. Outlook Guidance was for $144 billion in sales (midpoint) in Q4, implying a sales growth rate of 5% year over year. With real GDP at 2.6% and inflation over 8%, AMZN is badly trailing nominal GDP in sales growth, and it is not even a close call. The growth story is done and AMZN's best case is to track nominal GDP sales growth. As inflation and real GDP slow down, we think these numbers will prove extremely optimistic. The bigger question is when will this company actually make money consistently. It is already reached a sales level that is tracking nominal GDP. At that point you are more of a "value company" and not a "growth idea". Analysts obviously see things with green colored glasses and expect the best of outcomes. But even those numbers make AMZN ridiculously expensive. 50X next year's earnings that are based on sales numbers that now look impossible, is a recipe for more downgrades. A business breakdown also reveals some big holes in giving this a buy rating. AWS sales are slowing and will likely hit a brick wall in 2 years. AWS margins were down from 30% in 2021 (left) to 26% in 2022 (right) We see cloud and web services become a commodity service within 2-3 years and expect margins to drop by 40% from these levels (sub 15% operating margin). If you buy that story, then you need to sell AMZN. Verdict Let's talk about that big increase. We are talking about that $5.55 billion in stock-based compensation, annualizing to $22 billion. That alone knocks out the entire AWS operating income. Retail has of course not found a way to be profitable but valuing only the AWS at some crazy sales multiple will work out as well as valuing NVIDIA (NVDA) based on some arguably fictional addressable market numbers. The Federal Reserve has shown a big reluctance to ignore the heavy inflation numbers. Yes, we might be at a peak inflation rate, but historical data shows that inflation takes about two years to trend below 6% once we peak above 8%. Good luck getting interest rate cuts to support these insane valuations. We rate the shares a Strong Sell with a 1-year rice target of $70.00 Please note that this is not financial advice. It may seem like it, sound like it, but surprisingly, it is not. Investors are expected to do their own due diligence and consult with a professional who knows their objectives and constraints. Are you looking for Real Yields which reduce portfolio volatility? Conservative Income Portfolio targets the best value stocks with the highest margins of safety. The volatility of these investments is further lowered using the best priced options. Our Covered Calls Portfolio is designed to reduce volatility while generating 7-9% yields. We focus on being the house and take the opposite side of the gambler. Risk levels are provided for each trade, accompanied by transparent tracking of performance. Explore our method & why options may be right for your retirement goals. This article was written by Conservative Income Portfolio is designed for investors who want reliable income with the lowest volatility. High Valuations have distorted the investing landscape and investors are poised for exceptionally low forward returns. Using cash secured puts and covered calls to harvest income off value income stocks is the best way forward. We "lock-in" high yields when volatility is high and capture multiple years of dividends in advance to reach the goal of producing 7-9% yields with the lowest volatility. Preferred Stock Trader is Comanager of Conservative Income Portfolio and shares research and resources with author. He manages our fixed income side looking for opportunistic investments with 12% plus potential returns. Analyst’s Disclosure: I/we have a beneficial short position in the shares of QQQ either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (38) Amazon.Bomb (May 31, 1999) ritholtz.com/... Maybe cloud services are likewise vapourware, not financially investment wise. I'll drop out now and go back to energy suppliers. www.bloomberg.com/...

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Microsoft: Netflix Partnership Boosts Digital Ad Revenue To $29 Billion

Following Microsoft’s acquisition of Xandr, we believe the deal could complement the company by leveraging Microsoft’s global reach and larger customer base. Read more here.

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Microsoft: Netflix Partnership Boosts Digital Ad Revenue To $29 Billion Summary - Following Microsoft’s acquisition of Xandr, we believe the deal could complement the company by leveraging Microsoft’s global reach and larger customer base and forecasted synergies of $12.1 bln. - We expect Microsoft to benefit from Xandr’s established tech capabilities and support the growth of its Search ads, which we estimated at a 5-year average of 26.3%. - We believe that it could benefit from its Netflix partnership with the upcoming launch of its ad-tier subscription, where we estimated a total ad revenue of $2 bln by 2026. In this analysis of Microsoft Corporation (NASDAQ:MSFT), we analyzed the company which had announced its exclusive partnership with Netflix (NFLX) following its acquisition of Xandr from AT&T (T). Firstly, we examined the acquisition of Xandr and its ad tech capabilities compared with its competitors, including Google (GOOG, GOOGL) and analyzed the potential benefits to Xandr by leveraging Microsoft's massive global reach, customer base and ecosystem of solutions to estimate its synergies. Moreover, we then analyzed Microsoft's updated Search and News Advertising segment as well as its other ad revenue streams and determined how Xandr could help Microsoft's digital ad growth. Finally, we estimate the ad revenue opportunity with the announcement of the introduction of Netflix's new ad-tier subscription in partnership with Microsoft based on the average ad revenue per user, and we forecasted the growth of Netflix's ad-tier subscriber growth to estimate the revenue opportunity for Microsoft. Xandr Could Benefit from Microsoft Scale and Global Reach In 2021, Microsoft acquired Xandr from AT&T, with revenues of over $2 bln (2019), at an estimated cost of $1 bln according to the LA Times. As explained by Microsoft, the company is focusing on expanding its digital ad business with this acquisition. With Xandr's talent and technology, Microsoft can accelerate the delivery of its digital advertising and retail media solutions, shaping tomorrow's digital ad marketplace into one that respects consumer privacy preferences, understands publishers' relationships with consumers and helps advertisers meet their goals, - Mikhail Parakhin, President of Web Experiences at Microsoft. As seen in the chart above by Xandr, the company is a Demand Side Platform (DSP) that offers a... technology that facilitates finding, bidding, and placing the ads at the right placement automatically. Xandr is also an ad exchange that... works as an intermediary in the real-time bidding process. Ad tech providers use ad exchanges to connect DSP to SSP. The company competes with other DSP providers such as Google, which has the highest adoption rate of 45% (DV360), followed by The Trade Desk (TTD), Amazon Advertising (AMZN), Verizon Media (VZ), Adobe Advertising Cloud (ADBE) and MediaMath based on the Advertiser Perceptions DSP report. Based on the chart, the average rate for DSPs and Ad exchanges are between 10% to 30%. In comparison, Google has an average take rate of 31% in 2019 according to Ad Exchanger. For Microsoft, we assumed its take rate to be 25% which is between 20% (total of 10% each for low-end of DSP and Ad exchange fee based on the chart above) and 30% (Below Google's average fee of 31%). Furthermore, according to Microsoft, it will... combine its own audience understanding, technology and global advertising customer base with Xandr's data-driven platform. The company provided several examples below of the solutions which it complements each company. Firstly, with the acquisition of Xandr, Microsoft would get an ad-buying platform called Xandr Invest made for advertisers and uses a "machine-learning optimization engine" and "simplified user interface" to offer "improved efficiency to defined marketing goals." In other words, Xandr provides Microsoft with a DSP solution to cater to advertising customers. Moreover, Microsoft also acquires Xandr Monetize, which is an ad marketplace platform curated for digital publishers or a feature-rich, intuitive deals platform coupled with marketplace innovation which empowers sellers to drive high-value transactions with buyers." In terms of how Microsoft complements Xandr, the company's Microsoft Audience Network connects customers to millions of people using Microsoft's solutions such as "Microsoft Edge, Outlook.com, MSN, and select partners." Based on its website, Microsoft Audience Ads is available across 130 countries. In addition, Microsoft also has PromoteIQ, which it acquired in 2019, an ad technology provider focused on retailers promoting products of their brand partners on their online stores with its data analytics platform and enabling Microsoft to compete against Amazon and Criteo. Finally, Microsoft also had its Customer Experience Platform, which is a "customer engagement solution" that allows customers to get insights into consumer data. Also, according to Microsoft, the feature is integrated with Microsoft Dynamics 365. Overall, we believe the deal complements both companies with the acquisition, as Xandr provides Microsoft with a DSP solution to serve advertisers through Xandr Invest and also provides Microsoft with Xandr Monetize to cater to digital publishers to enable them to sell ads. Moreover, we believe Microsoft adds value to the deal by leveraging its Microsoft products and solutions, as well as could expand the reach of its customers with its presence across 130 countries and providing data analytics platforms that are also integrated with Microsoft's solutions such as Microsoft Dynamics 365. In the table below, we compared Xandr with Microsoft's scale and global reach based on the number of customers and the number of countries in which they have a presence. | | Xandr | | Advertising Customers | | Countries | | Average | | Microsoft | | 21,776 | | 130 | | Xandr | | 1,227 | | 18 | | Difference | | 1674.7% | | 622.2% | | 1148.5% Source: HG Insights, Microsoft, Xamdr, Khaveen Investments As seen in the table above, Microsoft's number of ad customers (21,776) based on HG Insights is higher compared to Xandr (1,227) with a difference of 1674%. Moreover, Microsoft has a significantly greater presence of Xandr in 130 countries compared to only 18 for Xandr, which is a difference of 622.2%. Based on the average of its customer base and countries' difference %, we obtained an average of 1148.5% which we factored in our estimate of its revenue synergies as the limiting factor below. Thus, we believe this highlights the greater scale and global reach of Microsoft and could benefit Xandr by providing it with opportunities to leverage Microsoft's global reach. Microsoft's shared vision of empowering a free and open web and championing an open industry alternative via a global advertising marketplace makes it a great fit for Xandr, - Mike Welch, Xandr's Executive Vice President And General Manager. | | Customer Adoption Rate | | Mar-22 | | Apr-22 | | May-22 | | Jun-22 | | Jul-22 | | Aug-22 | | Sep-22 | | Oct-22 | | Oct-22 | | Xandr | | 0.40% | | 0.30% | | 0.40% | | 0.40% | | 0.40% | | 0.40% | | 0.40% | | 0.50% | | 0.60% Source: W3Techs Furthermore, according to W3Techs, Xandr's customer adoption rate has increased since its acquisition in June 2022 and had been stagnant before its acquisition as seen in the table above between 0.3% to 0.4%. In October, the company's adoption rate had increased to 0.6%, representing a 50% increase since its acquisition in June 2022. Thus, we further believe that Xandr could benefit from the deal and leverage Microsoft's scale and reach. In the table below, we forecasted Xandr's organic revenue growth through 2026 based on its historical revenue growth in 2019 of 7.2%. Based on our revenue forecast of $3.3 bln in 2026, which translates to organic revenue growth totaling $973 mln over the 5 years, we multiplied this with our obtained Microsoft-Xander expanded reach average of 1148.5% to estimate synergies of $12,154 mln which we prorated over the 5 years. | | Xandr Revenue Projection ($ mln) | | 2021 | | 2022F | | 2023F | | 2024F | | 2025F | | 2026F | | Xandr (Pre-acquisition) | | 2,326 | | 2,494 | | 2,675 | | 2,868 | | 3,076 | | 3,299 | | Growth % | | 7.2% | | 7.2% | | 7.2% | | 7.2% | | 7.2% | | 7.2% | | Xandr (With Synergies) | | 2,326 | | 3,102 | | 3,890 | | 5,299 | | 6,722 | | 7,553 | | Growth % | | 7.2% | | 33.4% | | 25.4% | | 36.2% | | 26.9% | | 12.4% | | Synergies with Microsoft | | 608 | | 1,215 | | 2,431 | | 3,646 | | 4,254 | | Growth % | | 100.0% | | 100.0% | | 50.0% | | 16.7% Source: Xamdr, Khaveen Investments As seen above, factoring in our prorated revenue synergies estimate, we see Xandr's revenue growing at a 5-year forward average of 26.8% compared to our organic growth rate assumption of 7.2%. Overall, we expect the acquisition to benefit Xandr to leverage Microsoft's massive global reach with its larger customer base and global presence than Xandr. Acquisition Integration with Microsoft's Search Ads Based on Microsoft's annual report, the company updated its advertising revenue under its renamed Search and News Advertising segment (previously Search Advertising). This segment includes the company's ad revenue from its Bing search engine, which is the second largest by market share at 8.8% in July 2022 based on StatCounter and had been gaining share in the past 10 years. Also, Xandr had previously partnered with Microsoft as part of its Microsoft Audience Network in 2020 which is incorporated in Bing. Furthermore, the company's Search and News ad segment includes the company's Xandr revenues as well as MSN ad revenues. In addition, however, the segment does not account for its LinkedIn and Xbox ad revenues which are still recorded under the LinkedIn and Gaming segments respectively. However, before the acquisition, Microsoft had partnered with Verizon Media in 2021 as the "preferred global SSP" to manage its ads on MSN and Outlook globally. Thus, we expect Verizon to remain its main partner for MSN ads with limited integration benefits to Xandr but we believe the company could leverage its Xandr tech capabilities for its Bing search platform. We forecasted the company's Search and Ad Revenue in the table below which is broken down into Search ad revenue, MSN ad revenue and Xandr revenue. We forecasted its Search ad revenue based on its Bing visits growth at a 3-year average of 7.5% and ad revenue per visit growth of 4.2%. Moreover, for its MSN ad revenue, we forecasted it based on our calculated 2022 growth rate of 4.1%. | | Search & News Advertising Segment ($ bln) | | 2020 | | 2021 | | 2022 | | 2023F | | 2024F | | 2025F | | 2026F | | Bing Visits ('bln') ('a') | | 0.96 | | 1.07 | | 1.20 | | 1.29 | | 1.39 | | 1.49 | | 1.60 | | Growth % | | -0.6% | | 11.2% | | 12.0% | | 7.5% | | 7.5% | | 7.5% | | 7.5% | | Ad Revenue Per Visit ('b') | | 8.0 | | 8.0 | | 8.9 | | 9.2 | | 9.6 | | 10.0 | | 10.5 | | Growth % | | 2.1% | | -0.9% | | 11.4% | | 4.2% | | 4.2% | | 4.2% | | 4.2% | | Microsoft Search Ad Revenue ('c') | | 7.74 | | 8.528 | | 10.64 | | 11.92 | | 13.36 | | 14.97 | | 16.78 | | Growth % | | 1.5% | | 10.2% | | 24.8% | | 12.0% | | 12.0% | | 12.0% | | 12.0% | | Estimated MSN Ad Revenue | | 0.78 | | 0.74 | | 0.77 | | 0.8 | | 0.8 | | 0.9 | | 0.9 | | Growth % | | -5.7% | | 4.1% | | 4.1% | | 4.1% | | 4.1% | | 4.1% | | Xandr Revenue Contribution | | 0.18 | | 3.89 | | 5.30 | | 6.72 | | 7.55 | | Xandr Synergies | | 0.61 | | 1.22 | | 2.43 | | 3.65 | | Total Search and News Revenue | | 8.52 | | 9.27 | | 11.591 | | 17.22 | | 20.71 | | 24.99 | | 28.88 | | Growth % | | 8.7% | | 25.1% | | 48.6% | | 20.2% | | 20.7% | | 15.5% *c = a x b Source: Microsoft, SimilarWeb, Backlinko, Khaveen Investments Furthermore, before the acquisition, Microsoft was considering expanding its in-game ads and was looking for ad tech companies to work with in April based on Business Insider. According to ADScholars, the company could integrate Xandr with its gaming business to expand its ad inventory for various Microsoft games. According to Xandr, Xandr Invest: drives efficiency, relevance, and engagement across digital video, connected TV, and data-driven linear supply." whereas Xandr Monetize focuses on: audience-based TV advertising with platform solutions for media owners." Thus, we believe this highlights Xandr's focus on video ad format types and could potentially support its expansion in gaming ads. All in all, Microsoft has several streams of ad revenues from Search with its Bing platform, MSN, LinkedIn and Gaming segments. We believe the acquisition of Xandr could be due to its established ad infrastructure with a comprehensive ad tech stack, i.e., Xandr Invest and Monetize. With that, we expect the acquisition could potentially support its Search ad business as it previously collaborated with it as part of the Microsoft Audience Network and forecasted its 5-year forward growth at 12% driven by Bing visit and ad revenue per visit growth. Though, Microsoft also partnered with Verizon (VZ), and we expect it to continue leveraging its platform with its partnership in 2021. Additionally, another opportunity for Microsoft with Xandr could be for its Gaming segment with gaming ads, as we believe Xandr's focus on video ad types could support Microsoft. With this, we forecasted its Search and News Ad segment revenue growth at a 5-year forward of 26.3%. Netflix Partnership Supports Ad Revenue Opportunity Netflix announced the partnership with Microsoft as its ad tech provider for the upcoming introduction of its ad-tier streaming service. The company chose Microsoft over other competitors such as Google which is the market leader. Though, one of the advantages of Microsoft could be that it does not compete against Netflix, unlike other competitors such as Google and Amazon. Additionally, we believe another possible reason could be a more competitive fee structure for Microsoft, which we assumed to be a total fee of 25% compared to 31% for Google. Furthermore, we then analyzed the potential ad revenue from the announced introduction of Netflix's new ad-tier subscription. We obtained and compiled the streaming advertising revenue from AVOD competitors including Hulu, Paramount+, Peacock, Roku, Tubi and Pluto TV as well as the number of users to derive the average ad revenue per user for each company. | | Steaming Platform | | Advertising Revenue ($ mln) | | Users ('mln') | | Ad Revenue Per Users | | Hulu (DIS) | | 2,100 | | 27.8 | | 75.5 | | Paramount+ (PARA) | | 2,145 | | 32.8 | | 65.40 | | Peacock | | 500 | | 15.5 | | 32.26 | | The Roku Channel (ROKU) | | 2,285 | | 60.1 | | 38.02 | | Tubi | | 380 | | 51 | | 7.45 | | Pluto TV | | 786.7 | | 64 | | 12.29 | | Average | | 1,366 | | 41.9 | | 38.5 Source: Company Data, Khaveen Investments Based on the table, Hulu has the highest average ad revenue per user in 2021 at $75.5 followed by Paramount+ and Roku. Although Roku had the highest streaming ad revenue of $2.285 bln, it had the highest number of users at 60.1 mln. The lowest average ad revenue per user is Tubi and Pluto TV. Furthermore, we then projected the subscriber growth of Netflix's new ad-tier offering in the table below. We assumed that the new service would cannibalize its existing SVOD offering based on the survey by Statista with a worldwide average of 48.3% indicating that they prefer ad-tier low-cost streaming services rather than more expensive services without ads. We multiplied this figure with Netflix's 2022 current subscriber base to estimate 106.5 subscribers to switch to its ad tier in 5 year period assumption as the company's initial launch is only in 12 countries first. Furthermore, we projected the growth going forward for its AVOD and SVOD offering based on the penetration rate growth of 35% in 2022 for AVOD and 2.47% for SVOD multiplied by the forecasted population growth by the UN at 0.9%. | | Penetration Rate | | 2021 | | 2022F | | 2023F | | 2024F | | 2025F | | 2026F | | AVOD ('a') | | 20% | | 27% | | 36.5% | | 49.2% | | 66.4% | | 89.7% | | Growth % | | 35.00% | | 35.00% | | 35.00% | | 35.00% | | 35.00% | | SVOD | | 81% | | 83% | | 85.0% | | 87.1% | | 89.3% | | 91.5% | | Growth % | | 2.5% | | 2.47% | | 2.47% | | 2.47% | | 2.47% | | Population Growth ('b') | | 0.90% | | 0.90% | | 0.90% | | 0.90% | | 0.90% | | AVOD Growth % ('c') | | 36.2% | | 36.2% | | 36.2% | | 36.2% | | SVOD Growth % | | 3.4% | | 3.4% | | 3.4% | | 3.4% | | Netflix Subscribers ('mln') | | 2021 | | 2022F | | 2023F | | 2024F | | 2025F | | 2026F | | Ad-Tier | | 21.3 | | 50.3 | | 89.8 | | 143.7 | | 217.0 | | Growth % | | 136.2% | | 78.5% | | 59.9% | | 51.0% | | Premium Tier | | 199.4 | | 184.1 | | 168.3 | | 152.0 | | 135.1 | | Growth % | | -7.7% | | -8.6% | | -9.7% | | -11.1% | | Total Subscribers | | 221.84 | | 220.7 | | 234.4 | | 258.2 | | 295.7 | | 352.2 | | Growth % | | 6.2% | | 10.1% | | 14.5% | | 19.1% *c = [(1+a) x (1+b)] -1 Source: Company Data, Khaveen Investments. Based on the table, we forecasted Netflix's AVOD subscribers to increase by 21.3 mln per year (cannibalization) and grow by 36.2% per year with the increase in AVOD penetration to reach a total subscriber base of 217 mln by 2026. For its SVOD subscribers, we estimate a 21.3 mln loss of subscribers due to cannibalization but its existing subscribers growing by 3.4% with the growth in SVOD penetration. According to WSJ, Netflix expects to have 40 mln ad-tier subscribers by Q3 2023, which is slightly lower compared to our forecast of 50.3 mln for the full year. Also, Omdia projected Netflix to reach 60% of ad-tier subscribers of total subscribers by 2027, compared to our forecast which shows it reaching 62% by 2026. In the table below, we then forecasted the total ad revenue opportunity for Netflix based on the average ad revenue per subscriber as derived in our previous point above. We then estimated the benefit to Microsoft based on our take rate assumption as discussed in the first point of 25% to forecast a revenue opportunity of $205 mln in 2022 and reaching $2 bln by 2026. | | Microsoft Netflix Partnership Ad Revenue ($ mln) | | 2022F | | 2023F | | 2024F | | 2025F | | 2026F | | Netflix Ad-Tier Subscribers ('mln') | | 21.3 | | 50.3 | | 89.8 | | 143.7 | | 217.0 | | Average Ad Revenue Per Subscriber ($) | | 38.5 | | 38.5 | | 38.5 | | 38.5 | | 38.5 | | Total Netflix Ad-Tier Revenue | | 820 | | 1,937 | | 3,458 | | 5,531 | | 8,354 | | Microsoft Partnership Revenue Opportunity (25% Take Rate 25%) | | 205 | | 484 | | 865 | | 1,383 | | 2,088 Source: Company Data, Khaveen Investments Overall, we believe the upcoming launch of the Netflix ad-tier streaming service could benefit Microsoft as the exclusive partner with the rise of AVOD in which we expect Netflix's new tier to cannibalize its more expensive ad-free tier. Based on our estimates of its users and ad revenue per user, we calculated a total ad revenue opportunity of $2 bln for Microsoft by 2026 assuming a take rate of 25% on average. Risk: Competition with Larger Competitors One of the risks of the company we believe is its competition with larger competitors such as Google which has the highest adoption rate among competitors as well as the highest reach with the highest number of websites. Thus, we believe Microsoft's competitive edge for the potential reasons for its partnership with Netflix could be its competitive fees below Google's (31% average). We believe this could result in competitive pressures for the company on its fees and could limit its ability to increase its fees to generate more revenues. Moreover, one of the reasons we believe could be due to Microsoft not competing with Netflix. Therefore, if Microsoft decides to expand into streaming, we believe it could lose its partnership with Netflix. Valuation We updated our revenue forecast for the company with its FY2022 results. For server products revenue, we updated it with our forecast for Azure at 49.56% but tapered down by 3% per year as a conservative estimate from our previous analysis of Amazon and other server revenue. Moreover, for the Windows segment, we based it on the PC market forecast in 2022 which is a decline of 12.8% by the IDC and the PC market CAGR of 1.4% beyond that. Furthermore, we updated our forecast for Dynamics growth on the cloud ERP market forecast of 12.1% tapered down by 2% per year. Additionally, we had also added our estimated revenue and synergies from its planned acquisition of Activation Blizzard which we covered previously. Based on our analysis, we factored in our estimates of its new Search and News advertising segment which includes Search, MSN ad revenue and Xandr revenues and our estimated synergies through 2026. We also included our estimates of the partnership with Netflix as discussed above. In total, we expect its 5-year forward revenue growth of 21.8% which is slightly higher than our previous analysis with a 21.5% average forward growth. | | Revenue Projections ($ mln) | | 2022 | | 2023F | | 2024F | | 2025F | | 2026F | | Server Products | | 67,321 | | 90,661 | | 123,847 | | 169,696 | | 231,286 | | Server Products Growth % | | 28.0% | | 34.7% | | 36.6% | | 37.0% | | 36.3% | | Office Products | | 44,862 | | 50,103 | | 55,939 | | 62,455 | | 69,731 | | Office Products Growth % | | 12.5% | | 11.7% | | 11.6% | | 11.6% | | 11.6% | | 13,816 | | 16,981 | | 20,532 | | 24,415 | | 28,544 | | LinkedIn Growth % | | 34.3% | | 22.9% | | 20.9% | | 18.9% | | 16.9% | | Windows Revenues | | 24,761 | | 21,592 | | 21,885 | | 22,183 | | 22,485 | | Windows Revenues Growth % | | 10.1% | | -12.8% | | 1.4% | | 1.4% | | 1.4% | | Estimated Dynamics | | 4,686 | | 5,253 | | 5,784 | | 6,252 | | 6,633 | | Dynamics Growth % | | 23.1% | | 12.1% | | 10.1% | | 8.1% | | 6.1% | | Other Segments | | 31,233 | | 33,897 | | 36,860 | | 40,160 | | 43,837 | | Other Segments Growth % | | 4.8% | | 8.5% | | 8.7% | | 9.0% | | 9.2% | | Activision Acquisition & Synergies | | 10,358 | | 11,578 | | 12,561 | | 14,465 | | Search and News Advertising | | 11,591 | | 17,224 | | 20,710 | | 24,993 | | 28,878 | | Growth % | | 25.1% | | 48.6% | | 20.2% | | 20.7% | | 15.5% | | Netflix Partnership Ad Revenue | | 484 | | 865 | | 1,383 | | 2,088 | | Total Microsoft Revenue | | 198,270 | | 246,553 | | 298,000 | | 364,097 | | 447,947 | | Growth % | | 17.9% | | 24.4% | | 20.9% | | 22.2% | | 23.0% Source: Microsoft, Khaveen Investments Based on a discount rate of 9.5% (company's WACC), our discounted cash flow ("DCF") valuation shows an upside of 123% for Microsoft shares based on an EV/EBITDA average of 17.73x (company's 6-year average EV/EBITDA). Verdict To conclude, we believe the Xandr acquisition complements both companies. For Xandr, we believe the deal could enable it to leverage Microsoft's massive global reach in 130 countries serving thousands of customers and integration with Microsoft's solutions such as Dynamics 365. Factoring in our prorated revenue synergies estimate, we see Xandr's revenue growing at a 5-year forward average of 26.8% compared to our organic growth rate assumption of 7.2%. Moreover, we view the deal to be positive for Microsoft, as it acquires Xandr's established SSP and ad exchange tech stack including Xandr Invest and Monetize to expand its digital ad business. Following the update to Microsoft's Search and News Advertising segment, we expect the deal to support the growth of its Search ad segment, as it had previously partnered with Microsoft Audience Network and we estimate its Search ad revenue to grow at a 12% average growth rate. Also, we believe the deal could support Microsoft's digital ad expansion for its Gaming segment in the future. Finally, we expect the partnership with Netflix with the upcoming launch of its ad-tier streaming service could benefit Microsoft as the exclusive partner with the rise of AVOD in which we expect Netflix's new tier to cannibalize its more expensive ad-free tier. Based on our estimates of its users and ad revenue per user, we calculated a total ad revenue opportunity of $2 bln for Microsoft by 2026 assuming a take rate of 25% on average. All in all, we updated our revenue projections factoring and projected Microsoft's 5-year average revenue growth higher at 21.8% (including the Activision acquisition) compared to 21.5% previously, but obtained a slightly lower price target of $516.38 compared to $550.55 previously with a higher discount rate of 9.5% from 8.2%. Thus, we maintain our Strong Buy rating for Microsoft. This article was written by Analyst’s Disclosure: I/we have a beneficial long position in the shares of MSFT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. No information in this publication is intended as investment, tax, accounting, or legal advice, or as an offer/solicitation to sell or buy. Material provided in this publication is for educational purposes only, and was prepared from sources and data believed to be reliable, but we do not guarantee its accuracy or completeness. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (1) I don't understand your AVOD sub growth assumptions, beginning with your formula: c = [(1+a) x (1+b)] -1. To my math, your 36.2% yearly AVOD growth rate doesn't follow from your formula. I also can't follow your Netflix ad subscriber counts after 2023 and the source for each assumed declining growth % from the 136.2% in 2023. That makes it hard to accept forecasted subscribers and resulting revenues. Admittedly, MSFT's resulting $2 billion 2026 Netflix partnership revenue is a very small % of MSFT's total revenue, so if your assumptions are wrong, it won't greatly impact your DCF valuation of the enterprise. Nevertheless, it would be helpful to understand in clearer detail the assumptions I question. Thanks.

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Technology stocks tumble — this is how you will know when to buy them again

Also, a rundown of earnings analysis for Big Tech, how to invest in bonds, and an estate planning service built into the iPhone.

MarketWatch

This has been a brutal year for Big Tech, as you can see in the chart below, with Meta Platforms META, Many of the largest technology companies have fared worse than the S&P 500 during this year’s broad bear market. Believe it or not, the broad market is still trading high by some historical valuation measures. So how can you know when such a large decline for a tech stock has gone too far? When is it time to buy, in other words? Mark Hulbert analyzes the herd behavior of Wall Street analysts as they cut estimates and ratings for Meta for insight on when the stock will turn the corner. The season for tech earnings and disappointments The chart above shows 2022 stock performance, with dividends reinvested, for the FAANG group of stocks, including Facebook’s renamed holding company Meta Platforms, Apple AAPL, There was tremendous action for Big Tech stocks this week as quarterly financial results were released. Here’s a selection of reporting and analysis: - Facebook in freefall: 5 charts that show Meta’s financial collapse - Facebook earnings cut in half, Meta stock sinks toward lowest prices in more than 6 years - Microsoft stock slammed by cloud-growth fears, taking Amazon down with it - Amazon stock sinks after holiday forecast and cloud growth, profit disappoint; $150 billion in market cap at risk - Opinion: Facebook and Google grew into tech titans by ignoring Wall Street. Now it could lead to their downfall - Alphabet is ‘a big ship to turn around,’ when it comes to much-needed belt-tightening, but Wall Street has faith - Opinion: The cloud boom has hit its stormiest moment yet, and it is costing investors billions - ‘Pretty much Google 2.0’ — Amazon price targets reduced by analysts, though they say the long-term story is intact Two timely guides to the bond market With interest rates rising this year as the Federal Reserve takes action against inflation, bond prices have tumbled. Yields have become so attractive that it is time for you to consider moving some money toward bonds if income is, or soon will be, one of your investment objectives. Here are two in-depth guides to different areas of the bond market: - Municipal bond yields are attractive now — here’s how to figure out if they are right for you - Take advantage of this sweet spot in the bond market now to bolster your portfolio Did you miss the I-bonds deadline? There’s hope The U.S. Treasury’s I-bonds have an interest rate of 9.62%, but that deal expires on Oct. 28, which has caused a flurry of interest that may overwhelm the TreasuryDirect.gov website. But you may be able to get an even better deal next week. Related: The limit for 401(k) contributions will jump nearly 10% in 2023, but it isn’t always a good idea to max out your retirement investments An estate planning feature built into your iPhone The iPhone has a fascinating feature that allows a user to designate a legacy contact. There is a similar feature available for Android phones. They allow a survivor to access the phone in the event of the user’s death. This can be a very useful estate planning tool, as Beth Pinsker explains. An activist pushes for change at an LSD company Ciara Linnane and Steve Gelsi interview an activist investor pushing for change at MindMed MNMD, Year-end tax planning as stock market losses mount Here’s how this year’s lousy market may help your bottom line come tax time, even if you aren’t rich. Read on: ‘Help is on the way’: Need to speak to someone at the IRS about your taxes? It’s about to get a lot easier, IRS commissioner says Changes to credit scores in the housing market The U.S. mortgage market is effectively nationalized, with Fannie Mae and Freddie Mac direct wards of the state and purchasing nearly all newly originated mortgage loans. Now, the federal government has directed Fannie and Freddie to make use of alternative credit scores, which may well affect someone you know who is looking to buy a home. On Oct. 27, Freddie Mac said the average interest rate on a fixed 30-year mortgage loan in the U.S. was 7.08%, up from 3.14% a year earlier. But with all the talk about a possible recession, some mortgage bankers expect loan rates to drop in 2023. Here’s how far rates may fall. Now it’s truly Twitter time for Elon Musk Tesla and SpaceX CEO Elon Musk is now running Twitter as well — he began by firing three of the social-media company’s top executives, for which he is on the hook for $200 million. More about Musk and Twitter: - Elon Musk says Twitter ‘obviously cannot become a free-for-all hellscape’ but should encourage debate - Crypto exchange Binance was a big investor in Musk’s Twitter deal Want more from MarketWatch? Sign up for this and other newsletters, and get the latest news, personal finance and investing advice.

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Apple Dodges a $500 Billion Mega-Cap Tech Stock Slide

Amazon, Microsoft, Alphabet and Meta have lost more than $500 billion in aggregate value this week after reporting earnings. Apple stock, however, rose.

MarketWatch

Some of the market’s favorite stocks are getting crushed. Mega-cap technology names that have reported earnings this week have lost more than $500 billion in aggregate value. With the notable exception of Apple (ticker: AAPL ), the rest of the technology companies disappointed investors with meager financial results and gloomy outlooks. The companies are facing several headwinds—including rising interest rates, deteriorating macro economic growth, increasing energy costs, and more competitive pressures. Amazon.com ( AMZN ) is leading the decline list with a more than $200 billion drop in market value. The retail and cloud giant’s shares sank after it reported slowing growth in its Amazon Web Services division and provided a weaker-than-expected holiday-quarter revenue forecast. Microsoft ( MSFT ) is the second-biggest loser at a nearly $120 billion decline in market value. Similar to Amazon, it saw a slowdown in its Azure cloud-computing business. Alphabet ( GOOGL ) and Meta Platforms ( META ) suffered from a weak digital advertising market, losing $115 billion and about $80 billion in market value, respectively. Meta investors were also taken aback over the company’s plans to hike investment spending for 2023 after some analysts had expected to see better cost discipline. Finally, Apple was the lone winner with its shares rising after the technology giant beat analyst expectations for revenue and earnings. Write to Tae Kim at tae.kim@barrons.com

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Activision Blizzard: 80% Deal Approval Chance Yet 30% Discount

Antitrust investigations are unfolding as the regulators are now gathering the evidence, but I think there is no legal reason to block the deal. Click here to read more.

SeekingAlpha

Activision Blizzard: 80% Deal Approval Chance Yet 30% Discount Summary - Antitrust investigations are unfolding as the regulators are now gathering the evidence. - There is no legal reason to block the Microsoft-Activision deal. - Regulators are likely to stop listening to Sony as it has a direct interest in disrupting the deal. - I estimate the deal approval chance at 80%, while ATVI stock trades at a 30% discount to a buyout level. Thesis As time passes and antitrust investigations unfold, Activision Blizzard (NASDAQ:ATVI) stock plummets to $72. Investors continue to evaluate the chances of approval of the deal with Microsoft (MSFT) by regional regulators. I have covered Activision earlier, and my main thesis was that the takeover would likely be approved by all regulators as it wouldn't affect market competitiveness and Microsoft wouldn't be seen as a 'gaming monopoly.' But how high are the chances? I would say 80%/20% in favor of deal success. Current deal status It now has been over 10 months since the acquisition announcement. It's too early to say that something is not going according to plan. As expected, regulators begin to deeply investigate the deal. The CMA and the EU Commission begin to collect evidence through the survey of market participants. FTC is expected to be the first out of three to release a final report by late November. Interestingly, the deal has already received a green light from the Brazilian regulator ('CADE'). The agency stated: Despite all the concerns about the deal, CADE's main goal is to promote the well-being of Brazilian players rather than defending the interests of certain companies or their competitors. I honestly couldn't think of a way to phrase it better. This is precisely the entire purpose of antitrust commissions - to protect consumers. 80% approval chance: Why? Reason 1: Good luck finding a reason As it all comes down to formality, all three agencies will have to release a decent press release, if they reject this acquisition. The regulators would refer primarily to the size of the deal and the power Microsoft would gain through this deal. However, repeating the thesis from my last article, there is simply no reason for this. Call of Duty, one of the biggest gaming franchises, will be on Game Pass and might become Xbox's exclusive in the future. I think this is obvious because the whole point of this deal is to close the gap with the main competitor, Sony (SONY), in content. But we continue to run into the same thing. There is nothing unique about Call of Duty. Moreover, there is nothing so unique about all Activision Blizzard content. The reason for Activision's financial success lies in the smart integration of in-game purchases, not in the best-in-class games selling at a premium price. Regulators can talk about caring for gamers and that the studio's games should be present on multiple platforms, not just on Xbox. But why haven't regulators raised the issue of Sony's acquisition of Bungie then? The company could very well make the next part of the fairly popular Destiny a PS exclusive, although as with Microsoft and Call of Duty, the move is unlikely to pay off, even. So it is not clear to me how such a step can be argued. Reason 2: Sony is the only one who has problems with it After polling more and more new Microsoft competitors, it becomes clear that Sony is most actively protesting against the deal. This is because Sony has the most to lose from this acquisition. However, the company's statements should eventually fade into the background, since it has a direct interest in disrupting the deal. Additionally, Microsoft has said it has tried to bring Xbox Game Pass to the PlayStation. So PS owners could access lost content, including Call of Duty, but Sony refused. Don't forget that Sony is still a leader in the gaming industry, with over 280 first and third-party exclusive games released for the PlayStation in 2021 alone, which was nearly five times as many as Xbox. Overall, if the Xbox becomes an attractive platform for all gamers, including PlayStation brand fans, then this will be a direct reflection of the natural market competition, which Sony is likely so afraid of. Summing up I think that there is rather a low chance of acquisition failure. Regulators will likely just look at all the evidence, shrug their shoulders, and give the deal the green light. I rate this scenario's chances at 70-75% as public pressure may come into play. But if the deal is blocked, then Microsoft has every right to go to court. I estimate the corporation's chances of winning at 80%, given that it will be much easier for it to prove that the acquisition will likely not affect the competitiveness of the gaming market than it is for the regulator to prove otherwise. All in all, I continue to believe that ATVI is a bet on the common sense of the regulators. However, this deal might easily be closed without their approval as Microsoft will likely win in a legal battle in my opinion. The deal should then close sometime in 2024. 30% discount Activision stock is now down 11.66% since January 18 (Microsoft's offer date). I still believe that it is a massive arbitrage opportunity, which gets more attractive the more it plummets. The upside potential has reached a whopping 30%. Thus, I reiterate my Strong Buy rating. This article was written by Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in MSFT, ATVI over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (71) Activision insiders fret $69B Microsoft merger could fall apart: sources nypost.com/... This proposed deal is getting into some serious regulatory review phase and we will keep getting news flows that will keep everyone guessing on ultimate outcome. The question should be, where ATVI shares would trade, if the company is not sold to MSFT? I believe that based on where ATVI shares were trading before the deal announcement (even when the company was mired in sex scandals), the downside is may be, ten to twenty percent. Also, have to factor in $3Billion breakup fee that MSFT is on the hook to pay ATVI if the deal falls apart. I have an article on this topic seekingalpha.com/... And as you said, these examples are not exactly accurate as there are at least legal reasons to block these deals.

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Buying The Dip In Amazon Could Be A Mistake In The Near Term

Amazon.com, Inc. and its AWS growth will likely continue to slow in the near term. Click here to read why we think the AMZN stock is a sell.

SeekingAlpha

Buying The Dip In Amazon Could Be A Mistake In The Near Term Summary - Amazon.com's growth is slowing and is expected to continue to be weak in the near term. - AWS growth is also slowing due to the market conditions and competition. - Given that Amazon's earnings report has created a clear negative trajectory in the near term, it may be best for investors to sell now and buy later. Introduction Amazon.com, Inc. (NASDAQ:AMZN) has two major businesses that are responsible for the majority of the conglomerate's revenue: Amazon.com and AWS. Amazon.com is responsible for the famous e-commerce platform, both within the U.S. and international regions, while AWS - Amazon Web Services - is responsible for Amazon's cloud business. Unfortunately, I believe both of Amazon's major businesses will continue to underperform in the coming months. As many investors have already pointed out, Amazon.com is expected to continue its weakness as economic growth continues slowing as inflation and rates increase. Further, I believe that Amazon's cash cow, AWS, will also underperform compared to expectations due to intense competition from Google (GOOG, GOOGL). Therefore, given that both Amazon.com and AWS are expected to underperform relative to expectations, I believe Amazon has more room to fall. Amazon.com Because Amazon.com is the biggest e-commerce platform in the United States and has a formidable presence overseas, the business is heavily reliant on macroeconomic conditions and consumers' financial health. Today, the macroeconomic health and consumers' confidence is not in an ideal state. As the image above shows, U.S. consumer confidence levels are near the 2008 recession-time lows due to persistently high inflation. Further, this trend may continue, as the latest CPI data shows that inflation continues to be high at 8.2% despite aggressive actions from the Federal Reserve. Thus, the consumer's willingness to shop on Amazon.com is naturally decreasing, hurting the company's top and bottom lines. As a result of the macroeconomic hurdles, both Amazon.com's North American and International businesses have reported operating losses. North American business reported a $412 million operating loss, compared to an $880 million operating profit in the prior-year quarter. Further, Amazon.com's international business reported an operating loss of $2.466 billion for the quarter compared to $911 million in the previous year's quarter. Therefore, the sudden change in consumer confidence has created a strong negative trajectory for Amazon.com, and because the inflation continues to be persistent with the Federal Reserve signaling another 75 basis point increase in interest rate, this trend is expected to continue for the coming months, negatively impacting Amazon. AWS Although AWS continues to be the biggest and most competitive player in the market, AWS is expected to see growth and margin pressure in the near term due to both competition and market conditions. In Amazon's 2022Q3 earnings report, the company reported an AWS revenue of about $20.538 billion, which is about a 27.5% increase year-over-year from $16.110 billion in the previous year. The yearly number may give a positive connotation, as it includes quarters when the overall market was healthy and growing. However, looking at quarter-over-quarter growth, AWS's growth rate decreased from an average of 8.7% quarter-over-quarter in 2021 to an average of 4.94% quarter-over-quarter growth in 2022, which is about a 56.7% decline. Further, in 2022Q3, AWS's quarter-over-quarter growth was 4%, continuing its slowing growth trajectory. AWS is Amazon's most important business, as it is the only business that is returning positive operating income as of today. However, AWS's growth is showing a significant slowdown along with the negative market sentiment. Further, AWS may be seeing a slowdown due to competitive pressure from Google Cloud. Google Cloud has been perceived by the market as an inferior product to AWS; however, since 2019, Google has shifted its focus to enterprise cloud with the appointment of its new cloud president Thomas Kurian. As a result, Google Cloud's growth has been stronger than Amazon's at 9.43% sequential growth in 2022Q3, and about 163% growth since 2019Q4 compared to AWS's 106%. Google's enterprise-first approach is allowing the AWS customers to diversify its cloud portfolio, barring AWS's full growth potential. While it is true that AWS is competitive and the cloud market is expected to continue its growth at 15.7% CAGR until 2030, the current market environment where the Fed is aggressively raising rates is affecting the cloud market despite its long-term underlying trend, and Google is coming out on top during this times. Therefore, given these data points, I think it is logical to argue that AWS will not save Amazon from a significant slowdown in Amazon.com. Valuation AWS's growth rate will likely stay relatively low in the near term as cloud growth is not robust due to the macroeconomic conditions and confidence. Further, Amzon.com is expected to continue struggling with low consumer demand and the Fed's determination to aggressively raise rates no matter the cost to keep inflation low. Thus, Amazon has the potential to see a valuation dip due to multiple contractions. The company is currently trading at about 43.4 times 2023 price-to-earnings, which is relatively low considering Amazon's historical price-to-earnings. However, considering the near-term hurdles and Amazon's expected 2023 growth rate of 14.6%, which is similar to other tech giants such as Microsoft (MSFT) at 13.3%, I do not see a compelling reason why Amazon is receiving about 43.4 2023 price-to-earnings while Microsoft is receiving about 24.24 2023 price-to-earnings. Therefore, given Amazon's slowdown, I believe it is likely for Amazon's valuation multiples to shrink. Risk to Thesis My bearish thesis concerning the slowdown in both Amazon.com and AWS is contingent upon the worsening macroeconomic condition as a result of the Federal Reserve raising rates aggressively. However, in the upcoming FOMC meeting on November 3rd, if Fed President Jerome Powell hints at the start of the end of the aggressive tightening cycle, investors will likely see it as a sign that the economic downturn has peaked, increasing Amazon's valuation multiples once again. Further, the Fed's hinting of a slowdown of raising rates in the next few months may result in the economic downturns being moderate, bringing Amazon.com and especially AWS back to its growth trajectory. Summary Being too early in the stock market is the same thing as being wrong. I believe investors should stay away from Amazon given the negative trajectory Amazon has shown during its 2022Q3 earnings report. Amazon.com is expected to continue reporting losses as demand significantly slows due to declining consumer confidence, with an unlikely increase in potential in the near term. Further, because AWS, Amazon's cash cow, is also experiencing slower growth and margin concerns due to the macroeconomic conditions, I believe it is best if investors stay away from Amazon until the storm passes. Therefore, Amazon is a sell. This article was written by Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (32) www.theguardian.com/... The new CEO is trying to out do his predecessor in ridiculous side bets that waste stock holder capital. Bezos was teflon but the teflon left when Bezos did. They need to close international in any market where they are not a dominant number 1 player like in the US. They need to jettison their ridiculous investments in Pill Pak and Whole Foods which continue to drain capital and for what gain? How long does it take to say those were mistakes? They need to make US operations profitable. They need to rationalize the SKUs in each warehouse for profitability and convert the unprofitable SKUs to fulfillment by Amazon. And then there is Amazon's entertainment division. Exactly how is that going to drive profitable growth? How much did they pay for Thursday night football?All of this reminds me of GE after Jack Welch ... They are essentially a cloud storage company with some logistics that they don't make money on. Heading to 90 after it breaks 101

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Amazon: Disappointing Quarter Could Prompt Shares To Trade Lower

Amazon's Q3 reporting disappoints, as "recession proof" met "uncharted waters" for consumer spending. Click here to read my earnings analysis of the AMZN stock.

SeekingAlpha

Amazon: Disappointing Quarter Could Prompt Shares To Trade Lower Summary - Amazon's Q3 reporting disappointed, as "recession proof" met "uncharted waters" for consumer spending. - Revenues for the September quarter missed consensus by about $370 million. - Amazon now expects FY 2022 sales to be between $140 billion and $148 billion - versus analysts' expectations of around $155 billion. - The e-commerce profitability is very disappointing. And I argue investors should take note. - I reiterate a "Sell" rating for Amazon stock, and I lower my base case target price to $83.37 from $84.55 prior. Thesis I was cautious going into Amazon.com, Inc.'s (NASDAQ:AMZN) Q3 results, as I didn't like the negative implications of an additional Prime Day. And the e-commerce giant's reporting indeed disappointed: revenues for the September quarter missed consensus by about $370 million. But what was even more negative, given "uncharted waters" for consumer spending, Amazon now expects FY 2022 sales to be between $140 billion and $148 billion - versus analysts' expectations at around $155 billion. AMZN stock has lost as much as 14% following Q3 (pre-market reference). But I argue the stock can go even lower. Amazon suffers from depressed economic sentiment, which should contrast sharply to the belief that Amazon's business model would be recession-proof. This, paired with a rich valuation, I remain pessimistic about Amazon's near-/mid-term outlook. I reiterate "Sell," and I lower my base case target price to $83.37. Amazon's Q3 Quarter From July to the end of September, Amazon generated total revenues of about $127.1 billion, which compares to $110.8 billion for the same period one year earlier, representing a 15% year-over-year increase. Analysts, however, have expected sales to be around $127.4 - thus, Amazon missed by about $300 million. Amazon's net income came in at $2.9 billion, versus $3.2 billion in the same period a year ago. Moreover, net income decreased despite accounting for a $1.1 billion non-operating gain from re-valuing the Rivian Automotive (RIVN) stake. Operating income for TTM decreased to $12.97 billion. North America segment operating loss was $0.4 billion, compared with operating income of $0.9 billion in third quarter 2021. International segment operating loss was $2.5 billion, compared with operating loss of $0.9 billion in third quarter 2021. AWS segment operating income was $5.4 billion, compared with operating income of $4.9 billion in third quarter 2021. Honestly speaking, such an anemic profit is very disappointing for a +$1 trillion business. I understand that markets do not focus on Amazon's profitability. But perhaps they should. Outlook Disappoints Like Alphabet Inc. (GOOG, GOOGL) ("Google"), Microsoft (MSFT) and Apple (AAPL), Amazon warned of a clouded outlook, saying that the current economic environment: is uncharted waters for a lot of consumers' budgets. FY 2022 sales guidance was accordingly disappointing: Amazon now expects revenues for 2022 to be between $140 billion and $148 billion, which is as much as $15 billion lower than the median analyst estimates of $155 billion. Operating income for Q4 is estimated at around $4 billion, versus analyst consensus of about $5 billion. Amazon's disappointing quarter was driven by a depressed performance from the e-commerce business. But also "cloud" failed to convince. Sales from the cloud business increased by "only" 28% year-over-year, to $20.54 billion. Arguably, the buy-side was hoping to see growth at about/above 30%. Still Expensive - Downgrade Target Price Following a disappointing Q3 from Amazon, I upgrade my residual earnings model to account for lower earnings in late 2022, as well as 2023. However, I keep the cost of capital relatively low, at 8.25, and the terminal growth rate relatively high, at 4.5%(almost 2 percentage points above expected nominal GDP growth). Given the EPS downgrades as highlighted below, I now calculate a fair implied share price of $83.37, versus about $84.55 prior. Below is also the updated sensitivity table. Conclusion To be fair, Amazon is not the only FAANG that disappointed: Google dropped 10% following Q3, Meta Platforms (META) dropped 25%, and Microsoft fell as much as 7%. I believe, however, that Amazon is in a unique situation as compared to Big Tech peers - the company's profitability is much, much lower, and the valuation much, much richer. Accordingly, I personally would be worried about holding AMZN stock at above $100/share. The key point for my thesis is that I expect sentiment to change. For a long time, investors did not really care about AMZN's profitability. In fact, as I understand it, it has for a long time been a meaningless metric for Amazon, as the company almost appeared proud of the fact when they recorded negative earnings. Investors have been conditioned to accept it. But as recessionary conditions are biting, and investors will undoubtedly demand more discipline, Amazon's lack of profitability focus may prompt a repricing of the stock - lower. Following a disappointing Q3, I reiterate a "Sell" rating for Amazon stock and I lower my base case target price to $83.37 from $84.55 prior. This article was written by Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Not financial advice. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (5)

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Anatomy Of A Bear Market And What To Expect This Earnings Season

While most companies are reporting weak earnings, expectations are now very low. Where are the risks and opportunities? Where we are in the current market downturn? Read more here...

SeekingAlpha

Anatomy Of A Bear Market And What To Expect This Earnings Season Summary - While most companies are reporting weak earnings, expectations are now very low. Where are the risks and opportunities? - Earnings from Microsoft, Google, Snap, AMD, Micron, Carmax provide a glimpse into tough macro trends. - Here we provide thoughts on where we are in the current market downturn and what to expect this earnings season based on early reports. Editor's note: Seeking Alpha is proud to welcome Ivana Delevska as a new contributor. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to SA Premium. Click here to find out more » Expectations Resetting Lower Tech giants Microsoft (MSFT) and Google (GOOG, GOOGL) just kicked off the earnings season, after several notable reports and pre-announcements from Snap (SNAP), AMD, Micron (MU), and CarMax (KMX). Demand trends have significantly deteriorated since last quarter, and ultimately, we expect that every sector will be impacted by the sluggish macro. With this set-up in mind, there are many companies that look very attractive on pullbacks, as we expect that secular trends will overcome their cyclical headwinds over the next several quarters. Within industrial/enterprise technology, there is a wide spectrum of business models all providing different risk/reward. On one end of the spectrum are semis/hardware with the most downside but also the most upside in a recovery, and on the other end of the spectrum are software (SaaS) business models, which we expect to be most resilient through the downturn. - Semis/hardware. Inventory dynamics are significantly exacerbating a difficult macro backdrop. As an example, AMD warned that PC demand will be $1 billion lower revenue on a base of $6.7 billion. PCs are ~33% of AMD’s total revenue, which would imply that the company expects that chips sold to PCs will be down 50%+ yoy while the PC market was down mid-teens during the quarter. This means that even if the market continues to decline, semiconductor earnings will form a floor as inventory destocking comes to an end (usually takes 2 quarters). - Economically sensitive SaaS, especially ones exposed to small businesses, are facing significant cyclical headwinds. Microsoft noted on its earnings call that small and medium enterprises were disproportionately weak. But ultimately, even in an economic scenario of muted growth, companies will have to invest to run their businesses more efficiently through a downturn, which will create a tailwind for these companies even in a weaker macro. - Consumption-based software. We expect that spending on cloud infrastructure will be relatively more resilient through a downturn. But there are two trends to note: (1) cloud spending is now a major expense item and most companies will look to optimize it (2) consumption-based business models are likely to experience slower growth. This means that there will be an initial reset before companies can resume strong secular growth. Snowflake (SNOW) flagged this trend as early as March of this year, and it was followed by muted guides from MongoDB (MDB) and DataDog (DDOG). But some investors are still surprised by the slower growth reported by the hyperscalers (e.g., Microsoft just guided to 37% growth for Azure for 2Q23 vs. 42% in 1Q23 and 39% consensus - solid, but a deceleration). - Traditional SaaS for specific applications such as cybersecurity, design, and simulation we expect to be most resilient. Although we expect some level of uncertainty with deals taking longer to close, spending in these categories is generally non-discretionary. Overall, while many risks remain, the share prices of most of the companies in the four categories above have declined 50-80% ytd, presenting what we believe to be attractive opportunities, and manageable risks. On the contrary, there are many areas where we believe the risks outweigh the potential upside. - We expect more downside for areas such as advertising, where weak macro trends are exacerbated by privacy policy changes. - We expect potential downside for companies directly exposed to deteriorating consumer balance sheets driven by higher interest rates. - Within technology we are avoiding areas where companies are taking asset and credit risks - In cyclicals we are avoiding housing, autos, and other “big-ticket” items. Earnings takeaways from early reports and pre-announcements Reported earnings are continuing to surprise to the downside, despite expectations declining throughout the quarter. While last quarter we experienced several pockets of weakness (transportation, PCs, semis), this weakness has now broadened to large-cap technology companies that can be viewed as a proxy for the broader economy. - Microsoft: In-line 1Q23 but weak guidance for 2Q23. Specifically, Azure growth to slow to +37% yoy in F2Q23 from 42% in F1Q23 (-5pts qoq). While lower than expectations, we view anything above 30%+ growth as solid in this environment. - Google: Miss on top and bottom line (-3% revenue/-7% EBITDA miss). Revenue was up 6% (11% ex FX). Ad spend weak driven by YouTube and Network, while cloud showed good momentum. Cloud growth accelerated to +38% yoy in 3Q22 (+180bp), although on an easy comp. - Snap: In addition to weak macro, biggest challenge was customer engagement. Time spent watching content in the U.S. declined 5% yoy. Guide for flat revenue in 4Q implies declines in November and December. - Advanced Micro Devices: Weak PCs drove $1 billion revenue shortfall, but investors are now worried if enterprise spend is the next shoe to drop. - CarMax: Same-store sales down -8.3% and disappointing CAF income driven by weak consumer demand and higher-than-anticipated loan loss provisions. Interest rate-driven affordability pressures. On the positive side, expectations are now reset significantly lower, especially in areas such as cloud (reset with Microsoft earnings), semiconductors (reset with AMD and Intel (INTC)), transportation and logistics (reset with FedEx (FDX)) etc. Consequently, we expect more positive than negative earnings surprises, despite that the earnings cuts trend for the broader market still remains intact. Macro Backdrop While downturns follow a pattern, each one is slightly different and caused by a different catalyst. High-risk assets generally sell off first, which was the case in this downturn, with limited differentiation within business models. This phase is followed by a broad valuation reset, in this case pretty violent and exacerbated by higher discount rates; and lastly, earnings estimates get cut driven by broad macro weakness. While the last phase is generally the most violent and volatile, there are several factors that differentiate this downturn from others: - Unlike prior downturns, where the Fed came to the rescue, monetary tightening is the principal driver of this downturn. Consequently, the Fed’s decisions are well-telegraphed and bad news gets priced in consistently ahead of the announcements and results (e.g., the VIX, a volatility index we closely watch, has been relatively contained). - In a typical downturn, there is overcapacity in the system, and small changes in demand result in earnings collapse. This is then followed by a sharp recovery as supply and demand comes to balance. In this bear market, there is no broad overcapacity but many dislocations. While some are getting corrected (e.g., semis), others are getting created (e.g., housing). Consequently, on the positive side we don’t expect a sudden collapse in earnings across the board, but on the negative side we expect prolonged headwinds that will ultimately affect earnings in many end-markets. - There are significant differences between this technology bear market and the tech bubble of 2000. Many tech companies today have proven business models at scale and generate significant cash flow. While correlations have been high and all technology has been treated equally thus far in the sell-off, we are starting to note divergence between good and bad companies. We believe that industrial technology can do very well in this scenario once the market stabilizes. Our channel checks indicate that while most companies are looking to optimize their spend, which is weighing on earnings and creating elongated deal cycles, investing in technology will be the only way for companies to stay competitive. We therefore expect a very meaningful tech cycle ahead. Divergence In Fundamentals While in the first two phases of the downturn there was limited differentiation between companies with solid versus poor fundamentals, we are just starting to notice some divergence. As an interesting data point, we compare stock price performance of Snowflake and DataDog, both leaders in cloud infrastructure, with Zillow (Z), an online real estate platform. While these businesses have seemingly not much to do with each other, all three companies have declined roughly the same amount (~50% ytd). Now turning on to the fundamentals, we compare hiring data provided by Revealera, a company focused on hiring insights in technology. Job openings for both DataDog and Snowflake show a similar but, more recently, a slightly diverging trend. - Snowflake job openings showed consistent growth. - DataDog employment growth peaked in 2021 and flattened out in 2022. Conversely, job openings for Zillow show a clear deterioration, implying significant divergence in fundamentals. This divergence in fundamentals did not impact the stocks in 1H22, as the sell-off was driven by interest rates and, consequently, valuations rather than fundamentals. Interestingly, while fundamentals did not have a meaningful impact on stock prices in the first half of 2022, this has changed since the June lows. Many companies traded down to historically low valuations and found a floor, while others with deteriorating earnings fundamentals continue to find new lows. We noted similar trend for cybersecurity companies, which have continued on a path of consistent growth in hiring. Many of those companies did not reach new lows despite the recent leg down for the market. Disclosures Views expressed here are for informational purposes only and are not investment recommendations. SPEAR may, but does not necessarily have investments in the companies mentioned. For a list of holdings click here. All content is original and has been researched and produced by SPEAR unless otherwise stated. No part of SPEAR’s original content may be reproduced in any form, without the permission and attribution to SPEAR. The content is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation in respect to any products or services for any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. Certain of the statements contained on this website may be statements of future expectations and other forward-looking statements that are based on SPEAR’s current views and assumptions, and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. All content is subject to change without notice. All statements made regarding companies or securities or other financial information on this site or any sites relating to SPEAR are strictly beliefs and points of view held by SPEAR or the third party making such statement and are not endorsements by SPEAR of any company or security or recommendations by SPEAR to buy, sell or hold any security. The content presented does not constitute investment advice, should not be used as the basis for any investment decision, and does not purport to provide any legal, tax or accounting advice. Please remember that there are inherent risks involved with investing in the markets, and your investments may be worth more or less than your initial investment upon redemption. There is no guarantee that SPEAR’s objectives will be achieved. Further, there is no assurance that any strategies, methods, sectors, or any investment programs herein were or will prove to be profitable, or that any investment recommendations or decisions we make in the future will be profitable for any investor or client. Professional money management is not suitable for all investors. Click here for our Privacy Policy. Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors. This article was written by Comments (5)

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Microsoft: My Highest Conviction Stock

Microsoft reported Q1 earnings recently and the stock sold-off. Check here to see MSFT's growth catalysts and why I consider it as my highest conviction pick.

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Microsoft: My Highest Conviction Stock Summary - The recent quarterly results of Microsoft resulted in a sell-off the next day, because of less cloud growth. - Microsoft keeps on growing by double digits and the business shows its resilience. - Microsoft has great growth opportunities in both cloud and gaming. - The current price weakness results in a great buying opportunity. - If I could only choose one stock for the next 10 years, Microsoft would be my first choice. Investment thesis Yes, I know this is probably article number 20 you read about Microsoft (NASDAQ:MSFT) in these past few days after its earnings release. So far, I haven’t written about Microsoft for this exact reason; there are so many contributors on Seeking Alpha writing about Microsoft that it feels a bit unnecessary. But Microsoft is by far my largest personal holding and if I could choose just one stock to invest in for the coming 20 years, my choice would easily be Microsoft (please let me know in the comments which stock you would pick!). And so, I felt like I had to write about Microsoft following its recently released 1Q23 earnings report. On October 25th Microsoft reported their 1Q23 earnings report and beat both top and bottom-line estimates. Yet, the company dropped hard at market opening on October 26th. This drop was mainly because of slowing growth in the cloud and a difficult outlook, which made investors nervous. As a long-term investor in Microsoft, these slowdowns did not worry me at all, as the long-term trajectory remains perfectly intact, and I remain to believe that Microsoft is the most wonderful business on the planet. Microsoft has one of the best businesses in the world, driven by growing digitalization and a strong position in all its business segments. I see Microsoft as fairly recession resistant, because of the raw importance of its products and services. I believe that at current prices Microsoft is a no-brainer investment, guaranteed of strong returns. I cannot tell you whether this is the bottom, and the stock might just as well go lower over the coming quarters, but I can tell you that current prices are setting you up for solid returns over the next 10 years when Microsoft will increase its moat in crucial industries such as cloud, gaming, and personal computing. Microsoft is my highest conviction stock and I rate the company a strong buy on current price weakness. Microsoft Corporation Microsoft is an American technology company mostly known for its Windows software, office package (including Word, Excel, and PowerPoint), and Internet Explorer. Nowadays, of course, the company does way more. Microsoft was founded in 1975 by Bill Gates and Paul Allen. Microsoft became dominant with its personal computer operating system first known as MS-DOS and later became Windows. The company has been diversifying its business by making a lot of acquisitions and making the right choices by expanding into the cloud for example, a few years after Amazon (AMZN) did. Nowadays the company offers a wide variety of products for both consumers and enterprises such as desktops, laptops, tabs, and servers including internet search and cloud computing under the name of Azure. To deliver all these products and services, the company has a total employee base of 2,21,000 people worldwide. Microsoft has been playing a crucial role in the everyday life of many people and businesses and will continue to do so. Microsoft has an incredible number of products that are used every day like LinkedIn, Microsoft Teams, Windows, Office 365, and the Azure cloud platform. I like to believe that without the services and products of Microsoft many people would be unable to do their job. Would you be able to do your job if all Microsoft services would be gone? Could you do without Word? Excel? Windows? Microsoft teams? Three business segments Microsoft reports their earnings and growth across three different segments. Productivity and business processes This business segment includes products and services in the portfolio of productivity, communication, and information services. This includes the Microsoft office commercial products being all Office 365 variations and licenses (Office, Exchange, MS Teams, SharePoint, etc.). LinkedIn is also included within this segment and is the most expensive acquisition of Microsoft to date (as long as the Activision acquisition is not completed) with a price of over $28 billion. LinkedIn is a social media platform with a focus on the business sector and talent acquisition. These include earnings from talent solutions and premium subscriptions. This segment also includes Dynamics business solutions, including Dynamics 365, comprising a set of intelligent, cloud-based applications across ERP, CRM, Customer Insights, and Power Automate; and on-premises ERP and CRM applications. During FY22 this segment earned revenue of over $63 billion, accounting for 32% of total revenue. Operating income came in at just under $30 billion and therefore accounted for 35.6% of total operating income. Intelligent cloud This segment includes the cloud segments consisting of public, private, and hybrid server products. This consists of server products such as Azure, SQL server, Windows server, and more. This segment is mostly dominated by the Azure platform. Revenue for FY22 came in at $75.25 billion and was Microsoft’s largest segment accounting for 38% of revenue. The operating margin was also strong and resulted in an operating income of $32.7 billion, accounting for over 39% of operating income. More personal computing The final segment of Microsoft is its personal computing segment, which consists of its legacy Windows products and services. These include all income related to their Windows product. All products of Microsoft are also included within this segment consisting of Surface laptops, HoloLens, and PC accessories. The gaming part of Microsoft, a fast-growing part over the long run, which Microsoft is expanding aggressively with the acquisition of Activision (ATVI), is also included here. This involves all income related to Xbox hardware, content, and subscriptions. Finally, search and news advertising is also included, which will be boosted by the recent announcement of Microsoft being the ad partner for Netflix’s (NFLX) new ad subscription to be launched in November. Microsoft also earns ad revenue from LinkedIn, which is included here and not within productivity and business processes. This segment accounted for 30% of revenue in FY22, coming in at just under $60 billion. Operating income was $21 billion for FY22, accounting for 25% of total operating income. Growth opportunities The thing I like about the business segments of Microsoft is that, despite being a software company, they are very diversified with operations over all sorts of business segments and industries. This strong diversification is visible in the revenue split across all three segments. This opens up a lot of potential growth opportunities for Microsoft. Let’s discuss a few. Cloud It should be noted that the already largest cloud segment is also the fastest growing, supported by digital transitions and global moves to the cloud. Microsoft has one of the largest cloud platforms with Azure being the second largest, just behind Amazon’s AWS. According to Fortune Business Insights, the global cloud computing market size is expected to grow at a 17.9% CAGR through to 2028. The total market size in 2028 will be $791.48 billion and therefore creating a massive opportunity for Microsoft. Microsoft has an incredibly strong cloud platform in the form of Azure and is well-positioned to even increase its market share as it has been doing over the last few years. This is a strong secular tailwind for Microsoft. Advertising Microsoft may not seem like much of an advertising company. Companies like Alphabet (GOOG) (GOOGL), Snap (SNAP), Meta (META), and the Trade Desk (TTD) are the more familiar names, yet Microsoft should not be underestimated and has a strong ad business already through its Bing search engine and LinkedIn ads. Most recently Microsoft became the ad partner of Netflix. This partnership opens a huge market for Microsoft and gives it the opportunity to grow its advertising business. Microsoft believes it can grow its advertising business to $20 billion in revenue a year. In FY22 total LinkedIn revenue increased by 26% YoY and advertising grew by 15%, both showing strong growth rates. With Microsoft partnering up with Netflix it gets strong exposure to the fast-growing CTV market and is well-positioned to benefit from an ever-increasing market for advertisement spending. The global advertising market is expected to grow at a 5% CAGR through 2027 to a total size of $792.7 billion. I believe that the Netflix partnership will position Microsoft as a big player in the ad business and will profit from the increasing market share and explosive growth in CTV. Gaming Microsoft is one of the largest players in the gaming industry, mostly through its Xbox product. Microsoft is committing its efforts and money to the gaming industry as it sees this as a huge growth opportunity, and I think they are not wrong. According to Business Fortune Insights, the total gaming market is expected to grow at a CAGR of 13.2% between 2021 and 2028. The total market size will reach $545.98 billion by 2028. In the console market, Microsoft currently holds a market share of 20% and is expected to improve this to 27% by 2026. But Microsoft is not focused on platform gaming, but on cloud and mobile gaming. Microsoft wants to enable people to play games anywhere, anytime, and on any device. Microsoft is building on this with its Xbox Game Pass, which is a monthly subscription enabling you to play every selected game for free on supported devices. These differ from Xbox hardware to PC and mobile devices. The newest addition to this concept is cloud gaming. Cloud gaming enables users to play their favorite games without owning the necessary hardware like the Xbox or Sony (SONY) PlayStation, instead, the games are being played in one of the many powerful cloud servers of Microsoft. This is then streamed to your device of choice. This enables users to play their games where and whenever they want without needing the hardware. This means you are able to play the most intense graphical games on your simple smartphone. Microsoft offers this cloud gaming service through its Xbox Game Pass Ultimate. Microsoft owns the cloud server's software and hardware to realize this on a huge scale with Azure, and owns the gaming platform with Xbox, which positions them perfectly to benefit. Xbox game pass has 25 million active subscribers. This is where the $69 billion acquisition of Activision Blizzard comes in for Microsoft. The acquisition will position Microsoft as the 3rd largest gaming company by revenue, only behind Chinese Tencent (OTCPK:TCEHY) and Japanese Sony. The acquisition will open Microsoft to the world of mobile gaming, the fastest-growing gaming segment, and adds huge exposure to the fast-growing Indian market. Candy Crush and Call of Duty, two games owned by Activision, are among the top 10 most-played games in India. The Indian market is home to over 430 million gamers and is growing by 35-40% a year, with mobile gaming accounting for 90% of this growth. Most importantly, the acquisition will give Microsoft access to the over 40 million monthly active users of Activision and can add these games to its game pass subscription. Xbox game pass users will probably get exclusive extras within these popular games, if not exclusive access. The Activision Blizzard deal will be a massive boost to Xbox game pass, as it will allow subscribers to play blockbuster games like Call of Duty across multiple platforms whenever they want. 1Q23 results were still strong but resulted in a sell-off anyways. Microsoft reported its 1Q23 earnings on October 25th, 2022. In the three months ending September 30th, Microsoft reported revenue of $50.1 billion, an increase of 11% YoY (16% in constant currency). Operating income came in at $21.5 billion, an increase of just 6% YoY (15% in constant currency). This shows us Microsoft was still able to grow its revenue by double digits, despite a difficult comparison and multiple economic headwinds such as a slowdown in PC shipments and IT spending. Operating income took a bigger hit, though on constant FX this was still a solid 15% increase. So, for the top and bottom lines, I see absolutely no issues. Net income for the quarter was $17.6 billion and this is a decrease of 14% compared to last year and still an 8% decrease on constant currency. The operating income margin was 43%. Earnings per share of $2.35 were down 13% YoY. And even though these numbers saw a decline, CEO Satya Nadella stayed rather positive: In a world facing increasing headwinds, digital technology is the ultimate tailwind. In this environment, we’re focused on helping our customers do more with less while investing in secular growth areas and managing our cost structure in a disciplined way. Revenue in the Productivity and Business Processes segment was $16.5 billion, an increase of 9% YoY (15% on constant currency). Within this segment, we saw a strong continued performance of Office products and cloud services which was up by 7% and total Microsoft 365 consumer subscribers increased to 61.3 million. For a product with already such a strong user base, it is incredible this segment is still growing this strong. It does show the real dominance Microsoft has with its office products and services. LinkedIn also showed its strength and managed to increase revenue by 17% YoY. Dynamics 365 was up a whopping 24% and continuing to grow strong. Revenue in intelligent cloud grew by 20% to $20.3 billion and most important here was the 35% revenue growth of Azure and other cloud services (up 42% in constant currency). This shows that strength remains for Azure, yet the intelligent cloud segment did see a slowdown compared to previous quarters. This is probably one of the main negatives resulting in a drop of close to 8% for Microsoft during the next day's trading. Cloud is seen as one of the main drivers of Microsoft and is fairly recession-resistant, because of the strong tailwinds. So, when there is a slowdown within this segment people get nervous. To me, these numbers show, yes, a slowdown, but most of all strong continued growth despite economic headwinds. I remain bullish on the long-term prospects of the cloud business and its near-term resiliency. Microsoft Cloud margin even improved to 73% from 70% last quarter. More Personal Computing was the only segment seeing a decrease in revenue compared to the year-ago quarter. This is no surprise looking at the total PC shipment number, which has been decreasing over the last few months resulting in profit warnings at the likes of AMD (AMD) and Nvidia (NVDA). Revenue decreased slightly to $13.3 billion, but on constant currency, the segment remained fairly resistant and would be up by 3%. The big problem here was the drop in Windows OEM of 15%, which, yet again, is no surprise. Xbox content and services revenue also decreased by 3% (up 1% on constant currency) and I think this is still relatively resilient compared to the broad gaming slowdown. Advertising revenues were up by 16% (21% on constant currency). Overall, I was impressed by the strong growth Microsoft managed to show and was therefore surprised by the drop in share price. I believe Microsoft showed during this quarter how resilient its business is and that it will keep growing. I do see single digits growth for the next couple of quarters, but I believe this is already being reflected in the share price. Microsoft remained to see strong performance across the business and outperformed competitors in gaming, advertising, and product shipments. Microsoft returned $9.7 billion to shareholders during the quarter in the form of dividends and share buybacks. Free cash flow for the quarter was $16.9 billion and therefore comfortably covering shareholder distributions. Valuation and Balance sheet Microsoft exited the latest quarter with $22.9 billion in cash and cash equivalents and over $84 billion in short-term investments, totaling $107.26 billion. A massive cash position to say the least. This is $2.5 billion more than 3 months ago. Long-term debt stood at $45 billion, which is $2 billion less than three months ago. Microsoft has a very clean balance sheet and ample cash to spend. This is nothing new and the company remains to strengthen its balance sheet even during these difficult times. Microsoft also pays a solid dividend and keeps buying back its shares. Total shareholder distributions are well covered by free cash flow, as mentioned before. The dividend yield is not very high at 1.18%. More impressive is its dividend growth at a 5-year CAGR of close to 10%. Microsoft receives an A+ from Seeking Alpha Quant for its dividend growth rate. Dividend safety is also no issue as I already illustrated by the coverage of free cash flow. The company earns massive amounts of cash every quarter and the dividend payout ratio stands at just 26.72%, receiving an A from Seeking Alpha Quant. Microsoft has been paying a dividend for 18 consecutive years now and has been increasing this for 17 consecutive years. It will come as no surprise that Microsoft is never cheap. The incredible moat, strong financials, impeccable free cash flow generation, and strength in secular growth areas justify a higher valuation. Microsoft is currently valued at a forward P/E ratio of 24.22, 17% below its 5-year average of 29. I believe the company is undervalued right now and trading at a discount following the drop after 1Q23 results and the general drop of the markets since the start of the year. Microsoft deserves a P/E of at least 28-30 and therefore has approximately 17% upside potential. I view the current price as a strong buying opportunity for a long term investment. Risks No company is risk-free and the same goes for Microsoft. There is of course the risk of a severe recession looming around the corner and this could also have a significant effect on Microsoft. Microsoft's growth could drop to low single digits, but I do not see a revenue contraction in the near future. I believe the company has a strong position over multiple high-growth areas and business segments and products such as Microsoft Office are just too important for businesses to cut down on. I believe Microsoft Azure and other cloud services will continue growing under any circumstances thanks to a global ongoing shift to the cloud. For many businesses, the shift to the cloud would actually save money during difficult times. Microsoft is also still waiting for the approval of the Activision blizzard acquisition. There are worries, mainly from Sony, that Microsoft might want to make blockbusters such as Call of Duty an Xbox exclusive. This would be a huge problem for Sony and their PlayStation platform and be a hurdle in the competitiveness of the market. Microsoft has already stated multiple times that it wants to keep Call of Duty open to PlayStation for the next few years, as long as the agreement goes between Sony and Activision. Worries remain about the competitiveness in the market from the UK regulators. If the deal would fall through, this would be a big hit to the business of Microsoft and probably would mean a drop in share price as the big opportunity in gaming would become less rosy for Microsoft. I would like to highly recommend reading this article from a fellow Seeking Alpha contributor. He provides a very nice in depth look into the acquisition of Activision Blizzard. I believe the deal will be given the green light from regulators, but probably under certain circumstances. Conclusion Microsoft remains my number one stock pick, even after the recent quarterly results as I still see great upwards potential and the long-term investment thesis remains incredibly strong. Microsoft has opened itself up to multiple high-growth sectors like Cloud and Gaming. It already has a strong position in the cloud by leveraging its Azure platform with its 21% share in global cloud computing and offering more abilities to its customers than other platforms like AWS. Microsoft is strengthening its position in gaming by acquiring Activision Blizzard and once given the green light, will become the third-largest enterprise in the gaming segment by revenue. The acquisition will open a door for Microsoft into other high-growth markets such as the Indian gaming market. All this growth is being supported by its legacy businesses in personal computing and other offerings such as Microsoft Office 365 and Windows, which remain massive income sources and cash machines with an incredible moat around them. I view Microsoft as the strongest business on the planet and it will continue to use its massive cash generation ability to fuel new growth areas and distribute cash to shareholders. Microsoft will be able to keep growing over the next couple of years at a CAGR of double digits. Analysts project growth to slow down next year, to then boost growth again in 2024 by double digits until 2028. At current prices Microsoft is a strong buy and will be able to provide double-digit returns to investors. They will also continue to grow their dividend by 10%+ and therefore be a strong dividend growth investment. I rate Microsoft a strong buy at current prices. This article was written by Analyst’s Disclosure: I/we have a beneficial long position in the shares of MSFT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (21) Soon, you will see a 5% 5 year Treasury. MSFT will easily hit $169 a share, but young money will have backed their trucks up at $200 a share. Old will wait for the foolish moves of the new. TSLA is the early bet that I'm more certain of growing 10x further by 2030 and pay me 2x what I spent on shares in dividends by then too. We sell every share of MSFT we can to buy more Tesla. No one is going to make so much profit of so many super high prices items that bring in major revenue for the life of the vehicle. Tesla is turning into a money printing machine, 2023-24 will prove this to even the most recalcitrant of observers. Just buy a few shares and enjoy the ride. No one works harder to make a company a success than Elon. What are your top 2- since you rate MSFT as Top3? Thanks This drop to 500 is a great window of opportunity to initiate a position. This is a stock with a huge runway to double or triple its price in the next 5-7 years. An absolute beast of a company. You know the reasons why!

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Amazon market cap sinking $135 billion, set to fall below $1 trillion for first time in 2 1/2 years

The plunge in Amazon.com Inc.'s stock undefined following a disappointing third-quarter earnings report and outlook puts the ecommerce giant on track to lose...

MarketWatch

The plunge in Amazon.com Inc.'s stock AMZN, +1.30% following a disappointing third-quarter earnings report and outlook puts the ecommerce giant on track to lose its place as a trillion-dollar company for the first time in 2 1/2 years. The stock dropped 12.0% in premarket trading, and is heading for the first trade below the $100 level during regular-session hours since April 7, 2020. With 10.202 billion shares outstanding as of Oct. 19, the implied price decline would erase about $135.4 billion in market capitalization, to knock the total market down to about $996.6 billion. The last time Amazon closed below the $1 trillion market-cap line was April 6, 2020. That would leave just three $1+ trillion market cap companies: Apple Inc. AAPL, -0.28%, which had a market cap of $2.33 trillion as of Thursday's close; Microsoft Corp. MSFT, +0.19% at $1.69 trillion; and Alphabet Inc. GOOGL, +0.59% GOOG, +0.72% at $1.19 trillion. Amazon's stock selloff comes as futures ES00, +0.09% for the S&P 500 SPX, +0.67% declined 0.6%, while futures NQ00, +0.15% for the technology-heavy Nasdaq 100 NDX, +0.49% shed 0.9%.

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Google Vs. Microsoft: Which Is The Better Choice?

Despite Google and Microsoft presenting lower revenue growth rates than in the past, I continue my strong buy rating for Alphabet and Microsoft. Read why here.

SeekingAlpha

Google Vs. Microsoft: Which Is The Better Choice? Summary - On Tuesday, both Alphabet/Google and Microsoft reported their quarterly results. - Despite both presenting lower revenue growth rates than in the past, I continue my strong buy rating for Alphabet and Microsoft. - Alphabet and Microsoft have strong competitive advantages, and I expect them to contribute to the companies’ growth in the years to come. - My DCF Model shows an upside of 25.90% for Alphabet and an upside of 19.50% for Microsoft. - At the companies’ current stock prices, I expect a compound annual rate of return of 15% for Alphabet and 13% for Microsoft, which I will show in this analysis. Investment Thesis - Although Alphabet Inc. (NASDAQ:GOOG, NASDAQ:GOOGL) ("Google") missed revenue estimates in 3Q22 (its revenue was $69.1B in 3Q22: an increase of 6% as compared to the same quarter of the previous year and an increase of 11% on a constant currency basis), I continue my strong buy rating for the company. - Microsoft (NASDAQ:MSFT) reported a revenue of $51.9B in its latest quarterly report, which was an increase of 12% as compared to the same quarter of the previous year. Its operating income was $20.5B, implying an increase of 8% compared to the same quarter of the previous year. - Both companies receive my strong buy rating. My ratings are based on the fact that I continue to consider them as excellent choices when it comes to risk and reward. Therefore, I see both as excellent buy and hold investments. - Both companies have strong competitive advantages such as a high brand value, strong financials, a proven ability of integrating new businesses, and fast-growing cloud business units as growth drivers. - If I could only choose one of the two at this moment in time, I would select Alphabet over Microsoft. This is due to Alphabet's lower valuation and higher expected annual rate of return. - The HQC Scorecard rates Alphabet (91/100) slightly higher than Microsoft (90/100), strengthening my investment thesis to select the company over Microsoft. - My investment thesis is also supported by Alphabet's higher Free Cash Flow Yield [TTM] of 4.78% (while Microsoft's is 3.51%) and its higher Free Cash Flow Per Share Growth Rate [FWD] of 24.03% (compared to Microsoft's, which is 13.31%). - However, I consider the risk of investing in Microsoft to be lower than investing in Alphabet; particularly due to Microsoft's broader and more diversified product portfolio. The Competitive Advantages and Growth Drivers of Alphabet and Microsoft Both Alphabet and Microsoft have strong competitive advantages and I expect this will continue to contribute to the growth of the companies in the years to come: Brand Value Both companies are among the most valuable brands in the world: while Google is ranked 3rd in the ranking of the most valuable brands according to Brand Finance, Microsoft is ranked 4th. Google's brand value is currently estimated to be $263,425M, while the one of Microsoft is estimated to be $184,245M. Compared to 2021, Google's brand value increased by 37.76% in 2022 and Microsoft saw an increase of 31.19%. Financial Strength Both Alphabet and Microsoft have enormous financial strength: while Alphabet currently disposes of Total Cash & ST Investments of $116,259M, Microsoft's Total Cash & ST Investments is $107,244M. Further proof of this enormous financial strength is provided by the companies' credit ratings: while Alphabet has an Aa2 credit rating from Moody's, Microsoft shows an Aaa rating from the same agency. According to Moody's, obligations rated Aaa have minimal risks and obligations rated Aa are subject to very low credit risk. These excellent credit ratings are indicators that the risk of investing in both Alphabet and Microsoft are relatively low. However, due to Microsoft's higher credit rating from Moody's, it can be deduced that the risk of investing in the company is lower than investing in Alphabet. In the risk section of this analysis, I will provide further evidence of this. Proven Ability of Integrating New Businesses into their existing businesses Both companies have a proven ability of integrating new businesses into their existing ones. While Alphabet, for example, acquired YouTube in 2006, for which it paid $1.65B, Microsoft paid $26.2B for the acquisition of LinkedIn back in 2016. Due to this proven ability of integrating new businesses, I expect that the acquisition and integration of new companies will continue to be growth drivers for both in the future. Cloud Business In my previous analysis on Microsoft, I gave an overview of the growing Cloud Computing Market: "According to Fortune Business Insights, the global Cloud Computing Market Size will reach $791.48B in 2028, growing with a CAGR of 17.9% from 2022 till 2028. According to data from Statista, Amazon's AWS is currently the leading cloud infrastructure service provider with a worldwide market share of 34%. Microsoft's Azur is second with a market share of 21%, ahead of Alphabet's Google Cloud (market share of 10%), Alibaba Cloud (5%) and IBM Cloud (4%)." This is evidence that there is plenty of room to grow for both companies, although they were unable to expand their market share. For this reason, I expect the Cloud Business to be one of the growth driver's for both Alphabet and Microsoft in the coming years. Diversified Product Portfolio When it comes to diversification, I see Microsoft as being ahead of Alphabet. I have already shown Microsoft's broad and diversified product portfolio in my analysis on the company: "In 2021, 32% ($53,915M) of Microsoft's total revenue was generated by its business unit Productivity and Business Processes, 35.74% ($60,080M) by its business unit Intelligent Cloud and 32.18% ($54,093M) came from the unit of More Personal Computing. The fact that each of the three different business segments account for about 1/3 of the company's total revenue is an indicator of its broad and diversified product portfolio and shows that it does not depend on a specific business unit." Alphabet however, still depends highly on the revenue of its Advertising business unit, since more than 80% of its revenue is generated by its business unit Google Advertising. Those numbers show that Microsoft has a much broader and more diversified product portfolio and acts as a further indicator that the risk of investing in the company is less than an investment in Alphabet. The Valuation of Alphabet and Microsoft Discounted Cash Flow [DCF]-Model I have used the DCF Model to determine the intrinsic value of Alphabet and Microsoft. The method calculates a fair value of $123.38 for Alphabet and $283.16 for Microsoft. At the current stock prices, this gives Alphabet an upside of 25.90% and Microsoft an upside of 19.50%. My calculations are based on the following assumptions as presented below (in $ millions except per share items): | | Alphabet | | Microsoft | | Company Ticker | | GOOGL | | MSFT | | Revenue Growth Rate for the next 5 years | | 8% | | 10% | | EBIT Growth Rate for the next 5 years | | 8% | | 10% | | Tax Rate | | 15.7% | | 13.1% | | Discount Rate [WACC] | | 8.75% | | 8.25% | | Perpetual Growth Rate | | 4% | | 3% | | EV/EBITDA Multiple | | 12.5x | | 20.7x | | Current Price/Share | | $98.00 | | $ 237.00 | | Shares Outstanding | | 13,044 | | 7,458 | | Debt | | $28,810 | | $ 78,400 | | Cash | | $17,936 | | $13,931 | | Capex | | $29,816 | | $23,886 Source: The Author Based on the above, I have calculated the following results: Market Value vs. Intrinsic Value | | Alphabet | | Microsoft | | Market Value | | $98.00 | | $237.00 | | Upside | | 25.90% | | 19.50% | | Intrinsic Value | | $123.38 | | $283.16 Source: The Author Internal Rate of Return for Alphabet The Internal Rate of Return [IRR] is defined as the expected compound annual rate of return earned on an investment. Below you can find the Internal Rate of Return as according to my DCF Model (when assuming different purchase prices for the Alphabet stock). At Alphabet's current stock price of $98.00, my DCF Model indicates an Internal Rate of Return of approximately 15% for the company. I have assumed a Revenue and EBIT Growth Rate of 8% for Alphabet for the next 5 years and a Perpetual Growth Rate of 4% afterwards. (In bold you can see the Internal Rate of Return for Alphabet's current stock price of $98.00.) Please note that the Internal Rates of Return below are a result of the calculations of my DCF Model and changing its assumptions could result in different rates. | | Purchase Price of the Alphabet Stock | | Internal Rate of Return as according to my DCF Model | | $75.00 | | 24% | | $80.00 | | 22% | | $85.00 | | 20% | | $90.00 | | 18% | | $95.00 | | 16% | | $98.00 | | 15% | | $100.00 | | 15% | | $105.00 | | 13% | | $110.00 | | 12% | | $115.00 | | 11% | | $120.00 | | 10% Source: The Author Internal Rate of Return for Microsoft At Microsoft's current stock price of $237.00, my DCF Model indicates an Internal Rate of Return of approximately 13% for the company (while assuming a Revenue and EBIT Growth Rate of 10% for the next 5 years and a Perpetual Growth Rate of 3% afterwards). (In bold you can see the Internal Rate of Return for Microsoft's current stock price of $237.00.) | | Purchase Price of the Microsoft Stock | | Internal Rate of Return as according to my DCF Model | | $190.00 | | 19% | | $200.00 | | 18% | | $210.00 | | 17% | | $220.00 | | 15% | | $230.00 | | 14% | | $237.00 | | 13% | | $240.00 | | 13% | | $250.00 | | 12% | | $260.00 | | 11% | | $270.00 | | 10% | | $280.00 | | 9% | | $290.00 | | 8% Source: The Author Relative Valuation Models The P/E [FWD] Ratio for Alphabet and Microsoft Alphabet's current P/E [FWD] Ratio of 20.03 is 27.39% below its Average P/E [FWD] Ratio over the last 5 years (27.59). This suggests that the company is currently undervalued. When comparing Microsoft's current P/E [FWD] Ratio of 24.57 with its Average P/E [FWD] Ratio of the last five years (30.77), we can see that it's 20.15% below its average, showing that Microsoft is currently undervalued. Fundamental Data: Alphabet vs. Microsoft When taking a closer look into the Fundamental Data of Alphabet and Microsoft, the following can be highlighted: Microsoft currently has a higher market capitalization ($1.81T) than Alphabet (with a market capitalization of $1.32T). At the same time, Microsoft has a higher EBIT Margin (42.06%) (Alphabet's is 29.65%) as well as a higher Return on Equity: while Alphabet shows a Return on Equity of 29.22%, Microsoft's is 47.15%, indicating that it is even more efficient than Alphabet in using the equity of shareholders to generate income. However, the analysis of the following Fundamental Data strengthens my investment thesis to select Alphabet over Microsoft, if I had to select one out of the two companies: Alphabet has a higher Average Revenue Growth Rate over the last 5 Years [CAGR] (22.88%) when compared to Microsoft (which has one of 15.47%). In addition to that, Alphabet has a higher EBIT Growth Rate over the last 3 Years [CAGR] (33.92%) than Microsoft (24.74%). Both demonstrate that Alphabet is ahead of Microsoft when it comes to growth. Further evidence of this is that Alphabet's EPS Growth Diluted [FWD] of 26.44% is significantly higher than that of Microsoft's (which is 14.05%), demonstrating that Alphabet is growing its profits with a higher growth rate. Alphabet's higher Free Cash Flow Yield [TTM] of 4.78% as compared to Microsoft's 3.51% and its higher Free Cash Flow Per Share Growth Rate [FWD] of 24.03% (Microsoft's is 13.31%) once again underlines my investment thesis to select the company first. Furthermore, Alphabet shows a lower Total Debt to Equity Ratio (11.28%) when compared to Microsoft (47.08%), further strengthening my opinion that Alphabet is the more attractive choice. | | Alphabet | | Microsoft | | General Information | | Ticker | | GOOGL | | MSFT | | Sector | | Communication Services | | Information Technology | | Industry | | Interactive Media and Services | | Systems Software | | Market Cap | | 1.32T | | 1.81T | | Profitability | | EBIT Margin | | 29.65% | | 42.06% | | ROE | | 29.22% | | 47.15% | | Valuation | | P/E GAAP [FWD] | | 20.03 | | 24.57 | | P/E GAAP [TTM] | | 18.81 | | 25.09 | | Growth | | Revenue Growth 3 Year [CAGR] | | 23.32% | | 16.36% | | Revenue Growth 5 Year [CAGR] | | 22.88% | | 15.47% | | EBIT Growth 3 Year [CAGR] | | 33.92% | | 24.74% | | EPS Growth Diluted [FWD] | | 26.44% | | 14.05% | | Free Cash Flow | | Free Cash Flow Yield [TTM] | | 4.78% | | 3.51% | | Free Cash Flow Per Share Growth Rate [FWD] | | 24.03% | | 13.31% | | Dividends | | Dividend Yield [FWD] | | - | | 1.12% | | Dividend Growth 3 Yr [CAGR] | | - | | 10.46% | | Dividend Growth 5 Yr [CAGR] | | - | | 9.71% | | Consecutive Years of Dividend Growth | | - | | 17 Years | | Dividend Frequency | | - | | Quarterly | | Income Statement | | Revenue | | 278.14B | | 198.27B | | EBITDA | | 96.89B | | 97.98B | | Balance Sheet | | Total Debt to Equity Ratio | | 11.28% | | 47.08% Source: Seeking Alpha The High-Quality Company [HQC] Scorecard "The aim of the HQC Scorecard that I have developed is to help investors identify companies which are attractive long-term investments in terms of risk and reward." Here you can find a detailed description of how the HQC Scorecard works. Overview of the Items on the HQC Scorecard "In the graphic below, you can find the individual items and weighting for each category of the HQC Scorecard. A score between 0 and 5 is given (with 0 being the lowest rating and 5 the highest) for each item on the Scorecard. Furthermore, you can see the conditions that must be met for each point of every rated item." Alphabet and Microsoft According to the HQC Scorecard Alphabet achieves 91/100 points and Microsoft 90/100 according to the HQC Scorecard. The rating shows that both companies are very attractive when it comes to risk and reward, but that Alphabet is the slightly more appealing option. Both Alphabet and Microsoft are rated as very attractive in terms of Economic Moat (93/100 for Alphabet and 100/100 for Microsoft), Financial Strength (87/100 for Alphabet and 86/100 for Microsoft) and Profitability (100/100 for both companies). In terms of Valuation, Alphabet (80/100) is rated higher than Microsoft (72/100). For Innovation (both score 100/100), Growth (88/100 for both) and Expected Return (100/100 for Alphabet and 80/100 for Microsoft), both companies achieve a very attractive rating. Alphabet's higher rating in terms of Valuation and the company's slightly higher overall rating when compared to Microsoft, reinforces my investment thesis to select the company over Microsoft at this moment in time. Alphabet and Microsoft According to the Seeking Alpha Quant Factor Grades The Seeking Alpha Quant Factor Grades provide confirmation that Alphabet is currently more attractive than Microsoft. For Valuation, Alphabet receives a D rating while Microsoft receives an F rating. For Growth, Alphabet receives a C while Microsoft is only rated with a D. For EPS Revisions, Alphabet receives a C- rating while Microsoft is rated with a D+. Only in the categories of Profitability (both rated with an A+) and Momentum (both rated with a B), are Alphabet and Microsoft rated equally. Alphabet and Microsoft According to the Seeking Alpha Quant Ranking When taking a look at the Seeking Alpha Quant Ranking, we get further evidence that Alphabet is currently more attractive than Microsoft. Alphabet is ranked 1st (out of 62) in the Interactive Media and Services Industry and 3rd (out of 251) in the Communications Services Sector. Microsoft is 5th (out of 45) in the Systems Software Industry and 123rd (out of 647) in the Information Technology Sector. In the overall ranking, Alphabet is ranked 149th (out of 4722) while Microsoft is only ranked in 1045th place. Alphabet and Microsoft According to the Seeking Alpha Authors Rating and Wall Street Analysts Rating According to the Seeking Alpha Quant Rating, Alphabet is currently a strong buy while Microsoft is only a hold. This again supports my opinion to rate Alphabet ahead of Microsoft. Risks When considering risk, I see Microsoft as being a slightly less risky investment than Alphabet. My opinion is based on the following factors: As shown in the section The Competitive Advantages and Growth Drivers of Alphabet and Microsoft, the latter has a broader and more diversified product portfolio. Therefore, I consider the risk of investing in Microsoft to be lower than the risk of investing in Alphabet. A broader and more diversified product portfolio contributes to a company being more resistant in economically difficult times. Microsoft's business units Productivity and Business Processes, Intelligent Cloud and More Personal Computing each account for about 1/3 of the company's total revenue. In contrast to Microsoft, Alphabet still strongly depends on its Advertising business unit, which I have discussed in more detail in my analysis on the company: "One potential risk factor I see for Alphabet is the fact that the largest part of the company's revenue (more than 80%) is generated by its business unit Google Advertising. Reduced spending in advertising by Alphabet's clients could adversely affect its business and therefore result in decreasing profit margins. However, as shown in this analysis, Alphabet's other business units are becoming more and more important: proof of this, for example, is the fact that Google Cloud already accounted for 9% of the company's total revenue in 2Q22 while it accounted for only 7.5% in the same quarter of the previous year." In my previous analysis on Microsoft, I showed that its intense competition in the different industries in which it operates, to be one of the company's main risk factors: "Microsoft's cloud computing service Azure faces competition from other similar providers such as Amazon, Google, IBM and Oracle (NYSE:ORCL). Microsoft's Xbox and its cloud gaming services face competition with other online streaming services, operated by, for example, Amazon, Apple and Tencent (OTCPK:TCEHY). Additionally, the company's gaming platform competes with console platforms from Nintendo (OTCPK:NTDOY) and Sony (NYSE:SONY). In addition to that, Microsoft faces competition from computer, tablet, and hardware manufacturers that offer high-quality industrial design and innovative technologies." However, I have also shown that I consider the overall risk of investing in Microsoft as being relatively low: "Although Microsoft faces strong competition in various areas in which it operates, I consider the risk of investing in the company as being relatively low. This is due to the fact that the company has a wide economic moat, which helps it to maintain its competitive advantages. Particularly, Microsoft's own ecosystem, its strong brand image and strong financials contribute to the fact that I consider the investment risk to be relatively low." Although I consider Alphabet to currently be the more attractive choice, I have come to the conclusion that the risk of investing in the company is slightly higher than investing in Microsoft. This is particularly based on Microsoft's broader and more diversified product portfolio when compared to Alphabet. The Bottom Line In my opinion, both Alphabet and Microsoft are high quality companies. I would overweight both in an investment portfolio built with a long investment horizon: I consider the companies to be excellent choices in terms of risk and reward and therefore, I rate them both as a strong buy. My strong buy rating for both is underlined by the excellent ratings as according to the HQC Scorecard. Both are rated as very attractive in terms of risk and reward: while Alphabet receives 91/100 points, Microsoft scores 90/100. However, if I could only choose one of the two, I would select Alphabet over Microsoft: Alphabet's higher Free Cash Flow Yield [TTM] of 4.78% (Microsoft's is 3.51%) and its higher Free Cash Flow Per Share Growth Rate [FWD] of 24.03% (when compared to Microsoft's 13.31%), support my investment thesis to rate the company over Microsoft. My opinion is also underlined by Alphabet's lower valuation: while Alphabet has a P/E [FWD] Ratio of 20.03, Microsoft's is 24.57. In addition to that, Alphabet shows a higher upside (25.90%) than Microsoft (19.50%) according to my DCF Model. However, I see the risk of investing in Alphabet as being slightly higher than the risk of investing in Microsoft. My opinion is based on the fact that Microsoft has a broader and more diversified product portfolio while Alphabet is still highly dependent on the revenue generated by its business unit of Google Advertising (which generates more than 80% of the company's revenue). For this reason, for risk-averse investors, Microsoft might be the slightly better choice. This could also be the case if your main investment focus is dividend growth: Microsoft's Dividend Growth Rate [CAGR] of 9.71% over the last five years indicates that the company is an excellent pick for dividend income investors. I have both companies in my own personal investment portfolio and they belong to my largest positions, since I consider both to be excellent picks in regards to risk and reward. Which one do you prefer? This article was written by Analyst’s Disclosure: I/we have a beneficial long position in the shares of GOOGL, MSFT, AMZN, AAPL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (33) if i would have to choose one it would definitely be Google. i personally think Google is the best comapny in the world.

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Amazon Stock Tumbles on Weak Sales in the Cloud and a Disappointing Forecast

The company disappoints with its fourth-quarter guidance, saying it now expects revenue between $140 and $148 billion.

MarketWatch

Amazon.com shares tumbled after the company reported weaker-than-expected results from its AWS cloud unit and provided a disappointing forecast for its fourth quarter. Amazon’s third-quarter sales and earnings were roughly in line with expectations. The stock was down 13.6% in premarket trading Friday to $95.87. For the third quarter, Amazon posted sales of $127.1 billion, up 15% from a year ago, right in the middle of the company’s forecasted range of $125 million to $130 million. North American sales were up 20%; international sales were down 5%, but up 12% adjusted for foreign exchange rates. One major issue: Amazon Web Services revenues were up 27%, well below the 32% growth rate Wall Street had anticipated. AWS grew 28% adjusted for currency. Operating income was $2.5 billion, down from $4.9 billion a year earlier, but in the middle of the company’s forecast range of zero to $3.5 billion. Profits were $2.9 billion, or 28 cents a share, above the Wall Street consensus at 21 cents, but inclusive of a $1.1 billion gain on the company’s Rivian Automotive (RIVN) stake. Amazon said it expects fourth-quarter revenue of $140 billion to $148 billion. Analysts had been projecting $155 billion in revenue for the quarter. The company sees operating income for the quarter ranging from zero to $4 billion. READ THIS The slowing growth from AWS—which follows a similarly disappointing pattern at Microsoft’s Azure cloud unit—will raise fresh question about how well cloud computing demand will hold up in a slowing enterprise spending environment. And the company’s light fourth-quarter guidance is an ominous portent of a potential weak holiday shopping season. The disappointing report continues this week’s pattern of ugly results from the tech giants. Microsoft, Alphabet and Meta all saw sharp stock price declines following their earnings reports. Revenue from Amazon’s online stores was $53.5 billion, up 7%, or 13% adjusted for currency, and below the Wall Street consensus of $54.3 billion. Revenue from third-party seller services was $28.7 billion, up 18%, or 23% adjusted for currency, ahead of analysts’ forecast for $27.9 billion. Advertising revenue was $9.5 billion, up 25%, about in line with expectations, and 30% higher on a currency adjusted basis. Subscriber services revenue was $8.9 billion, up 9%, or 14% adjusted for currency, below the forecast of $9.1 billion. Amazon finished the quarter with 1.544 million employees, up from 1.523 million one quarter earlier Coming into Friday, Amazon shares have dropped 33% this year. Write to Eric J. Savitz at eric.savitz@barrons.com

MSFT

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Activision Blizzard: Merger With A Wide Spread And Potential For Near-Term Appreciation

Activision trades at levels leaving 32% upside to Microsoft's bid while regulators scrutinize the deal closely. Here's the latest news and analysis on the acquisition.

SeekingAlpha

Activision Blizzard: Merger With A Wide Spread And Potential For Near-Term Appreciation Summary - Activision trades at $73 leaving 32% upside to Microsoft's bid. - Regulators are likely to scrutinize the deal closely, but I expect it will ultimately pass muster. - If it doesn't, this speaks to the power of Activision's franchises and their stand-alone value. - There could be some near-term upside as arbs look for deals to pour money into as Elon Musk closes on the Twitter deal. - Looking for a portfolio of ideas like this one? Members of Special Situation Report get exclusive access to our subscriber-only portfolios. Learn More » Activision Blizzard (NASDAQ:ATVI) is trading at around ~$72. Microsoft (MSFT) has a merger agreement to acquire the company at $95. There's a ~32% upside to the deal price. The deal is expected to close in under nine months (it could fail and close earlier, though). The spread has blown out recently as U.K. regulators started looking into the case, in addition, I believe hedge funds have been deleveraging as markets have been weak and the Fed continues to issue stern warnings. I've discussed more in-depth why I believe an Activision-Microsoft tie-up should be allowed by regulators in my previous note. This seems the kind of big tech deal that still has a good chance of passing muster with regulators. The U.K. regulator seems to focus on Sony's (SONY) worry about having the PlayStation console platform being able to offer Activision's Call of Duty. The CMA decision to enter a 2nd stage investigation focuses on how amazing Call of Duty is and in what dire straits Sony would be without access. The issue seems a bit overblown to me, but if this were true to the extent the merger needs to be blocked, it speaks to the value of Activision's content... If I were Activision management, I'd put Sony over a barrel to continue licensing this content that's life and death to its console platform. There is also concern raised about vertical integration and what this may mean for the burgeoning cloud gaming market: Although the console gaming market is highly concentrated, the CMA believes that the shift to cloud gaming services and multi-game subscription services is opening a window of opportunity for new entrants. To succeed, these new entrants will need to offer a strong gaming catalogue that will attract users. Cloud gaming service providers will also need access to cloud infrastructure and an operating system (OS) license (especially Windows OS, which is the operating system for which most PC games are designed). If this gets blocked based on potentially anticompetitive forces in the emerging cloud gaming space, I would be quite surprised. There are many strong competitors in this space like Alphabet (GOOG) (GOOGL) and Amazon (AMZN), to mention just two giants. Microsoft has promised Sony 3 year of access past their current deal. They're not eager to give up more. But I believe if regulators demand it (which IMHO would be overly protective), Microsoft CEO Nadella won't hesitate a second to ensure further access to that or additional titles. Nadella has a track record of pushing for more open ecosystems. He's said he thinks Activision will play a role in Microsoft's metaverse plans and it's not just about building out the X-box platform. Metaverse plans are not particularly loved by the market right now. I've doubted Nadella's LinkedIn acquisition as well and it seems to have worked out alright. What I like about this deal is how the downside may not be as pronounced as you'd think. As everyone knows by now, there has been misconduct at Activision by some of its executives. Initially, these issues were swept under the carpet. This resulted in outrage among employees and fans of the games. It tanked the stock price, and Nadella is a white knight who can remove the spotlight from the company while scooping up these assets for cheap. I do think Activision could drop to $50 or $60 if the deal breaks. But, arguably, it would likely start appreciating back up over time. The company has almost $13 per share in cash. Around ~$10 in net cash because the company has a little bit of debt. If you look at an ex-cash basis, the stock would be trading at less than 10x forward earnings. Substantially less if you were to look out to 2027. I would like to add some ATVI shares for around $73. There's a substantial upside toward $95. I expect the deal will ultimately win over regulators in the U.K. and elsewhere. Interestingly, there could be a little bit of near-term upside as the Twitter (TWTR) deal is closing tomorrow. A lot of arbs, that like widespread deals with a lot of challenges, will have fresh capital to deploy next week. Microsoft/Activision is a natural target. This article was written by I gravitate towards special-situations. That means situations around companies or the market where the price can move in a certain direction based on a specific event or ongoing event. This eclectic and creative style of investing seems to suit my personality and interests most closely. Since 2020 I host a podcast/videocast where I discuss (special-situation/event-driven) market events and investment ideas with top analysts, portfolio managers, hedge fund managers, experts, and other investment professionals. I highly recommend it (pick episodes around topics that interest you) for the amazing guests that come on with regularity. I've been writing for Seeking Alpha since 2013 after playing p0ker professionally. In 2018 I founded Starshot Capital B.V. A Dutch AIF manager. Follow me on Twitter @Bramdehaas or email me Dehaas.Bram at Gmail Analyst’s Disclosure: I/we have a beneficial long position in the shares of ATVI, GOOG, TWTR either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. I'm short AMZN and MSFT Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (11) TWTR was risky because of Musk's unpredictability. I felt that they had him locked up tight in the contract. So i went for it. I took a small position in ATVI. The difference for me is the long timeline to close Also the election cycle is just 5 days away. If the republicans regain the house or the senate or both. It would likely be favorable in general to the stock market. Otherwise might be best to go into bonds with rates as high as they are. the 71.90 to 95 spread on the ATVI play looks pretty good i will wait until Nov 9th to decide to add more.

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Microsoft: Misinterpreted Results Bring Opportunity

Microsoft stock sold off due to perceived weakness in Azure and lower margins. See why I think MSFT's 1Q23 results are misinterpreted and the stock is a Buy.

SeekingAlpha

Microsoft: Misinterpreted Results Bring Opportunity Summary - Investors sold off Microsoft due to perceived weakness in Azure and lower operating margins. But after diving deeper, I think that investors have misinterpreted the 1Q23 results. - Demand for Azure remains strong while optimization of current customer workload dragged growth but is a key long-term investment for customer loyalty and share gains. - By not holding back on operating expenses when the PC market is soft, management is taking a consistent approach with long-term view of investment in key growth segments. - My 1-year target price for Microsoft is $305, representing 32% upside from current levels. Investment thesis I think that Microsoft's (NASDAQ:MSFT) recent quarter was misinterpreted as the company was sold off after the release of its financials. While the sentiment around the company turned negative, as I dived deeper into the company's earnings, I saw that the company is very focused on its consistent approach to focus on key areas for the long-term growth of the company. For the weakness in Microsoft Azure, this was caused by an intentional strategy by management to help customers do more with less in the current difficult environment that will drive future market share gains for the company in the cloud space. While investors may not like that operating expenses was not dialed down in a slowing revenue growth environment, I think that this is consistent with the management's strategy that they will continue to invest in the business despite the volatile and cyclical PC market and these investments are done for the long-term benefit, rather than short-term earnings, of Microsoft. Review of the FY1Q23 earnings result For Microsoft's FY1Q23 earnings result, the revenues and earnings per share figures largely met investors' expectations. However, there was a 1 percentage point miss in Microsoft Azure that led to increasing worries that there were some underlying weaknesses in demand for Microsoft Azure as a result of the weakening macroeconomic environment. While the consumer businesses were weak as PC demand fell and advertising spend was soft, these were largely expected. While revenues were up 16% year on year in the quarter, operating expenses grew faster than revenues with an increase of 18% year on year. As I will elaborate later, management intentionally maintained operating expenses at the current levels due to its view that it should continue to invest in its key growth areas even in a weak PC market. For the commercial business, growth was strong as a result of solid execution on renewals on both Azure and Microsoft 365 fronts. In fact, more than 50% of the $10 million in Microsoft 365 bookings actually came from E5. Also, there were some moderations in new deals, mainly in the smaller business segment. Another thing that disappointed investors was the weaker than expected guidance for operating margins, which was guided down from roughly flat to down 100 basis points. This was a result of the higher energy costs resulting in lower Azure margins, and also the continued investments in its key future growth areas as the company continues to spend on operating expenses but this will significantly be reduced in the quarters to come. Outlook commentary suggests management taking a long-term view For most of Microsoft's businesses, they expect the trends to continue into the next quarter. The consumer demand will remain weak as a result of significantly lower PC demand in recent quarters, and this will affect the Windows OEM and Surface devices business. As a result of lower advertising spend, advertising revenues from LinkedIn and Search and News will trend lower as a result of the softer market. Microsoft's commercial business will generate strong growth as the company continues to execute well and generate high volumes of large and long-term Microsoft Azure contracts. As a result of the cyclical nature of the PC market and the relatively higher margin profile of the Windows OEM business, Microsoft expects to continue to invest in the business and take a long-term approach to focus on areas they think are key future growth areas. At the same time, management is aware of the uncertain global macroeconomic environment and rising inflation environment we see today. While investing in the key focus areas, the company will also see significant moderation of operating expenses as we move through the fiscal year, as will be elaborated later. Investors fail to understand the miss in Microsoft Azure In the current first quarter 2023 results, there was a miss in Microsoft Azure by 1 percentage point. While this may just be a 1 percentage point miss, astute investors will know that this is the second consecutive miss on Microsoft Azure. The base line, in my view, is that the difficulty in estimating and forecasting the Microsoft Azure is high due to the inherent volatility, as reiterated by management multiple times during the current quarter and previous earning calls. As a result, while we might be seeing a second consecutive quarter miss on Microsoft Azure, it seems that this is largely expected given the high volatility involved in the forecasting of Microsoft Azure. In fact, this volatility would have contributed to the prior beats in Microsoft Azure and on a net basis, I think that we have to accept that in some quarters management's forecast may fall short due to the uncertainty involved. The key thing is that the business is still growing at a fast rate at 42% in the current quarter and management has also commented that the growth is as per expected and across all segments and all geographical areas. The main moving pieces were the uncertain macroeconomic environment as well as continued focus by Microsoft to optimize their customers' current workloads. Keeping in mind that these optimization of the current workloads of customers may bring growth down in the near-term, we also need to acknowledge that this is ultimately good for Microsoft in the long-term as its customer loyalty improves and customers add more workloads to Microsoft Azure. I think of the slower growth rate as essentially an investment into the business in the long run to ensure that Microsoft remains the top choice for customers when it comes to their digitalization journey. This will add value to shareholders in the long-term and is the right step forward for Microsoft, in my view. As a result of optimization of the current workloads, this then will enable customers to make room for new workload. With this current focus on optimization of workloads in the current macroeconomic environment, I think that this makes sense as customers look to do more with less and leveraging on technology to drive efficiencies. This near-term optimization of customer workload is thus a short-term pain for long-term gain. This will eventually lead to gains in market share as customer loyalty improves given that customers realize the tangible benefits of using Microsoft Azure. Deceleration of Microsoft Azure Again, on Microsoft Azure, I think the sequential decline of 5 percentage points from 42% growth in 1Q23 to 37% in 2Q23 has rattled investors given that this is a larger deceleration than what many investors would have expected. It is important to put this into perspective. Microsoft saw strong growth in bookings as well as RPO growth in the current quarter, signaling that demand remains strong for Microsoft Azure. The main factor driving the weakness and deceleration in the business is once again due to the focus to invest in the business. As a result of optimizations of workload, this has resulted in a guidance that implies a deceleration of 5 percentage points for the next quarter, while new workload will likely lag behind. Once again, I would think that it is positive that the deceleration is caused more by workload optimization rather than any signs that demand is truly decelerating. As a result, I would see this as an investment into the future of the Microsoft Azure business and management looking to add long-term value for shareholders. Weakness in small businesses and energy cost headwind While the Microsoft 365 business saw strong renewal rates in the quarter and deals were getting done and in a timely manner, there is some moderation in new deals especially in the smaller business market. The good news is that there is no evidence that this is spilling over to the larger enterprises as the trends for Microsoft 365 renewals remain strong for the larger enterprises and there has been successes in upselling these larger businesses to E5 as well. Another point mentioned that was a headwind in the current quarter and expected to remain one for the fiscal year is the impact of energy cost on the business. This is expected to contribute to about $800 million in headwind for the business and most of the impact has yet to materialize as management expects this to affect the business mostly from 2Q23 onwards. This will undoubtedly have a negative impact on the operating margins in the near-term. Taking a long-term view on operating expenses While there are some questions about the decision not to cut down on operating expenses in the near-term to be able to meet margin guidance for the fiscal year 2023, after hearing management's explanations, I think that Microsoft as a company is run by leaders who make decisions for the long-term rather than conform to meeting near-term quarterly guidance. As the PC market is inherently cyclical, we saw that Microsoft benefited materially from the pandemic as a result of strong growth in the PC market as more people started to work from home. During that period of strong growth in the PC market, Microsoft did not ramp up on operating expenses and increase spend to match the above average growth rate in the PC market. This in turn resulted in significantly improved margins as the benefits flowed to the bottom line. Likewise, Microsoft is taking a similar approach in the current weak PC market as it looks to continue to be consistent in its operating expenses and maintain spend at a level that makes sense for the long-term growth of the business. As such, management did not slow down operating expenses in the quarter as this is a good opportunity for Microsoft in the commercial business as they are then able to gain customer loyalty and increase market share. As a result, I like that the management is taking a consistent and long-term approach when it comes to investing in the business. At the same time, management will definitely be adapting the business to tackle the rising macroeconomic concerns as well as cost inflation. In the near-term at least, I think that we will see that operating expenses will start to trend downwards due to several factors. First, the company will be increasing headcount rather minimally in the next quarter for the focus investment areas of the company and over the year, we are likely to see improving productivity in the workforce as those headcounts start to ramp up in efficiency. Second, we will likely see that operating expenses come down in the second half of the fiscal year due to the higher base effects as a result of the acquisitions of Nuance and Xandr in 3Q22 and 4Q22 respectively. Valuation My 1-year target price for Microsoft uses an equal weighted of both the P/E multiple method and the DCF method. I assume forward P/E of Microsoft to be 25x, applying a 25% premium to the peer group as Microsoft has a rather durable growth profile as well as strong competitive advantages like its suite of end-to-end solutions. My assumptions for the DCF method include a discount rate of 8% and a terminal multiple of 16x. As a result, my 1-year target price for Microsoft is $305. This target price represents 32% upside from current levels and implies 26x FY2024 P/E. I think that while there are near-term headwinds for the business, Microsoft remains structurally attractive as a company poised to generate outsized returns over the market while remaining relatively resilient in a difficult operating environment. Risks Weakening of IT spending As Microsoft's businesses rely on enterprises and small business IT spending, if the macroeconomic environment worsens materially, this might cause companies to scale back on this digital transformation journey and reduce IT spending. If so, this will affect the growth rate of Microsoft as the entire pie of IT spending gets smaller. Slower cloud migration While the deceleration of Microsoft Azure's growth rate was explained by the optimization of the current workloads of its customers, there is a risk that its customers may be slowing the pace for cloud migration, which will imply demand side issues, at least in the near-term. This is negative for the highly watched Microsoft Azure business. Competition While Microsoft has a strong value proposition given its ability to provide end-to-end solutions to customers, there are many other players both big and small constantly innovating and bringing new technology to the market. If these competitors are able to compete and innovate meaningfully, this might change the industry dynamic and bring incremental risks to Microsoft. Conclusion While investors may view the recent FY1Q23 print as negative, I think of this as short-term negative but long-term positive for Microsoft. For Microsoft Azure, the company is investing in the future as it is forgoing current growth by optimizing workloads, but this will in turn drive new workloads, increased customer loyalty and ultimately drive share gains. The relatively elevated operating expenses tell a similar story as management remains focused on a consistent strategy focused on investments for the long-term even as the PC market is currently weak. As a result, I take the view that the current negative sentiment around the recent quarter as a misinterpretation of the company's earnings, which bring an excellent risk reward opportunity to buy Microsoft at the current levels. As a result, my 1-year target price for Microsoft is $305. This article was written by I am a portfolio manager with experience working for a hedge fund and a long-only equity fund with more than $1 billion in assets under management and I have a track record for outperformance in my portfolio. I have been writing consistently, with an article published each day on Seeking Alpha and on my Marketplace service. Focused on long term investing, I believe in a barbell strategy in a portfolio, where there are both growth and value elements, which will be reflected in my articles. I will be running a Marketplace service, Outperforming the Market, where I will share with you The Barbell Portfolio, which consists of high conviction growth and value stocks to help you outperform in the long-term, as well as The Price Target Report, which tells subscribers how much discount the stock is trading to intrinsic value and the upside potential. Lastly, subscribers will be able to get direct access to me and can ask me anything about the investment process or stock picks. CFA charter holder and graduated with degrees in Finance and Accounting. Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (5)

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Digital Dollars Could Be a Boon for Amazon, Alphabet, and Other Tech Companies

Companies like Amazon.com, Alphabet, and Accenture are angling to play a role in the development of central bank digital currencies. Big profits are at stake.

MarketWatch

A few years ago, central banks saw Bitcoin and other cryptocurrencies as a harmless, little bubble that posed scant consequences to the world’s monetary system. Then, all of a sudden, crypto was a menace. The market ballooned to $3 trillion in value, and it included a new crop of privately issued, asset-backed stablecoins, tokens mainly designed to hold a peg to the dollar or other currencies. The threat of stablecoins gave central banks a kick in the pants. Today, more than 100 countries and monetary authorities, including the Federal Reserve and the European Central Bank, are exploring whether and how to digitize their currencies. And profits are at stake as companies jockey to bring these government-backed currencies to life and operate their technology backbones. The new type of money is called a central bank digital currency, or CBDC. And some huge companies are angling in. Amazon.com (ticker: AMZN) and Accenture (ACN) are working with central banks, ideally to try to win contracts to research or help issue digital bank notes. A small company that’s majority owned by Overstock.com (OSTK), called Bitt, has launched CBDCs for Nigeria and the Eastern Caribbean Central Bank. Central banks that move forward with CBDCs will likely end up hosting at least part of their new currency systems with major cloud providers like Microsoft’s (MSFT) Azure, Alphabet’s (GOOGL) Google Cloud, and Amazon Web Services. Google has already made inroads in the Caribbean. Amazon is pitching monetary authorities on its technology, which is being tested in some CBDC pilot programs and experiments. Other companies in the CBDC race include a California-based company called eCurrency Mint, which is helping the Bank of Jamaica launch its digital currency. A Japanese tech company, Soramitsu, is helping Laos and Cambodia with research and development of a potential CBDC. The fact that governments are turning to the private sector isn’t surprising. Few governments have expertise in the world of tokenized currencies, digital wallets, and smartphone apps that now easily bypass the banking system. If you’re a central banker in a small country and want to digitize your currency, partnering with tech companies may be the only way to go. Related Market Data But the private partnerships raise concerns about a gold rush emerging in CBDCs. Central banks may be pushing CBDCs onto the public before the technology has been fully vetted or demonstrated that it’s an improvement over existing bank systems and currencies. A CBDC circulating in the Caribbean has already seized up. And hacking is a concern—experts warn of a honey pot of private data that could be vulnerable to hackers and theft. “In many of these pilot projects, central banks are choosing to explore technologies that they know the least about,” says Tommaso Mancini-Griffoli, a division chief at the International Monetary Fund, who supports the experimentation. “There is no room for error once a CBDC becomes fully deployed.” The U.S., for its part, is going slow. The Fed and Treasury Department are studying a potential digital version of the dollar. But Congress would almost certainly need to authorize the Fed to issue a CBDC, an unlikely prospect in the near term. Even at the Fed, it’s a controversial issue. While Fed Vice Chair Lael Brainard has favored exploration of a CBDC, Fed governor Christopher Waller is highlighting cyber risks and other potential drawbacks. A CBDC, he said in an Oct. 14 speech, “could harm, rather than help, the U.S. dollar’s standing internationally.” The Digital Currency Arms Race While the U.S. bides its time, many countries are moving to digitize their currencies. According to the Atlantic Council, a think tank, 11 countries or regions have launched CBDCs, 15 have started pilot programs, and 72 are in the development or research stages. As proponents see it, CBDCs would be upgrades over traditional forms of money. Issued and managed directly by central banks, CBDCs would flow much more seamlessly around the world through digital wallets or smartphone apps. The digital currencies could bypass the messy web of commercial banks, money-transfer businesses, and messaging systems that now handle transactions worldwide, potentially reducing fees and speeding up settlement times. Central banks could also have more direct sightlines into consumer spending and banking activity, and they could, in theory, use a CBDC for monetary policies or stimulus payments. All this, of course, raises privacy concerns: whether the government could track your transactions and keep tabs on your whereabouts through spending patterns in CBDCs. Many countries are proceeding cautiously, partly to iron out these privacy issues. The European Central Bank in a report earlier this year called privacy “a key concern of future users.” Privacy issues are also a roadblock in the U.S. and Canada. Still, a few big countries are forging ahead. The People’s Bank of China is well into a pilot program for the digital yuan, which has been distributed to millions of citizens. Some U.S. lawmakers have cited being left behind by China as a reason why the Fed should start serious exploration of a digital dollar. Profiting Off the New Digital Currencies Some smaller central banks are turning to private enterprises to help them launch CBDCs. A small company called Bitt has launched CBDCs for Nigeria and the Eastern Caribbean Central Bank, or ECCB, which issues an Eastern Caribbean dollar on behalf of eight island nations. Bitt created a digital-currency management system that lets the central banks mint, transmit, and even destroy the CBDC. The ECCB ultimately manages the system, but Bitt still helps with upgrades or steps in to address problems. The systems can give central banks a real-time look into consumer transactions, even as users remain anonymous, says Bitt executive director James Shinn. That could let the central banks get a live read on inflation, rather than rely on month-old data. “That’s a big deal,” Shinn says. “It’s dawning on a lot of central banks that we got inflation wrong. Here’s a way to not get blindsided by a meltdown.” Bitt could also bring profits for its backers, including Overstock.com. The company, under its former CEO, Patrick Byrne, invested in Bitt in 2016, and purchased a controlling stake four years later. Overstock still owns a majority in Bitt through an outside investment fund, Medici Ventures, according to the company. Yet Bitt’s system, based on a distributed-ledger design, has had problems. DCash, the digital version of the Eastern Caribbean dollar, seized up in January and couldn’t process transactions for nearly two months. The ECCB attributed the outage to a “technical issue,” later saying that a security certificate used by a system powering the currency had expired. According to Bitt, the system took several weeks to resume operations because the company had to create a new network, import transactions from the old ledger system, and test the fix for more than three weeks. The company said it also expanding training and personnel. “There is a nonzero risk of hiccups in any digital currency system based on blockchains—whether CBDC or cryptocurrency,” Shinn says. “We deal with this type of risk in all digital payments systems currently in use by central banks.” Experts say the episode highlights the consequences when a CBDC breaks down. “There are new companies in this space that aren’t the traditional players that central banks usually partner with,” says Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center. “Countries’ citizens need transparency about who these companies are.” The ECCB declined requests for further comment. Newsletter Sign-up In the meantime, the Bank of Jamaica is rolling out its own digital currency, called JAM-DEX. The country’s monetary authorities have said the new currency format is designed to reach citizens who are unbanked, and help consumers avoid steep fees for transactions through traditional financial institutions. California-based eCurrency helped design and launch the JAM-DEX, which isn’t based on a blockchain. The company has worked on CBDC projects in several countries and regions, including the Philippines and West Africa, says eCurrency CEO Jonathan Dharmapalan. “Emerging markets are more engaged on the topic than developed markets,” he says. Big Tech Makes Its Play The largest central banks, which oversee multitrillion-dollar economies, are starting to bring in big tech companies to research, design, and potentially launch CBDCs. Microsoft says it’s engaging with monetary authorities and other entities across the globe “to explore ways in which our related technologies and research capabilities may be applicable to CBDC systems,” the company said in a statement to Barron’s. Amazon was one of five companies selected by the ECB in September to design a user interface for a potential digital euro. Amazon Web Services, its cloud computing arm, is also working with banks on pilots for CBDCs, and has essentially put out sales pitches demonstrating how different types of its cloud services could accommodate whatever technical designs a central bank may make. If these projects do wind up on Amazon’s server farms, it could be a huge victory for Big Tech. Companies such as Amazon and Microsoft already run software infrastructure for the government. But putting government-backed currencies, deposits, and transaction data on their systems could open up new revenue streams, while making governments even more dependent on the companies. That prospect worries some critics of the tech industry. “A CBDC format that has Big Tech running the back end is just another backdoor way for them to encroach on financial services,” says Mark Hays, a senior policy analyst with Americans for Financial Reform, a policy advocacy group that has been skeptical of CBDCs. Amazon and Google didn’t respond to requests for comment. Accenture has consulted with most central banks in the G-20 on their CBDC research. The firm helped build a prototype for Sweden’s e-krona, a digital currency being tested by the country’s central bank. The e-krona “could be regarded as an electronic form of cash,” the bank recently concluded, though it hasn’t decided whether or how to issue it. The e-krona is further along than others. But most CBDC projects will take years to launch, if at all. “Because of the important role that money plays in a financial ecosystem, it’s vastly more important to get it right than to do it fast,” says David Treat, a senior managing director at Accenture. Indeed, it’s likely to be years before CBDCs reach mainstream acceptance. The privacy and technology hurdles aren’t the only holdups; central banks like the Fed and ECB will need political backing to launch digital currencies and may face opposition from an array of entities, including commercial banks that view CBDCs as a threat. As more companies get involved in the design and hosting, moreover, it may only bolster arguments that private-sector profit motives are influencing monetary policies. Perhaps most at risk from CBDCs are the companies that initially jump-started the central banks: stablecoin issuers. Companies such as Circle, backing the $44 billion USDC stablecoin, have lobbied Congress and taken out full-page ads in newspapers warning of the risks in CBDCs. As they see it, the central bank should keep its hands off the new digital money. Write to Joe Light at joe.light@barrons.com

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Tech giants feel pain as cloud spending cuts suggest slowdown

In a further sign that large companies may be girding against an imminent recession, U.S. tech giants Amazon.com, Microsoft and Intel said this week that customers were taking an axe to cloud and datacenter spending.

Reuters

Tech giants feel pain as cloud spending cuts suggest slowdown Oct 27 (Reuters) - In a further sign that large companies may be girding against an imminent recession, U.S. tech giants Amazon.com (AMZN.O), Microsoft (MSFT.O) and Intel (INTC.O) said this week that customers were taking an axe to cloud and datacenter spending. Cloud services for years has been one of the largest and most dependable sources of growth for some of the biggest tech companies, including during the pandemic as people worked and studied from home. Now investors are looking to see whether there is a glut in capacity that will lead to investment cuts as companies deal with rising costs amid soaring inflation, while interest rate increases have squeezed consumer demand. The strong dollar has been a particular headwind. Growth in Amazon Web Services (AWS), the firm's lucrative cloud unit serving enterprises, has ticked down consistently in the past four quarters, adjusted for changes in forex. Net sales in the business grew 28% in the July-September period versus 39% a year earlier, the slowest since the fourth quarter of 2020. They fell short of a 31% average analysts' forecast. Amazon shares slumped 12% after the bell on Thursday after it forecast a slowdown in sales growth for the holiday season, erasing some $140 billion from its market value and capping a week of dismal earnings from global tech firms. "The AWS slowdown is a clear sign that businesses are beginning to trim costs, so this will likely put more of a squeeze on Amazon's bottom line in the coming quarters," said Andrew Lipsman, principal analyst at Insider Intelligence. Microsoft's cloud business Azure, which had supercharged revenue growth at the software giant for years, dropped to 35% growth in the July-September quarter from 50% a year earlier, missing estimates of a 36.5% increase according to Visible Alpha. The company projected another drop in the holiday quarter. Alphabet's Google Cloud revenue grew 38% in the quarter, beating estimates. That was a silver lining in an otherwise gloomy quarter but a far cry from the 45% growth the company posted a year earlier. EUROPE, CHINA DRAG Speaking broadly about cloud deployments from AWS, Microsoft and Google-parent Alphabet (GOOGL.O), YipitData research specialist Matt Wegner said: "We really first started to see (a slowdown) in April ... and it's continued. The European region is a source of weakness." Eurozone inflation is close to 10% and European Central Bank President Christine Lagarde on Thursday acknowledged that the risk of an economic contraction is on the rise due to soaring energy prices and higher interest rates. Intel, which makes chips for data center customers including AWS, said third-quarter revenue from that business slumped 27% and profits were nearly wiped out. The business was hurt partly due to soft demand from Chinese enterprise customers, Intel boss Pat Gelsinger said. The company cut its profit and revenue forecast for the year, reflecting economic uncertainty that Gelsinger said he expected to last into next year and that it was taking time to ramp up sales into datacenters. Cloud services typically help companies save money so budget cuts in this sector could be especially worrying, indicating that companies think cost is king going into tougher times. Businesses usually build out more cloud and datacenter capacity than needed and then wait for it to be absorbed, said Dean McCarron, president of Mercury Research, which tracks chipmakers. "The "build more" happened in 2021 and we've been coasting down since then," said McCarron. He added that he expects Intel's datacenter weakness to be bottoming soon "though there are larger macroeconomic concerns about how much improvement we might see on the next growth cycle." Our Standards: The Thomson Reuters Trust Principles.

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Why Microsoft Stock Dropped Today

What happened Shares of Microsoft (NASDAQ: MSFT) fell 2.3% on Monday following reports of increased antitrust scrutiny. So what The Federal Trade Commission (FTC) may move to block Microsoft's $69 billion acquisition of video game maker Activision Blizzard (NASDAQ: ATVI), according to a report published by Politico after the market close on Wednesday.

Yahoo

Why Microsoft Stock Dropped Today What happened Shares of Microsoft (NASDAQ: MSFT) fell 2.3% on Monday following reports of increased antitrust scrutiny. So what The Federal Trade Commission (FTC) may move to block Microsoft's $69 billion acquisition of video game maker Activision Blizzard (NASDAQ: ATVI), according to a report published by Politico after the market close on Wednesday.

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Why Activision Blizzard Stock Bounced Back Today

Shares of video games maker Activision Blizzard (NASDAQ: ATVI) fell more than 4% on Friday in response to news that the Federal Trade Commission (FTC) may be preparing to file suit to block Activision's acquisition by Microsoft (NASDAQ: MSFT) in the next few weeks. Tic-tac-toe, three in a row, Wall Street analysts JP Morgan, Morgan Stanley, and Wells Fargo unanimously assigned $95 price targets to Activision stock this morning -- not coincidentally, the precise dollar value of the all-cash bid that Microsoft made for Activision in January.

Yahoo

Why Activision Blizzard Stock Bounced Back Today Shares of video games maker Activision Blizzard (NASDAQ: ATVI) fell more than 4% on Friday in response to news that the Federal Trade Commission (FTC) may be preparing to file suit to block Activision's acquisition by Microsoft (NASDAQ: MSFT) in the next few weeks. Tic-tac-toe, three in a row, Wall Street analysts JP Morgan, Morgan Stanley, and Wells Fargo unanimously assigned $95 price targets to Activision stock this morning -- not coincidentally, the precise dollar value of the all-cash bid that Microsoft made for Activision in January.

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Amazon: Why AWS Is Worth $60

I believe Amazon's most important value driver, AWS, should be valued at ~$60 a share. Click here to read why I remain neutral on shares of AMZN.

SeekingAlpha

Amazon: Why AWS Is Worth $60 Summary - I believe Amazon's most important value driver, AWS, should be valued at ~$60 a share, representing roughly 2/3 of the current market value. - While the recent slowdown appears to be more cyclical than secular, Amazon's growth is unlikely to return to pandemic levels, since revenue was boosted by many transitory factors. - As a mid-20%s grower, AWS deserves some conservatism on the valuation side of the story as markets increasingly turn to Amazon's overall profitability in a slower growth environment. - Therefore, I would remain on the sidelines for Amazon and revisit the buy case should shares reach $80, a price consisting of a fair value for both AWS and Advertising. Why is AWS slowing down? In Q3 2022, Amazon.com, Inc. (NASDAQ:AMZN) reported Amazon Web Services, Inc. ("AWS") revenue of $20.5 billion (+27% YoY) and a 3-point sequential decline in EBIT margin to 27% during the quarter. The slowdown in Q3 top-line was a 6-point deceleration from 2Q22 vs. a 4-point deceleration from Q1 to Q2. While AWS is a much larger business today and the law of large number has certainly contributed to some of the moderation in revenue growth, there are a number of reasons noted by Amazon management, as well as by peers including Microsoft (MSFT) and Google (GOOGL, GOOG). The first reason behind the AWS slowdown is higher cost sensitivity amongst customers. The term "cost optimization" was mentioned by both Amazon and Microsoft management several times during their Q3 2022 conference calls. This essentially means finding cheaper ways to run various workloads on the cloud, such as moving to lower-tier storage and compute capabilities and shifting from higher-priced pay-as-you-go to lower-priced Reserved Instances. By default, AWS bills customers on a consumption basis every month. This on-demand model can become quite expensive when customers are running a lot of workloads and deploying many instances. As a result, an AWS reserved instance allows customers to get discounted billing when they agree to use a specific instance for a period of 1-3 years, which could benefit customers with more steady usage in the form of a lower hourly rate. Second, cloud migration has become a longer process as customers look to tighten the belt in a downturn. The initial costs associated with migrating legacy on-premise workloads to the cloud are usually high, and CFOs may want to delay such projects until recession risks are gone. This was noted on Google's Q3 2022 call, where management highlighted longer sales cycles and smaller contracts in GCP. While AWS certainly provides a cost advantage by running workloads using its proprietary Graviton CPUs, the upfront costs (e.g., hiring a 3P consulting firm) to convert corporate operations to AWS could cause many companies to delay the modernization process given usage/consumption is likely to be low in a recessionary environment anyway. The third factor is lower overall consumption in verticals affected by current macro conditions. Industries such as financials, gaming, digital advertising, and e-commerce are seeing normalizing activities in a post-pandemic environment with rising interest rates. On its Q3 2022 call, Amazon management noted slowing mortgage businesses and a challenging crypto market that partially contributed to the slowdown in AWS revenue growth. The recent FTX scandal suggests confidence in cryptocurrencies is unlikely to return anytime soon. If prominent crypto platforms such as Coinbase (COIN) continue to experience muted trading activities as retail investors lose their life savings on Luna to FTT, that means lower consumption/revenue for major cloud infrastructure providers as well. Cyclical or secular? The deceleration in AWS revenue growth (+40% to +25% in 4 quarters) as well as Azure and GCP appears to be more cyclical than secular as demand for digital transformation during the pandemic (work from home, rush to move operations to the cloud, gaming, streaming, crypto, e-commerce, etc.) significantly biased the growth rates to the upside. Given the 3 factors discussed above are largely macro-driven, a 2023 recession remains a wildcard that will likely put further pressure on AWS growth as consumption falls and companies look to cut costs more aggressively. Since Amazon reported Q3 2022 results, consensus AWS revenue and EBIT margin for 4Q22 have been reduced from $23 billion (+29% YoY) and 31% to $22.2 billion (+25% YoY) and 28% (vs. 30% in 4Q21). The current Q4 top-line estimate is consistent with Amazon's comments that AWS growth moderated to ~25% exiting Q3. The 2-point deceleration from Q3's 27% is better than a 5-point deceleration in Azure growth per Microsoft's Q4 guidance. Therefore, I see downside risk to Street estimates and would conservatively model Q4 AWS revenue of $21.7 billion (+22% YoY vs. +25% consensus). This brings 2022E AWS revenue to slightly over $80 billion, up 29% from 2021. For 2023, consensus estimates currently call for AWS revenue of just over $100 billion (+25% YoY). While this number may be achievable given continued growth and an AWS backlog of $104 billion (+57% YoY) at Q3, it's important to recognize that the backlog does not have to translate into revenue right away, since customers may not necessarily hit their contract commitments in a slower environment. If the economy does materially deteriorate in the next few quarters, it's possible for AWS growth to decelerate into the low 20%s in 1H23 vs. strong 1H22 comps (+37%/+33% in 1Q/2Q22), in my view. How much is AWS worth? The question now becomes how much is AWS worth as a mid-20%s grower, as verticals that are severely challenged by macro pressures are unlikely to recover quickly in 2023. I've previously valued AWS at 6x 2023 revenue or ~$60 per share, with the target multiple being at the midpoint of Microsoft (8x) and Oracle (ORCL) (4x). This may seem conservative to many, but I believe taking such a defensive view provides some scope for the possibility of markets shifting Amazon's valuation framework from SOTP to P/E. For a long time, investors have been used to finding Amazon's fair price by valuing each of its businesses individually. This does not always have to be the case, considering Amazon is now a much more mature business with low-double-digit revenue growth being the norm vs. 25%+ previously. Given investors are no longer operating in an easy environment with accelerating growth, it's possible that markets will turn to Amazon's overall profitability as a key element of the valuation framework. In that scenario, Amazon is trading at a rather demanding multiple of 54x 2023 earnings. Conclusion I remain neutral on shares of Amazon given the narrative of "buying AWS and getting everything else for free" may not apply to the current price of $93 if markets are to take a conservative view on the valuation side of the AWS story in a slower-growth environment. That said, it may be difficult to expect shares to reach as low as $60 before pulling the trigger considering Amazon also has a robust, high-margin advertising business that could be worth ~$20 a share by applying a 4.5x P/S multiple (a slight premium to Google's 4x) to 2023E revenue of $44.5 billion (+18% YoY vs. +21% in 2022E). Putting it all together, I'll remain on the sidelines for Amazon.com, Inc. for now and revisit the buy case when shares reach $80. This article was written by Analyst’s Disclosure: I/we have a beneficial long position in the shares of MSFT, GOOG either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (61)

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Activision Analysts Don’t Need Microsoft Deal to Be Bullish

(Bloomberg) -- Activision Blizzard Inc. is gaining fans on Wall Street as a flurry of analysts raise their recommendations on the stock even as Microsoft Corp.’s planned acquisition looks increasingly dicey.Most Read from BloombergApple to Lose 6 Million iPhone Pros From Tumult at China PlantNext Covid-19 Strain May be More Dangerous, Lab Study ShowsThere’s a Job-Market Riddle at the Heart of the Next RecessionStocks Hit by Fedspeak as China Woes Boost Havens: Markets WrapAt least six firms have

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Activision Analysts Don’t Need Microsoft Deal to Be Bullish (Bloomberg) -- Activision Blizzard Inc. is gaining fans on Wall Street as a flurry of analysts raise their recommendations on the stock even as Microsoft Corp.’s planned acquisition looks increasingly dicey. Most Read from Bloomberg Scientists Revive 48,500-Year-Old ‘Zombie Virus’ Buried in Ice An Arizona County’s Refusal to Certify Election Results Could Cost GOP a House Seat Stock Traders Cheer Powell’s Risk-Friendly Shift: Markets Wrap NYC Becomes One Billionaire Family’s Haven From China Property Crash These Are the Best and Worst Cities for Expats to Live and Work In At least six firms have boosted their ratings in November, including three on Monday: Wells Fargo, Truist and Morgan Stanley. Raymond James, MKM Partners and Baird all raised their view earlier this month. Currently, 76% of analysts recommend buying the stock, compared with 57% at the start of the month, according to data compiled by Bloomberg. The growing optimism about Activision comes despite questions over whether Microsoft’s deal will close. The acquisition faces an in-depth European Union probe and scrutiny from US regulators. Read more: Microsoft’s Activision Deal Hangs on Long-Shot FTC Accord “The market is undervaluing ATVI relative to both outcomes,” wrote Wells Fargo analyst Brian Fitzgerald, referring to whether Microsoft’s $69 billion deal will close. Truist analysts led by Matthew Thornton said that the stock has an attractive risk profile, adding that Activision should have a “big” 2023, given the health of its Call of Duty and World of Warcraft franchises. The Bloomberg consensus rating on the stock -- a ratio of its buy, hold and sell ratings -- has jumped to 4.52 out of five, its highest since January, and up from an April low of 3.94. This has made Activision nearly as well liked among Wall Street analysts as Take-Two Interactive Software Inc., which boasts a consensus rating of 4.57. Additionally, Electronic Arts Inc. has a consensus rating of 4.29. Shares of Activision rose 1.6% to $74.61 on Monday, more than 20% below Microsoft’s offer to buy it for $95 per share. Since the takeover was announced in January, the gap between Activision’s trading price and Microsoft’s all-cash bid has been widening, driven by mounting antitrust concerns, as well as its sheer transaction size and long closing process. The deal’s so-called merger arbitrage spread widened last week after Politico reported that the FTC is likely to file an antitrust lawsuit to block the sale. The market was pricing in roughly 40% odds of the deal successfully closing, Cowen’s merger arbitrage specialist Aaron Glick said on Friday. --With assistance from Yiqin Shen. Most Read from Bloomberg Businessweek TikTok’s Viral Challenges Keep Luring Young Kids to Their Deaths The Avatar Sequel Is a Make-or-Break Moment for Disney’s $71 Billion Fox Deal Global Debt Costs Are Soaring. Here’s Where It Will Hurt Most ©2022 Bloomberg L.P.

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Exclusive-Microsoft likely to offer EU concessions soon in Activision deal - sources

Microsoft is likely to offer remedies to EU antitrust regulators in the coming weeks to stave off formal objections to its $69 billion bid for "Call of Duty" maker Activision Blizzard, people familiar with the matter said.

Reuters

Exclusive: Microsoft likely to offer EU concessions soon in Activision deal -sources BRUSSELS, Nov 28 (Reuters) - Microsoft (MSFT.O) is likely to offer remedies to EU antitrust regulators in the coming weeks to stave off formal objections to its $69 billion bid for "Call of Duty" maker Activision Blizzard (ATVI.O), people familiar with the matter said. The U.S. software giant and Xbox maker announced the deal in January to help it compete better with leaders Tencent (0700.HK) and Sony (6758.T). It has since then faced regulatory headwinds in the European Union, Britain and in the United States, with Sony criticising the deal and even calling for a regulatory veto. The deadline for the European Commission, which is investigating the deal, to set out a formal list of competition concerns known as a statement of objection is in January. Offering remedies before such a document is issued could shorten the regulatory process. "Ultimately, such a move could secure an early clearance with the European Commission and subsequently be used by the parties before other antitrust agencies," said Stephane Dionnet, a partner at law firm McDermott Will & Emery. "However, it remains to be seen whether the active complainants will validate such concessions (in particular in terms of scope) and if behavioural remedies will also be accepted by the CMA and the FTC," he said, referring to the UK and U.S. antitrust agencies. Microsoft's remedy would consist mainly of a 10-year licensing deal to Playstation owner Sony, another person with direct knowledge said. Activision shares were up 2% after the Reuters story was published. The EU competition watchdog, which is scheduled to decide on the deal by April 11, and Sony declined to comment. Microsoft said it was working with the Commission to address valid marketplace concerns. "Sony, as the industry leader, says it is worried about Call of Duty, but we've said we are committed to making the same game available on the same day on both Xbox and PlayStation. We want people to have more access to games, not less," a Microsoft spokesperson said. The deal has been cleared unconditionally in Brazil, Saudi Arabia and Serbia. Our Standards: The Thomson Reuters Trust Principles.

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Exclusive-Microsoft likely to offer EU concessions soon in Activision deal -sources

BRUSSELS (Reuters) -Microsoft is likely to offer remedies to EU antitrust regulators in the coming weeks to stave off formal objections to its $69 billion bid for "Call of Duty" maker Activision Blizzard, people familiar with the matter said. The U.S. software giant and Xbox maker announced the deal in January to help it compete better with leaders Tencent and Sony. It has since then faced regulatory headwinds in the European Union, Britain and in the United States, with Sony criticising the deal and even calling for a regulatory veto.

Yahoo

Exclusive-Microsoft likely to offer EU concessions soon in Activision deal -sources By Foo Yun Chee BRUSSELS (Reuters) -Microsoft is likely to offer remedies to EU antitrust regulators in the coming weeks to stave off formal objections to its $69 billion bid for "Call of Duty" maker Activision Blizzard, people familiar with the matter said. The U.S. software giant and Xbox maker announced the deal in January to help it compete better with leaders Tencent and Sony. It has since then faced regulatory headwinds in the European Union, Britain and in the United States, with Sony criticising the deal and even calling for a regulatory veto. The deadline for the European Commission, which is investigating the deal, to set out a formal list of competition concerns known as a statement of objection is in January. Offering remedies before such a document is issued could shorten the regulatory process. "Ultimately, such a move could secure an early clearance with the European Commission and subsequently be used by the parties before other antitrust agencies," said Stephane Dionnet, a partner at law firm McDermott Will & Emery. "However, it remains to be seen whether the active complainants will validate such concessions (in particular in terms of scope) and if behavioural remedies will also be accepted by the CMA and the FTC," he said, referring to the UK and U.S. antitrust agencies. Microsoft's remedy would consist mainly of a 10-year licensing deal to Playstation owner Sony, another person with direct knowledge said. Activision shares were up 2% after the Reuters story was published. The EU competition watchdog, which is scheduled to decide on the deal by April 11, and Sony declined to comment. Microsoft said it was working with the Commission to address valid marketplace concerns. "Sony, as the industry leader, says it is worried about Call of Duty, but we've said we are committed to making the same game available on the same day on both Xbox and PlayStation. We want people to have more access to games, not less," a Microsoft spokesperson said. The deal has been cleared unconditionally in Brazil, Saudi Arabia and Serbia. (Reporting by Foo Yun Chee; Editing by Jan Harvey, Lisa Shumaker and David Evans)

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EXCLUSIVE-Microsoft likely to offer EU concessions soon in Activision deal - sources

Microsoft is likely to offer remedies to EU antitrust regulators in the coming weeks to stave off formal objections to its $69-billion bid for "Call of Duty" maker Activision Blizzard, people familiar with the matter said.

Reuters

Exclusive: Microsoft likely to offer EU concessions soon in Activision deal -sources BRUSSELS, Nov 28 (Reuters) - Microsoft (MSFT.O) is likely to offer remedies to EU antitrust regulators in the coming weeks to stave off formal objections to its $69 billion bid for "Call of Duty" maker Activision Blizzard (ATVI.O), people familiar with the matter said. The U.S. software giant and Xbox maker announced the deal in January to help it compete better with leaders Tencent (0700.HK) and Sony (6758.T). It has since then faced regulatory headwinds in the European Union, Britain and in the United States, with Sony criticising the deal and even calling for a regulatory veto. The deadline for the European Commission, which is investigating the deal, to set out a formal list of competition concerns known as a statement of objection is in January. Offering remedies before such a document is issued could shorten the regulatory process. "Ultimately, such a move could secure an early clearance with the European Commission and subsequently be used by the parties before other antitrust agencies," said Stephane Dionnet, a partner at law firm McDermott Will & Emery. "However, it remains to be seen whether the active complainants will validate such concessions (in particular in terms of scope) and if behavioural remedies will also be accepted by the CMA and the FTC," he said, referring to the UK and U.S. antitrust agencies. Microsoft's remedy would consist mainly of a 10-year licensing deal to Playstation owner Sony, another person with direct knowledge said. Activision shares were up 2% after the Reuters story was published. The EU competition watchdog, which is scheduled to decide on the deal by April 11, and Sony declined to comment. Microsoft said it was working with the Commission to address valid marketplace concerns. "Sony, as the industry leader, says it is worried about Call of Duty, but we've said we are committed to making the same game available on the same day on both Xbox and PlayStation. We want people to have more access to games, not less," a Microsoft spokesperson said. The deal has been cleared unconditionally in Brazil, Saudi Arabia and Serbia. Our Standards: The Thomson Reuters Trust Principles.

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Microsoft Corp. stock outperforms competitors despite losses on the day

Shares of Microsoft Corp. slid 2.32% to $241.76 Monday, on what proved to be an all-around dismal trading session for the stock market, with the S&P 500...

MarketWatch

Shares of Microsoft Corp. MSFT, +0.19% slid 2.32% to $241.76 Monday, on what proved to be an all-around dismal trading session for the stock market, with the S&P 500 Index SPX, +0.67% falling 1.54% to 3,963.94 and Dow Jones Industrial Average DJIA, +0.93% falling 1.45% to 33,849.46. This was the stock's second consecutive day of losses. Microsoft Corp. closed $102.54 short of its 52-week high ($344.30), which the company reached on December 29th. The stock demonstrated a mixed performance when compared to some of its competitors Monday, as Apple Inc. AAPL, -0.28% fell 2.63% to $144.22, Alphabet Inc. Cl C GOOG, +0.72% fell 1.38% to $96.25, and Alphabet Inc. Cl A GOOGL, +0.59% fell 1.45% to $96.05. Trading volume (23.7 M) remained 6.9 million below its 50-day average volume of 30.6 M. Editor's Note: This story was auto-generated by Automated Insights, an automation technology provider, using data from Dow Jones and FactSet. See our market data terms of use.

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3 Things to Watch for as Amazon’s AWS Event Gets Started

Look for updates on higher-margin machine learning services, AWS pricing and partnerships.

MarketWatch

Amazon.com kicked off its annual Amazon Web Services event with news about so-called water positivity, but investors worried about slowing growth at the cloud-computing unit are looking for signs of a turnaround. Adam Selipsky, the CEO of AWS, said on Monday at that Amazon (ticker: AMZN) is committed to “returning more water than we use in the communities where we operate.” While that is the right thing to do, investors are likely more focused on what the company has to say about the outlook for revenue or the road ahead more generally, at AWS re: Invent, the cloud-computing industry’s biggest event. The e-commerce giant’s shares have tumbled 8% since late October, management reported 27% year-over-year growth in revenue for AWS, the slowest increase since 2014 and well below the 32% Wall Street had penciled in. Analysts expect 24.7% growth for the fourth quarter, compared with the 29.5% they had anticipated before the latest earnings were disclosed. Worries that a recession could be on the way are dragging on the stock. MKM analyst Rohit Kulkarni is looking for updates on several key areas. He has had a Buy rating on the company’s stock at least since early 2020 and his price target of $145 is more than 50% higher than current trading levels. First on his list is an update on discounts and pricing for AWS offerings. AWS regularly reduced prices in the prepandemic world, but “we have not seen significant price cuts in recent years,” Kulkarni said in a research note on Monday. Next in line are announcements on partnerships, or customers’ use of AWS products. Last year, Amazon, which controls more than 50% of the cloud market, said Meta Platforms (META) will broaden its use of AWS databases, storage, security services and more, after collaborating with AWS at least for five years. But things are dicey this time around. Questions on the resiliency of cloud demand are rife as the economy softens. DigitalOcean Holdings (DOCN), which provides start-ups and small businesses with cloud infrastructure, functioning like AWS but on a smaller scale, recently shared a fourth-quarter forecast that fell short of Wall Street estimates as businesses grew more reluctant to spend. Microsoft (MSFT) also has noted that customers are trying to get more bang for the bucks they spend in the cloud. Kulkarni expects partnerships to be focused on media companies, which tend to prefer high data storage, as well as public-sector businesses like nonprofits, which “prefer the ease of use/migration, security, and compliance,” he said. Third, investors should expect to hear about how AWS is helping enterprises adopt machine learning and make it more mainstream. About a quarter of Selipsky’s keynote speech last year was dedicated to Sagemaker, the machine-learning platform Amazon launched in November 2017, the analyst said. “We expect to hear more about additional [machine-learning] services, as we believe that add-on products tend to have higher margins,” he said. Keynote speeches from the AWS CEO and Amazon Chief Technology Officer Werner Vogels are scheduled for Tuesday and Thursday respectively. Write to Karishma Vanjani at karishma.vanjani@dowjones.com.

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Company News for Nov 28, 2022

Companies In The News Are: AAPL, ATVI, MSFT, MANU, COUP.

Yahoo

Company News for Nov 28, 2022 Shares of Apple Inc. AAPL fell 2% following news that a Foxconn plant in China will reduce iPhone shipment in November. Shares of Activision Blizzard Inc. ATVI tumbled 4.1% following news that the FTC may sue Microsoft Corp. MSFT to block its $69 billion takeover bid of the former. Manchester United plc’s MANU shares surged 12.8% following news that the owners will explore strategic alternatives, including a new investment or a potential sale Coupa Software Inc.’s COUP shares surged 6.4% following news that Vista Equity Partners is mulling to acquire the company. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Apple Inc. (AAPL) : Free Stock Analysis Report Microsoft Corporation (MSFT) : Free Stock Analysis Report Activision Blizzard, Inc (ATVI) : Free Stock Analysis Report Manchester United Ltd. (MANU) : Free Stock Analysis Report Coupa Software, Inc. (COUP) : Free Stock Analysis Report To read this article on Zacks.com click here.

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Informatica: Good Business, Good Product, But Fairly Valued

Informatica is a vendor-agnostic platform that addresses the needs of all user types. Click here to read my analysis of INFA stock and why it's a hold.

SeekingAlpha

Informatica: Good Business, Good Product, But Fairly Valued Summary - There are several challenges faced by companies in properly managing data. - Informatica Inc. enjoys a strong network effect. - Informatica is a vendor-agnostic platform that addresses the needs of all user types. - Informatica has strong partnerships with key players. Investment thesis What Informatica Inc. (NYSE:INFA) basically does is provide a means for their customers to efficiently manage their data without having to waste too much time while doing so. Their platform is cloud-based, and they have an AI engine called Claire that makes the whole process speedy yet meticulous. A lot of companies nowadays are having problems managing their data. In light of this, INFA provides a new and better means to carry out this process. They have partnered up with strong players in the industry, and this puts them in an advantageous position. Also, their platform is designed in such a way that it can be easily used by every employee in an organization and improve the work in the company, generally. However, I believe INFA is fairly valued today and investors should wait to deploy capital when valuation gets cheaper. Business overview INFA has developed a new means for businesses to correctly monitor the place where their data settles, have an in-depth knowledge of the kind of connection that prevails in their various data depositories, and also know who can get a hold of the data and how the data is being used. All of these functions are carried out on an enterprise level. INFA's cloud-native platform continuously examines their customers' data in order to create a rich and thoroughly scrutinized metaverse, as well as to create and control a metadata system of record that serves as the primary source of truth about their data. As such, their AI engine, CLAIRE, is able to assist customers by helping them have access to their data more quickly, give contextual suggestions on data connections, reveal novel observations about their business, and computerize duties that were formerly manual. Several challenges faced by companies to properly manage data In the present era of relentless pursuit of digital transformation ideas to rework businesses, data is one of the most crucial and irreplaceable competitive assets that companies possess. The world's population, software, and hardware collectively generate enormous data sets. In order to transform into data-driven enterprises, organizations are looking into methods of consolidating data across their many IT applications, systems, and environments. Better insights across the board, enhanced customer service, mechanized supply chains, and consistent, secure, and governed data access for all employees can be achieved by understanding and combining these data assets and migrating the workload to the cloud. To make matters worse, the proliferation of mobile, social, and IoT data, combined with the growth of cloud computing, low-cost data storage, and the expansion of applications that create and access data, is leading to a data explosion in terms of volume, variety, and velocity. While it is now possible to generate deeper business insights and pursue untapped market niches thanks to the influx of fresh data, this plethora of information, however, is beyond the capacity of managing organizations to manage, aggregate, and standardize. Further, as more businesses take advantage of cloud-based services, more data is generated and stored in various SaaS applications and storage places. The crucial thing to note here is that data is stored in a variety of formats across different data repositories, making it challenging to aggregate it into a consistent, long-lasting, and useful whole. The difficulty in integrating data from various sources within an organization in order to gain a fresh understanding and support strategic decision making is exacerbated by the ongoing fragmentation (i.e., where the data are stored). In reality, the purpose of data management software is to give businesses complete command over their data at all points in its existence. In order to achieve this goal, it is necessary to have access to data from multiple sources, standardize data across formats, filter data for quality, join data to destinations, govern data access, secure data from all breaches, and create a single source of truth for data. However, businesses are still employing older methods of data management for strategic and one-off use cases, despite the fact that these methods only address a subset of the full data management lifecycle. If businesses truly become data-driven, the data strategies they use to support their digital transformation initiatives will be severely constrained by their reliance on legacy approaches. There are a number of significant problems with the existing solutions, including: - Many traditional methods of data management have inherent flexibility, scalability, and extensibility because they were not designed specifically for the introduction of cloud-based workloads. These products, which are usually server-based, may only be able to manage a subset of the total data and may necessitate additional resources in order to prevent issues with the user experience, such as latency and unpredictable price spikes. The inflexibility and incompatibility of the non-native cloud approach usually result in the loss of expertise, the accumulation of unnecessary data, and the slowing of innovation. - Legacy data management methods were made for a few types of structured data that usually come from internal business systems. This can make it hard to capture, control, organize, group, and govern semi-structured and unstructured data that is constantly coming in from connected devices, apps, and social media. When dealing with the massive amounts of disparate, unstructured data being generated by a diverse set of users all over the world, businesses have a hard time scaling their data management initiatives. Many of these methods can only help with analytical frameworks. They aren't good enough to handle the use and streaming of data at high speeds from devices that are connected to each other. - In most cases, the methods used to manage data in the past were simply band-aids designed to fix specific problems. Typically, enterprises do not integrate these methods into their overarching end-to-end data management strategy. For instance, while some current products can standardize various data types, they may fall short in providing the necessary governance and security for organizations to deal with the quality of their data as it currently stands. Vendor-agnostic platform INFA’s platform and products have advanced performance in any database, data source, or third-party application. They are using this approach as enterprises have now updated and revamped their infrastructures and moved lots of their workloads to the cloud. This completely contrasts to a lot of companies that have built their data management capabilities in such a way that they only work within their own products and platforms or have presented products that cannot control data in both on-premises and cloud environments. In a world where most companies are now adopting a multi-cloud, hybrid strategy and where data fragmentation is a major barrier to making sound decisions in an enterprise, INFA sure does have a major and continuous competitive advantage. Addresses the needs of all types of users INFA allows all major stakeholders in an organization to easily make use of their all-inclusive data management capabilities. Their products can be easily and quickly used in the organization, saving time for the users. There is also a user experience that they offer. This reduces the amount of technical skills that the user may require, and as a result, it effectively coordinates data within an organization's employees while maintaining the expected functionality. This enables the universality of their platform, as every employee in the organization can further improve their performance in their work. INFA enjoys strong network effect Many of INFA's benefits can be attributed to its strong network effects. More and more customers are using their platform, which means that the amount of metadata it controls is rapidly expanding. Because of this increase in metadata, CLAIRE is better able to understand complex data management tasks, and automation is progressing. For instance, when disparate customer datasets stored in various formats are combined, CLAIRE readily highlights inconsistencies and errors in the data. As a result, the potential damage to a company's bottom line from inaccurate information is mitigated thanks to the insights and automation provided by CLAIRE. It saves a ton of time by reducing the need to manually examine each data point in massive datasets. CLAIRE's recommendation engine and automation will also naturally improve as it continues to process and analyze more business rules and data. I am confident that these factors will encourage more INFA customers, both current and prospective, to adopt the INFA platform and reap the benefits of using Informatica for their data management needs. Strong partnerships with key players From the onset, INFA has always proven itself to be a reliable partner, satisfying the needs of the most demanding enterprises. INFA’s relationship with these demanding enterprises only shows that they are able to meet the most complex needs of these enterprises. That alone gives them a competitive advantage over others. Additionally, they have well-grounded relationships with three leading cloud hyperscalers. They are: AWS (AMZN), Microsoft (MSFT) Azure, and Google (GOOGL) Cloud Platform. These relationships enable their customers to deploy and use INFA on all of these cloud platforms. They sell their products on their marketplaces, and they strongly encourage the direct sales reps of the hyperscalers to share and distribute their products, for which they receive quota credit on the sale of their platform. They are also partners with Snowflake Inc. (SNOW) and Databricks. With all of these partnerships, INFA should always be one step ahead of the competition and will have the opportunity to market their platform to both new and existing customers. Valuation My model suggests that INFA is fairly valued today. My model values INFA on a forward earnings basis, as the business is generating profits. The model follows management’s FY22 guidance and high-single-digit growth (similar to historical growth rates), which I believe are achievable given INFA’s competitive advantages and a strong network effect. INFA is trading at 21x forward earnings today, and I assumed it would trade in a similar range 1 year from now, as I do not expect any major events that would change this. Based on these assumptions, I believe INFA’s stock is worth $17.73 in FY23. Risks Industry adoption rate may not grow fast It's possible that the market for cloud-based data management solutions has already reached the same level of maturity as the market for on-premise products. It might also not grow as much as it is expected to. Also, the acceptance might be stoic due to a number of reasons, like concerns about data security, privacy, cost, etcetera. A lot of customers have invested significant amounts of resources in conventional on-premise software solutions, and because of that, they might not be willing to move and start using cloud-based solutions. Conclusion I believe Informatica Inc. is an interesting and exciting company with a lot to look forward to. However, the market is not pricing it cheaply enough for me to deploy capital to invest in it. I would encourage readers and investors to hold back on investing and wait for a cheaper valuation. This article was written by Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments

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Insiders at Microsoft Corporation (NASDAQ:MSFT) sold US$30m worth of stock, possibly indicating weakness in the future

In the last year, many Microsoft Corporation ( NASDAQ:MSFT ) insiders sold a substantial stake in the company which may...

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Insiders at Microsoft Corporation (NASDAQ:MSFT) sold US$30m worth of stock, possibly indicating weakness in the future In the last year, many Microsoft Corporation (NASDAQ:MSFT) insiders sold a substantial stake in the company which may have sparked shareholders' attention. Knowing whether insiders are buying is usually more helpful when evaluating insider transactions, as insider selling can have various explanations. However, when multiple insiders sell stock over a specific duration, shareholders should take notice as that could possibly be a red flag. While insider transactions are not the most important thing when it comes to long-term investing, we do think it is perfectly logical to keep tabs on what insiders are doing. See our latest analysis for Microsoft Microsoft Insider Transactions Over The Last Year The Executive VP & CFO, Amy Hood, made the biggest insider sale in the last 12 months. That single transaction was for US$20m worth of shares at a price of US$259 each. So what is clear is that an insider saw fit to sell at around the current price of US$247. While insider selling is a negative, to us, it is more negative if the shares are sold at a lower price. Given that the sale took place at around current prices, it makes us a little cautious but is hardly a major concern. Over the last year we saw more insider selling of Microsoft shares, than buying. You can see the insider transactions (by companies and individuals) over the last year depicted in the chart below. If you want to know exactly who sold, for how much, and when, simply click on the graph below! If you are like me, then you will not want to miss this free list of growing companies that insiders are buying. Microsoft Insiders Are Selling The Stock The last quarter saw substantial insider selling of Microsoft shares. In total, insiders dumped US$21m worth of shares in that time, and we didn't record any purchases whatsoever. In light of this it's hard to argue that all the insiders think that the shares are a bargain. Does Microsoft Boast High Insider Ownership? Many investors like to check how much of a company is owned by insiders. Usually, the higher the insider ownership, the more likely it is that insiders will be incentivised to build the company for the long term. Microsoft insiders own 0.04% of the company, currently worth about US$799m based on the recent share price. Most shareholders would be happy to see this sort of insider ownership, since it suggests that management incentives are well aligned with other shareholders. What Might The Insider Transactions At Microsoft Tell Us? Insiders sold Microsoft shares recently, but they didn't buy any. Zooming out, the longer term picture doesn't give us much comfort. On the plus side, Microsoft makes money, and is growing profits. The company boasts high insider ownership, but we're a little hesitant, given the history of share sales. In addition to knowing about insider transactions going on, it's beneficial to identify the risks facing Microsoft. Case in point: We've spotted 1 warning sign for Microsoft you should be aware of. If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of interesting companies, that have HIGH return on equity and low debt. For the purposes of this article, insiders are those individuals who report their transactions to the relevant regulatory body. We currently account for open market transactions and private dispositions, but not derivative transactions. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Join A Paid User Research Session You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here

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QQQ: Sell Tech

The tech sector is still overvalued and I think a recession is coming. Click here to read my detailed analysis of why I think QQQ is a sell at current levels.

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QQQ: Sell Tech Summary - The tech sector is still overvalued. - The recession is coming. - The next leg down in tech stocks is upon us. Let's start with the recent news: This news flashed on Friday Nov 25: US bans sale of Huawei, ZTE tech amid security fears. The tech sector de-coupling between the US and China is continuing, and this is bad news for the tech companies (NASDAQ:QQQ). The process of "reshoring" and "onshoring" will continue to increase the costs, while the likely Chinese retaliation will significantly reduce the sales of the US tech products in China. Apple (AAPL) is particularly vulnerable, given its leading market share in China, and given the recent issues with iPhone 14 production in China: "Apple hit a record 23% market share in China in the fourth quarter of 2021, with the iPhone maker reclaiming the number one player for the first time in six years, Counterpoint Research said." The upcoming recession The Nasdaq 100 is still overvalued in my view with the ttm PE ratio at 24.37 and forward PE ratio at 22.54 - and the recession is coming. The Fed's most reliable recession indicator is flashing an imminent recession warning sign - the yield curve spread between the 10Y Treasury Bond and the 3M Treasury Bill is now deeply inverted at -0.73. It has just inverted for the first time on Oct 25th, and the level of inversion is at the highest level, approaching the record inversion of -0.77% before the 2000 recession. Here is the chart: That implies two things: 1) Tech earnings will be downgraded as the analysts factor in the upcoming recession, and 2) the valuation multiple will have to contract as the recession gets priced in. The combination of the lower earnings and the contracting valuation suggests a deep selloff in QQQ over the near term, even after the 29% selloff in QQQ YTD. What about the Fed pivot and soft landing? The upcoming recession will likely be induced by the Fed, which is fighting the highest inflation since the 1980s. The Fed intended to invert the yield curve to slow down the demand - and the yield curve is now inverted, as shown earlier. So, the damage has been done, and the Fed can likely stop with the interest rate hiking campaign soon. In fact, the path to the yield curve inversion has been the Phase 1 of the full bear market. That phase is now ending. Now, we are entering the Phase 2 of the full bear market - the recessionary selloff. The market has been hoping for a soft landing, which would imply that the Fed would stop hiking interest rates without causing a recession, inducing just a slowdown or even just a shallow and short technical recession. The hopes of such "soft landing" depended on the assumption that the Fed would stop hiking interest rates before inverting the yield curve. That hope is now essentially gone. The Federal Funds futures are now pricing the Fed to hike to 5% by May 2013, and if the 10Y Treasury Yield stays below 4%, that would imply the record yield curve inversion - or an extremely tight monetary policy. The Federal Funds futures are also suggesting that the Fed would hold rates at 5% until Dec 2023, which is the first expected cut. Further, the Fed is expected to keep cutting the interest rates in 2024 to 3.6%. Based on these expectations, the balance between the growth and inflation would start to shift in 2024 more towards the growth concerns - which signals a recession. However, given the unfolding trend on de-globalization and the tech de-coupling (with reshoring and onshoring), the price pressures are unlikely to sharply ease even in a recession. Yes, the CPI inflation will fall, but will it fall back to the Fed's target of 2%? Unlikely. Deglobalization is inflationary. The Fed will ultimately have to accept a higher inflation target. That's the Fed pivot the market is waiting for, and the Fed is nowhere near formally accepting the higher level of inflation. Thus, any hopes for a soft landing based on an elusive Fed pivot are unfounded in my view. Tactical considerations Fundamentally, given the upcoming recession and expensive valuations, I rate tech stocks as a sell. Tactically, the long-term uptrend in QQQ is under threat. Just recently, QQQ broke down below the key long-term support of the 200-week moving average, but it temporarily bounced back above the key support. Here is the chart: QQQ is currently in a weak bear market rally based on the hopes of the Fed's pivot, falling CPI inflation, and soft-landing expectations. As I previously explained, the damage has been done, and the recession is coming, thus the Phase 2 of the bear market is upon us - the recessionary selloff. The QQQ is still overvalued and the recession is not priced in. However, the bear market rally can also be vicious. I recently rated QQQ a sell, expecting a major breakdown, but recommended a cautious approach given the bear market rally risks: Short QQQ at around 263 (current level), with the stop loss above the 200wma above 273 seems like a good risk-reward trade. Obviously, the Fed is the key risk variable. Any slightly dovish (or even less hawkish comment) could cause a major short covering. Thus, with this trade it is important to have the stop loss in place and re-evaluate the tactical long if necessary. Currently, QQQ is trading at 286, above the 200wma. Given the bear market rally, I evaluated the long tactical position as QQQ rose above the 200wma, but given the deteriorating fundamentals, I viewed the trade as purely speculative. Rather, I am looking to enter the short position. Tactically, it makes sense to re-short below the 200wma, which is currently at 277. For NASDAQ 100 futures that's currently the 11372 level. Under this level, the bear market rally should fade out, and the selling will likely intensify. Specific QQQ considerations Apple is nearly 15% of QQQ by weight. Given the China news from the beginning of the article, Apple is particularly vulnerable to deglobalization. Apple is also a cyclical consumer discretionary company and it's not priced in for a recession with the PE ratio at 24, as I previously noted. Note, Apple is down by only 5% over the last 12 months. Microsoft (MSFT) is weighted at nearly 10% of QQQ, and similarly, it has a very heavy global exposure, particularly in China, and a still high valuation multiple at 26. These heavily weighted overvalued mega cap companies will likely lead QQQ lower in the next Phase of the bear market - the recessionary selloff. This article was written by Analyst’s Disclosure: I/we have a beneficial short position in the shares of SPX either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (51) Nobody knows the future, but the tech is already down 30% this year.

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Amazon: 2023 Outlook And What We Will Be Watching For

Moving to 2023, the incremental cost headwinds are likely to abate with a leaner and efficient e-commerce cost structure for Amazon. Check out our expectations.

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Amazon: 2023 Outlook And What We Will Be Watching For Summary - Moving into 2023, the incremental cost headwinds are likely to abate with a leaner and more efficient e-commerce cost structure while inflationary pressures ease. - AWS remains well positioned for long-term growth despite the short-term challenges due to macroeconomic uncertainties causing some customers to cut their budgets. - We will be watching for consumer sentiment and confidence levels as a short and shallow recession could mean recovery of demand in the second half of 2023. - My 1-year price target for Amazon is $159, representing a 69% upside from current levels. Amazon (NASDAQ:AMZN) has had a tough year in 2022, with the shares down 45% to date in 2022. As a result of the capitulation, it became the first public company in the world to lose its one trillion dollar market capitalisation status. Are the circumstances really so dire for Amazon in 2022? How will the company perform in 2023? This article aims to summarise the issues and challenges that Amazon faced in 2022 and what we should look for in 2023. Investment thesis I have written earlier articles on Amazon, including the most recent article analysing Amazon's recent 3Q22 results. I continue to like the opportunity set and the risk reward profile for Amazon as the company is getting beaten down at a time when its fundamentals are improving. I reiterate my investment thesis for Amazon, which is as follows. First, Amazon's e-commerce business has reached a new phase where it has made significant investments into fulfillment capacity in the past two years and the current infrastructure for the business is more than enough for the demand of the e-commerce business in the near-term. As a result, the e-commerce business is ready for increasing demand while prioritising improvements in productivity and fixed cost leverage as the cost structure of the business continues to improve. Second, AWS continues to be a bright spot for Amazon as a significant contributor to long-term growth and value driver. Given its leadership position in the industry and competitive advantages, AWS will likely continue to maintain its market share as the business gains scale and efficiency improvements. While its customers may be reducing their experimental budgets in the near-term due to macroeconomic uncertainties, I am of the view that AWS will continue to see long-term demand for its offerings. Lastly, the incremental cost headwinds are still a challenge for Amazon but in 2023, I expect these cost challenges to alleviate as Amazon reaps the benefit of a more efficient and lean cost structure as it moves into 2023. Biggest challenge in 2022 The year of 2022 was particularly challenging for Amazon due to the $6 billion in incremental costs headwinds highlighted in 1Q22 that I have elaborated on to great extent in an earlier article. To summarise, this is broken down into $2 billion of incremental cost headwinds from externally driven costs like wages, shipping costs and fuel costs, while $4 billion of incremental cost headwinds came from internally driven costs as a result of lower productivity and fixed cost leverage. There are three main levers for management to pull to drive this $6 billion in incremental cost headwinds down to zero, which I have discussed in another article. The three main levers are productivity improvements, fixed cost leverage and easing of inflation. Of the three, easing of inflation is the one that is not within the control of Amazon's management, but there are signs that inflationary pressures for Amazon are easing. As can be seen below, the Baltic Dry Index, a key measure that I track for the price of moving materials across the world by sea has somewhat normalised. At the peak of the supply chain mayhem, prices to ship goods across the world was almost five times more expensive. The other two involve improving productivity in transportation and fulfillment as well as controlling capital expenditures and investments into the e-commerce business. This was where Amazon fell short in its recent quarter as the cost improvements for the quarter fell short of their goal. This shows how hard it is for Amazon to reign in costs as the scale of its e-commerce business is huge. For productivity improvement initiatives, this includes things like making the transportation route more efficient, optimising the number of deliveries made per hour and other initiatives to improve efficiency of the workforce and the assets. To improve its fixed cost leverage, Amazon has been reducing its investments into e-commerce infrastructure after the heavy investments it made into the business during the pandemic. As a result of an over capacity situation at the e-commerce business, the capital expenditures that were budgeted to be spent on the e-commerce business are now being shifted to its cloud business and content for Prime Video. Incremental cost headwinds likely to improve in 2023 As we think about 2023, I am of the view that the inflationary pressures that caused an increase in externally driven costs for Amazon will likely ease further in 2023. The reason for this is simple: The Federal Reserve is determined to bring inflation down to their 2% inflation target and will continue to do what it takes to ensure that inflation remains under control. This means that as the supply side of the equation eases with supply chain constraints and tightness largely abating, the demand side of the equation will also be reduced as a result of the slowing growth caused by the rising rates. In addition, we are likely to see a more material improvement in costs as a result of the improvement in internally driven costs as productivity improvements and fixed cost leverage helps to drive further efficiency gains and lead to reduction in cost headwinds. With the continued efforts to improve efficiency along the e-commerce supply chain, these improvements will drive improvements to Amazon's cost structure as it looks to ensure that each part of its e-commerce business is streamlined. Furthermore, the company has announced that it will be laying off 10,000 workers, further reducing the excess labour in the business and improving the cost structure further as operating efficiency improves. The shift in investments towards other businesses will also drive fixed cost leverage as utilisation of its current capacity improves. Consumer confidence and sentiment in 2023 This remains to be a wildcard for 2023 as Amazon's e-commerce business is certainly very much influenced by consumer demand, which is in turn influenced by consumer confidence and sentiment. From what we see today, consumer sentiment weakened further in November 2022 even as inflation eased slightly. This was particularly so for the larger ticket items that saw a decline of almost 20% for the group. US Consumer Confidence also fell to a three-month low, indicating pessimism for the next three to six months. That said, it seems that 2023 could also be the turnaround year as some experts think that consumer confidence could remain in the later part of the year. One of the sell-side bank analysts for consumer stocks thinks that 2023 is the year when American spending power will return, after a year of negative cash flows in 2022. Specifically, there is the expectation that wages will be the key driver for cash flow improvement for consumers in 2023, and these gains will accelerate throughout 2023, implying a return for consumer demand strength in the second half of 2023. AWS: Watch energy costs and cloud demand For AWS, Amazon's cloud business, I think that the business continues to show strength in the most recent quarter, with AWS commitments increasing 57% year on year. The main concern likely comes from the deceleration of five percentage points for AWS in the recent quarter as well as margin compression as a result of rising energy costs. For the deceleration in revenue growth for AWS, I am not very concerned by this as I know and have written in past articles the strong competitive advantage AWS has as a leader in the cloud computing market. The recent deceleration in growth was a result of customers pulling back their experimental budgets as a result of macroeconomic uncertainty, which is understandable. For me, I continue to see long-term structural growth drivers for AWS, which is likely to continue to post strong growth in the years to come. The deceleration we saw in the recent quarter is only a result of external macro factors that the company cannot control, in my view. The compression in operating margins by 400 basis points was largely due to rising energy costs. However, the energy crisis around the world is largely easing as energy costs are expected to be lower in 2023 than in 2022. Valuation To derive my 1-year target price for Amazon, I use the equal weight of both the EV/EBITDA method and the DCF method. Amazon has been trading at an average EV/EBITDA of 19x over the past 10 years. As a consequence of wanting to be more conservative, I applied a 17x EV/EBITDA multiple for my target price. In addition, for the DCF model, 15x terminal multiple and an 8% discount rate are my key assumptions. The higher discount rate is a function of the rising rate environment. My 1-year price target for Amazon is $159, representing a 69% upside from current levels. I regard the risk/reward profile of Amazon as positive as the company remains well positioned as a leader in key markets that continue to grow. The near-term challenges remain for Amazon as a long and deep recession could result in further downside to the stock. However, my base case scenario for 2023 is a recession that is likely to be short and shallow, with recovery as soon as the second half of 2023. In addition, my valuation does skew conservative with the lower multiples and higher discount rates used. I continue to see Amazon as an attractive investment for 2023. Risks Recessionary scenario Amazon would be negatively affected by a recessionary scenario given that the e-commerce business is affected by consumer demand. If the economy were to slide into a global recession, the length of this recession would also pose a risk to Amazon. A prolonged, deep recession would certainly not end by the second half of 2023 and the recovery of consumer demand by the second half of 2023, as mentioned earlier in the article, will not materialise. As a result, a long and deep recession is definitely a downside scenario for Amazon for 2023. Competition While Amazon remains a leader in the e-commerce and cloud space, it is competing against large peers that may ramp up competitive pressures to win market share. In the cloud computing space, AWS competes with big tech firms Microsoft (MSFT) Azure and Google (GOOG, GOOGL) Cloud. In addition, many companies see the opportunities that e-commerce brings as the industry matures, bringing new and old consumer and e-commerce companies like Walmart (WMT) and eBay (EBAY) that could ramp up pressure in Amazon's e-commerce business. Conclusion For 2023, I expect that the company will see the e-commerce business emerge as a stronger one from the current challenges as the cost structure of the business becomes more efficient and lean. The AWS business is currently experiencing external challenges that management cannot control and I continue to take the view that the AWS business will drive long-term shareholder value. Lastly, while consumer confidence and sentiment remains a wildcard, there is evidence that the impending recession could be a shallow and short one, with some experts expecting consumer sentiment and demand to improve through 2023. As inflationary pressures ease, this should not just reduce externally driven costs like wages, shipping costs and fuel costs, but should also bring incremental demand back from consumers. My 1-year price target for Amazon is $159, representing 69% upside from current levels. As I think that the risk/reward perspective for Amazon skews to the positive, and that my valuation is rather conservative, I think that the valuation set up for Amazon looks good. Given that I expect the incremental cost headwinds to improve in 2023, consumer confidence and sentiment to improve over 2023, and AWS to be a long-term growth driver, I continue to see Amazon as an attractive investment for 2023. Author's note: I am starting a marketplace service, Outperforming the Market, which will be launching on 10 Jan 2023. Outperforming the Market aims to help investors identify high conviction growth and value stocks to form a barbell portfolio that outperforms the market. Mark your calendars, because early subscribers can reserve a spot as a Legacy Discount Member, which gives you generous introductory prices. Thank you for reading and following my work. See you there! This article was written by I am a portfolio manager with experience working for a hedge fund and a long-only equity fund with more than $1 billion in assets under management and I have a track record for outperformance in my portfolio. I have been writing consistently, with an article published each day on Seeking Alpha and on my Marketplace service. Focused on long term investing, I believe in a barbell strategy in a portfolio, where there are both growth and value elements, which will be reflected in my articles. I will be running a Marketplace service, Outperforming the Market, where I will share with you The Barbell Portfolio, which consists of high conviction growth and value stocks to help you outperform in the long-term, as well as The Price Target Report, which tells subscribers how much discount the stock is trading to intrinsic value and the upside potential. Lastly, subscribers will be able to get direct access to me and can ask me anything about the investment process or stock picks. CFA charter holder and graduated with degrees in Finance and Accounting. Analyst’s Disclosure: I/we have a beneficial long position in the shares of AMZN either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (9)

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Antitrust Reframed: What It Means For These Mergers

Regulators & politicians are attempting to unravel over 40 years of antitrust precedent. Read why it is wise to avoid mergers involving big tech & digital platforms.

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Antitrust Reframed: What It Means For These Mergers Summary - Regulators and politicians are currently attempting to unravel over 40 years of antitrust precedent and replace it with an early twentieth-century approach. - The new approach would reframe antitrust policy and enforcement as a political and social tool, in addition to an economic one. - As a result of this shifting paradigm, it is wise to avoid mergers involving big tech and digital platforms. Out with the old, in with the older. That modified expression is probably the best way to comprehend antitrust policy and enforcement in today's America. It fits because regulators and several politicians are currently attempting to unravel over 40 years of antitrust precedent and replace it with an early twentieth-century approach. If successful, the new (old) paradigm would reframe antitrust policy and enforcement as a political and social tool, in addition to an economic one. Several inroads have already been made towards this end. At the outset of his administration, President Biden appointed antitrust reformers to key positions and announced policy initiatives to expedite change among policymakers. In turn, these efforts have already resulted in several merger challenges that would have otherwise been a nonissue in the past. Lawmakers are also leading change in the field of antitrust. There is currently bipartisan support between both chambers of Congress to combat what many consider to be monopolies and oligopolies controlling digital platforms. Against this backdrop, the Microsoft Corp. (MSFT)/Activision Blizzard, Inc. (ATVI), Amazon.com, Inc. (AMZN)/iRobot Corp. (IRBT), and Amazon/1Life Healthcare, Inc. (ONEM) mergers are unlikely to receive FTC approval (there is already a rumor circulating the FTC is contemplating a challenge against the former, and the latter two received a second request despite nonexistent product market overlap between the merging parties). Assuming the FTC challenges either, the parties will have to decide whether to litigate with the government in court. Unfortunately, the litigation route, while it appears compelling considering past precedent, is risky given antitrust is historically amenable to evolving theories of harm, as well as the potential for deferential treatment for the executive branch's interpretation of antitrust laws. Therefore, it would be prudent to avoid a long arbitrage strategy in these merger opportunities. U.S. Antitrust History and Interpretation In order to understand the state of antitrust today and its implication for merger review and enforcement, one must possess a general understanding of its history. The Sherman Act, the Clayton Act, and the Federal Trade Commission Act are the bedrock of U.S. antitrust law. Enacted in 1890, the Sherman Act was America's first antitrust law. The Act set out "to protect trade and commerce against unlawful restraints and monopolies" at a time when America was experiencing rising concentrations of market power that allowed individuals and corporations to dominate entire sectors of the U.S. economy (think Standard Oil and John D. Rockefeller. This period is also known as the Gilded Age of American history). Years later, in 1914, Congress passed both the Clayton Act and FTC Act. The former supplemented and strengthened the Sherman Act by addressing, among other antitrust issues, mergers and acquisitions. The latter created the agency tasked with enforcing federal antitrust laws. (Today, the FTC and the U.S. Department of Justice-Antitrust Division jointly enforce U.S. antitrust laws.) Early policymakers and courts subscribed to economic structuralism, a market structure-based approach to antitrust. Structuralists hold the view that monopolistic and oligopolistic market structures promote anticompetitive behavior by: - enabling harmful coordination with greater ease and subtlety; - increasing barriers to entry; and - making it easier to raise prices and reduce quality and service. Because concentrated market structures cause societal harm, structuralists believe the goal of antitrust should be to preserve small businesses by limiting business size and concentration. Between the late nineteenth century and 1970s, regulators and courts applied the structuralist approach to both horizontal and vertical mergers alike. Then, starting in the 1970s, antitrust experienced a dramatic shift away from economic structuralism. Instead of preserving small business, the goal of antitrust was suddenly interpreted as a consumer welfare prescription (i.e., an otherwise anticompetitive merger should be considered procompetitive if it has a beneficial or neutral impact on consumers and prices). This Chicago School philosophy differs from economic structuralism in that it is premised on the notions that industries have low barriers to entry, markets are perfectly competitive and actors behave rationally to maximize profits. Accordingly, adherents to the Chicago School seldom find horizontal mergers as anticompetitive and believe vertical mergers are inherently competitive. This last point is made remarkably clear in the FTC and DOJ's jointly published 1982 Merger Guidelines. The 1982 Merger Guidelines had very little concern for vertical mergers, stating that "non-horizontal mergers are less likely than horizontal mergers to create competitive problems." This was a radical departure from the 1968 Merger Guidelines that considered vertical merger essentially equal to horizontal mergers when it came to competitive concerns. Since finding its way into American jurisprudence and U.S. policy, the Chicago School has entirely altered the frame in which regulators and courts view antitrust problems. Under the consumer welfare approach, the U.S. did not challenge a single vertical merger in court from the mid-1970s through 2018, when the DOJ unsuccessfully challenged the merger between AT&T and Time Warner. Paradigm Shift Despite the Chicago School's entrenched position in antitrust thought and policy for the last 40 years, the Biden Administration and several members of Congress want to reframe interpretation and application of antitrust in light of new market realities of the digital age. According to President Biden's 2021 Executive Order on Promoting Competition in the American Economy: a small number of dominant Internet platforms use their power to exclude market entrants, to extract monopoly profits, and to gather intimate personal information that they can exploit for their own advantage. Too many small businesses across the economy depend on those platforms and a few online marketplaces for their survival." Following this concern, the president ordered the FTC and DOJ to: enforce the antitrust laws to meet the challenges posed by new industries and technologies, including the rise of the dominant Internet platforms, especially as they stem from serial mergers, the acquisition of nascent competitors, the aggregation of data, unfair competition in attention markets, the surveillance of users, and the presence of network effects. President Biden also appointed Lina Khan, Jonathan Kanter, and Tim Wu - three neo-structuralist reformers - to head the FTC, DOJ-antitrust, and as White House advisor on competition policy, respectively. Since accepting the appointments at the FTC and DOJ, Khan and Kanter have been very active in reshaping antitrust M&A policy and enforcement. The most consequential action taken by the agencies to-date is the FTC withdrawal from the jointly published 2020 Vertical Merger Guidelines. The FTC cited flaws in the guideline's approach - the Chicago School approach that had been used to assess vertical mergers for decades - as its reasoning behind the withdrawal. The FTC and DOJ are currently working together to publish new guidelines that will no doubt be more restrictive than previous guidance. Public comments are calling for the new guidelines to include presumptions that could stifle vertical M&A for certain digital ecosystem and platforms (e.g., Microsoft and Amazon, among others). A draft of the new guidelines is expected to be available by year-end, or early 2023, and will likely be detrimental to pending vertical M&A because courts will likely to defer to the guidelines when deciding cases. Both the FTC and DOJ have also stepped up their challenges of vertical mergers over the last year. Since 2021, the agencies have brought 5 significant vertical merger challenges: - Nvidia/ARM Ltd. - parties abandoned after FTC challenged the merger. - Lockheed Martin/Aerojet Rocketdyne - parties abandoned after FTC challenged the merger. - Illumina, Inc./Grail, LLC - ALJ found in parties' favor after FTC challenged the merger. FTC has appealed the decision. - UnitedHealth Group Inc./Change Healthcare Inc. - D.C. district court denied DOJ's request to enjoin the merger after finding that the government did not meet its burden of proving that the merger was likely to substantially lessen competition. - Meta Platforms, Inc. (META)/Within Unlimited, Inc. - FTC has challenged the merger. The case is pending. The Meta/Within challenge is particularly interesting considering the transaction is a mere $400m (small potatoes in the big-tech space). It is not just the executive branch actively working to reframe U.S. antitrust. Members of Congress have also been actively working on legislation to make it difficult for digital platforms to abuse market power. Republican Chuck Grassley and democrat Amy Klobuchar, along with several bipartisan co-sponsors, introduced the American Innovation and Choice Online Act, which would enhance the ability of regulators and states to challenge, inter alia, mergers and restore competition in digital markets. This is just one of several pieces of antitrust legislation working its way through Congress. From Policy To Legal Precedent Reframing antitrust policy is one thing, but doing so in the court, with decades of legal precedent, is another. This is because the judiciary adheres to stare decisis, the legal doctrine that rests on the idea that "cases should be decided on the basis of legal principles articulated in earlier cases rather than on the basis of novel legal doctrine in each instance." Stare decisis will present a challenge for the executive branch in its quest to redefine what is considered anticompetitive under antitrust laws. The government will have to persuade courts to toss out, or at least modify, the consumer welfare approach to antitrust, especially in vertical merger cases. As evidenced in the UnitedHealth/Change merger, this is a difficult task. With that said, courts have made clear that antitrust promotes a common law approach whereby the law includes "the potential to grow and cover ever-changing realities." So, who is to say courts will not feel compelled to overturn a past precedent in order to adapt the rules to "meet the dynamics of present economic conditions"? Ultimately, concern of past precedent will fall away once the new merger guidelines go into effect. This is because of the legal doctrine known as Chevron deference. The Chevron rule compels courts to defer to administrative agencies when it comes to statutory interpretation, so long as the rule meets certain criteria. The upcoming merger guidelines set forth by the DOJ and FTC would likely receive such deference. Conclusion As an arbitrageur, at the moment it would be prudent to avoid long-only merger arbitrage strategies involving big-tech companies operating in monopolistic or oligopolistic markets. While the Microsoft/Activision and Amazon/iRobot and 1Life mergers appear competitive from a purely economic point of view, they do not from a political and social one. Therefore, they are likely to be challenged in due course. Assuming a challenge does occur, the parties will either abandon their respective deals, or litigate in court. And because of the shifting antitrust policy and interpretation underway, it is a huge gamble to think the parties will ultimately prevail in court. Therefore, it is recommended to sit on the sideline of aforementioned mergers. This article was written by Analyst’s Disclosure: I/we have a beneficial long position in the shares of META either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (9) I don't think it would take much for a court, most likely SCOTUS, to be persuaded by this new direction.

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2 Super Stocks Down 51% and 65% to Buy Before They Rebound

Despite a once-in-a-century pandemic standing in the way, investors enjoyed three straight years of strong stock market returns in 2019, 2020, and 2021. But 2022 has been an entirely different story; the economic winds have shifted, and companies are grappling with high inflation and rising interest rates.

Yahoo

2 Super Stocks Down 51% and 65% to Buy Before They Rebound Despite a once-in-a-century pandemic standing in the way, investors enjoyed three straight years of strong stock market returns in 2019, 2020, and 2021. But 2022 has been an entirely different story; the economic winds have shifted, and companies are grappling with high inflation and rising interest rates.

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Tiger Global Cuts Cybersecurity And China Exposure While Rotating Into LargeCap Tech. Find Out The Top Trades Here

Fintel

SHARE PRICE EXTENDED |Day's Range||-| |52 Week Range||-| |Prepackaged Software| Ben Ward After graduating from college, Ben Ward began his career as a buy-side analyst in the hedge fund industry. His passion for uncovering hidden gems in this space quickly became evident, as the stocks picked focused primarily on the small-cap segment of the market. Ben discovered Fintel in early 2022, intrigued by the platform's unique approach and advanced analytics capabilities and ended up joining as a journalist for the group. Tiger Global Cuts Cybersecurity And China Exposure While Rotating Into LargeCap Tech. Find Out The Top Trades Here Discusses the latest funds trades during the quarter Internet and growth focused hedge fund manager Tiger Global has grabbed headlines over 2022 as the fund was hit with hefty losses from high growth and valuation companies. The asset manager headed by Chase Coleman became one of the most successful hedge funds across the globe with successful bets on high growth technology names over the last 20 years. The fund has suffered high losses over 2022 losing more than half its capital with high growth stocks re-rating lower as rising rates shifted market valuation dynamics in the market. Coleman originally set up his firm in 2001 in New York during a time when equity markets were experiencing the crash of the technology ‘dot com bubble’, bursting from excessive valuations. At the end of the third quarter, according to Tiger Global’s most recent 13F filing, the fund held a total of 64 positions worth approximately $10.89 billion. The chart to the right shows the reported value of the portfolio over the last 10 years. It shows how the fund is trading below pre-pandemic levels. The Fintel platform’s hedge fund data unveils the most significant positions and recent trades that have been reported to the SEC. Top purchases: The fund's largest purchase during the quarter was in data monitoring services firm Datadog (US:DDOG) with a 3.26% increase in the portfolio allocation to 4.71%. Tiger now holds 5.78 million shares worth $513 million. The stock is trading -54% lower over 2022 but has moved sideways since May. In early November DDOG reported Q3 results that beat consensus forecasts and included a full year upgrade to revenue and profit guidance above expectations. The second largest purchase was a 2.85% weight increase in human resources software firm Workday (US:WDAY) to a 4.43% allocation worth $483 million. The stock is trading -43.5% lower over the year and is scheduled to report Q3 results this week. During September the company reiterated its full year guidance for 20%+ subscription growth with over $10 billion in revenue. Alphabet (US:GOOGL) was the third largest increase with the firm almost doubling its allocation by 2.85% to a 4.43% portfolio weight worth $523 million. The stock has not been immune to broader equity market weakness tracking -32.8% lower over 2022. At Alphabet's last result in October, the company missed revenue and profit estimates as they were negatively affected by currency headwinds. The fund tipped in a 2.3% portfolio weight increase in ridesharing group Uber Technologies (US:UBER), bringing the total weight to 2.41%. Uber’s stock has recovered more than 30% from calendar year lows in July but remains down -35.1% for the year. While the last result was ahead of consensus forecasts, investors remain concerned about inflationary headwinds that may further impact growth. The fifth largest increase was in the fund's second largest position in Microsoft (US:MSFT) adding an additional 1.73% allocation and bringing the total weight to 12.84%. The position size is worth about $1.4 billion. The tech giant remains affected by broader market weakness but continues to outpace analyst forecasts as seen during the Q1 result in late October. Other purchases during the quarter included a top up in data share centre Snowflake (US:SNOW) by 1.58%, a new 1.47% position in Hubspot (US:HUBS), a 1.43% increase in Block Inc (US:SQ) and a 1.42% increase in ServiceNow (US:NOW). Top Sales: The largest decrease during the quarter was a -7.89% portfolio weight reduction in cybersecurity giant CrowdStrike (US:CRWD) to 1.36% The remaining position at the end of the quarter had a market value of around $148 million. The stock has experienced a choppy year over 2022 with the stock moving higher and lower several times. Overall the stock remains down -29.4% over the year. The stock is scheduled to report Q3 results this week with guidance for EPS of 30 to 32 cents and sales between $569 to $576 million. The second largest sale was in Brazilian fintech Nu Holdings (US:NU) with a -4.49% portfolio weight reduction to 1.87% worth ~$204 million. The stock materially outperformed analyst profit and sales expectations during the Q3 result in mid November but continues to trade in its sideways pattern that began in early May. Tiger reduced its largest position in Chinese e-commerce giant JD.com (US:JD) by -2.64% to a 13.79% allocation worth $1.5 billion. Since reporting Q3 results in mid-November the stock has sharply recovered recent losses accumulated during the previous quarter and is now down -27.6% for 2022. Tiger also halved its exposure in cybersecurity firm SentinelOne Inc (US:S) by -0.98% to 0.97% worth $106 million, cutting its losses in the position. The stock has traded significantly lower over 2022 losing -66% of its value. The stock is scheduled to report Q3 earnings on the 6th of December with management expected to report $111 million in revenue. The fund trimmed its position in cloud-based communications provider RingCentral (US:RNG) by -0.48% to a 0.91% portfolio weight worth $99 million. The stock has experienced heavy losses of more than -80% over 2022 due to valuation concerns. At the most recent result in November, management told investors it would be firing 10% of the workforce to reduce expenses. The fund completed positions in Procore Technologies (US:PCOR), Xpeng Inc (US:XPEV), 1life Healthcare Inc (US:ONEM) and monday.com (US:MNDY). A heat map from the platform of the fund's largest positions has been included below: Stories by Ben Ward Cipher Soars as Crypto 2023 Rally Storms on, but Which Miner Stands to Outperfrom in H2? Shares of Cipher Mining (US:CIFR), the pioneering cryptocurrency miner, surged 10. Children’s Place CEO's Big Buy Shows Strong Confidence in H2 Expected Turnaround In a bold display of faith in her company's future, Jane Elfers, CEO of The Children's Place (US:PLCE), recently invested more than $1 million in the retailer's shares. Perion Network's Preliminary Q2 Results Soar Past Expectations, Signaling a Bullish Trend in Adtech In the dynamic world of adtech, news of a company outpacing its projected earnings is a rejuvenating sign for the rest of the sector. The Future of Power Semiconductors is Built into Historic Wolfspeed-Renesas Deal Wolfspeed (US:WOLF) has grabbed headlines across the globe this week after the company inked a historic long-term supply agreement (LTSA) with Renesas Electronics (JP:6723). 10 Stocks You Could Capture Dividends From This July In the fast-paced and unpredictable nature of the stock market, investors are constantly on the lookout for strategies that can secure stable returns in a tumultuous environment. Unprecedented Attendance at SEMICON China 2023 Reflects Resilient Semiconductor Industry In the face of global supply chain challenges and pandemic-era complications, the semiconductor industry is demonstrating its resilience. Chinese EV Makers Rev Up, Surpassing Expectations as Russian Demand Drives Gains Amid a global climate of fervent electrification, China's burgeoning electric vehicle (EV) industry is accelerating at full throttle, demonstrating resilience and adaptability amid the volatile market conditions and regulatory changes that have marked 2023. Adani Group's Billion Dollar Stake Sale Marks Key Step in Market Confidence Rebuild In a concerted move that captured the world's attention yet again last week, India's billionaire Adani family sold off stakes worth roughly $1 billion in their group's two mainstay companies, Adani Enterprises Ltd and Adani Green Energy. Progress Software Surprises With Q2 Beat and Raised Outlook Amid Cloudy Macro Environment Progress Software (US:PRGS), a major player in software application development, deployment, and management solutions, is poised to extend gains on Monday after PRGS stock shot 5.

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Will the Nasdaq or S&P 500 Have a Better 2023?

As 2022 starts to close, it's only natural for investors to start peeking toward 2023. So far in 2022, the indexes have fared pretty miserably, with the Nasdaq-100 down 29% and the S&P 500 down 17%. Which one will have a better 2023? Let's look at these indexes and their makeups and find out which is more likely to have a better 2023 ahead.

Yahoo

Will the Nasdaq or S&P 500 Have a Better 2023? As 2022 starts to close, it's only natural for investors to start peeking toward 2023. So far in 2022, the indexes have fared pretty miserably, with the Nasdaq-100 down 29% and the S&P 500 down 17%. Which one will have a better 2023? Let's look at these indexes and their makeups and find out which is more likely to have a better 2023 ahead.

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What Is The 2023 Forecast For Tech Stocks?

An asset bubble has burst and many high-flying tech stocks are now down 50-90%+; however, the deflation process is not over yet. See the 2023 forecast here. Read more here.

SeekingAlpha

What Is The 2023 Forecast For Tech Stocks? Summary - An asset bubble has burst and many high-flying tech stocks are now down 50-90%+; however, the deflation process is not over yet. - The tech sector is already in an earnings recession, with growth slowing down significantly. And I see more pain in 2023 for the tech sector. - That said, I think there are good buying opportunities among individual stocks in the tech sector, and investors just need to be very selective and patient to invest here. - This idea was discussed in more depth with members of my private investing community, The Quantamental Investor. Learn More » Introduction: How Have Tech Stocks Been Performing? The era of free money ended with the FED's hawkish pivot to a tighter monetary policy in November 2021. Since then, being a tech investor has been a harrowing ordeal, with tech stocks getting clobbered left, right, and center with little regard for the size or quality of these companies. In 2022, the tech-heavy Nasdaq 100 Index (NASDAQ:QQQ) is down ~28%, and many tech stocks are down more than 50-90%+. An asset bubble has been pricked, and I don't think the deflation of this said bubble is done yet, but more on that later. As you may know, speculative high-growth stocks topped out in early 2021, right around the time of the meme stock mania. And slowly but surely, the sell-off has broadened across the entire tech sector. Over the last fifteen years, fortunes have been built in the technology sector, with investors riding a spectacular bull market. The "FAANG" or "MAFANG" stocks have become household names, and the rise of passive index investing led to astronomical valuations for these select few mega-cap tech stocks. However, the tide is running out, and nearly $5T in market capitalization has been wiped out across just these six names: |Market Capitalization Lost From Highs| |Apple||~$800B| |Microsoft||~$900B| |Amazon||~$900B| |Tesla||~$600B| |Alphabet||~$850B| |Meta||~$750B| |Total||~$4,800B or ~$4.8T| I handpicked these six stocks for this note because they make up roughly ~45% of the Nasdaq-100, which is widely regarded as the most robust tech index (or ETF). Before we talk about the outlook for 2023, I want us to visualize and contextualize the recent performance of these big tech stocks: Barring Apple (AAPL), all mega-cap tech names find themselves in the bear market territory, with Amazon (AMZN), Tesla (TSLA), and Meta (META) suffering catastrophic ~50%+ declines from their all-time highs. As interest rates go up, equity trading multiples come down. And the decline so far in tech can be attributed to a de-rating in multiples. After trading at 36x P/E in early 2021, QQQ has undergone a vicious drawdown, and it now trades at ~24x P/E, which happens to be the 10-yr median multiple for QQQ. A lot of tech sector bulls believe that since trading multiples have normalized, we are ready for a rebound in 2023. However, we are no longer operating in a low-interest rate regime, and the FED is not done tightening yet! Moreover, an earnings recession is already here, and layoffs in tech are still in the first innings. So what's the outlook for next year? How Will Tech Stocks Perform In 2023? After hitting a new low in mid-October at ~254, QQQ has bounced up by ~14%, with investors seemingly celebrating a split government in the US and a change in tone from the FED with regards to the pace of future rate hikes. At November's FOMC meeting, the FED raised rates by another 75 bps to 3.75-4%, and the projected hike for the December meeting now stands at 50 bps (with recent CPI prints showing signs of cooling down in inflation). While many market participants see slower rate hikes as the beginning of the end of this ongoing rate hike cycle, I think these investors are ignoring the fact that the FED is still looking to tighten into a massively inverted yield curve. As inflation cools down, the FED could go slower from here on rate hikes; however, the FED's resolve to hold rates higher for longer at terminal rates of 5-5.25% is dangerous for the economy. As per leading economic indicators, the US could be about to enter a recession in the first half of 2023. For months, I have insisted that recession is a far greater threat than inflation, and considering the FED's aggressive monetary tightening actions, I think we are likelier to see a hard landing in the next few months. An earnings recession is coming, and even in a garden variety recession, we tend to see a 15-20% contraction in EPS in my view. Now, technology companies (not stocks) have traditionally shown secular growth, i.e., less vulnerability to economic cycles. However, unlike 2007-08, technology is now ubiquitous, and big tech giants are severely exposed to economic cycles, as evidenced by the ongoing growth slowdown and earnings recession seen in their Q3 reports: |PE ratio||Forward-PE Ratio||Q3 Y/Y Revenue Growth (%)||Q3 Y/Y EPS Growth (%)| |Apple (AAPL)||22.65x||22.08x||+8.14%||+4.03%| |Microsoft (MSFT)||23.86x||23.21x||+10.60%||-13.28%| |Amazon (AMZN)||83.61x||82.6x||+14.70%||-9.68%| |Tesla (TSLA)||64.10x||49.91x||+55.95%||+97.92%| |Alphabet (GOOGL) (GOOG)||17.19x||17.97x||+6.10%||-24.29%| |Meta (META)||8.65x||9.99x||-4.47%||-49.07%| Source: YCharts (Data as of market close on 4th November 2022) Among these names, only Tesla's and Apple's Q3 reports were impressive. In my view, Tesla will continue to grow even in the event of a recession because EV adoption is still in the early innings. On the other hand, I think Apple will struggle to sell as much hardware in 2023 as it did in the last couple of years as consumers already struggling with higher prices (due to inflation) face a recession. Alphabet's Q3 report was ok, but the pain in advertising and rising operating costs are set to hurt more in upcoming quarters. While Meta's expense guide for 2023 was the big issue in its report, Amazon's Q4 guide for sales was well below expectations. Further, Microsoft's report highlighted a softening PC market and a deceleration in the Cloud (AWS slowed too). And chip makers like Nvidia (NVDA) and AMD (AMD) are struggling with inventory gluts. Over the years, we became accustomed to flawless quarterly reports from the FAANGs, and in that context, the Q3 earnings season for these tech giants was a string of disappointments. From a fundamental perspective, tech stocks are looking weak in the current stage of the business cycle, with the macroeconomic environment set to get even more challenging in 2023. According to TQI's Valuation Model, Apple and Microsoft are still trading at a 25-30% premium to their fair values (and that's without consideration of an earnings recession in 2023). Tesla is fairly valued, and the other three are undervalued. However, Mr. Market has a tendency to overshoot to the upside and undershoot to the downside! Honestly, I don't see the tech stocks entering a new bull market next year until and unless the generals lose their valuation premiums first. Yes, tech stocks have come down a lot, but the correction so far has just eliminated some of the froth, and there's a long way to go before this sector becomes attractive again. As I have discussed in the past, technology stocks like Apple and Microsoft are still trading at lofty multiples (~25x P/E), and in an earnings recession, these two names could get crushed 30-50%+ from current levels. And then there are a host of unprofitable tech names that are still getting clobbered all over the place with no regard for quality tech stocks either. While we have already seen a considerable pullback in QQQ (much more so than SPY), I think we have more downside in QQQ as the sectoral rotation away from technology is set to continue for the foreseeable future. I don't know if we will see a 50% decline from current levels; however, the $215-235 zone is very much in play, and an earnings recession could take us down there in the first half of 2023. With all of this being said, individual stock investors with a long-term investment time frame and a stomach for volatility should look for opportunities in this market, as we have deals galore in the tech sector right now. For example, Meta at ~10-12x forward P/E or Tesla at ~30x forward P/E (much higher future growth potential than Meta). As an investment community, we will always pursue bold, active investing with proactive risk management at The Quantamental Investor. And considering the fundamental and technical views presented in this note, we are implementing option-based hedges into our core portfolios for next year, and we will continue to deploy our cash positions (~50% of our AUM) on a bi-weekly basis to accumulate our high conviction stocks throughout 2023. Bottom Line In my view, the pain for tech stocks is far from over, with generals like Apple and Microsoft still trading at premium valuations. The likelihood of a recession is rising, and tech stocks (along with broader equity markets) could continue to remain under pressure in 2023. As I see it, there are select opportunities in the tech sector that are well worth buying right now, and individual stock investing with dollar-cost averaging plans and proactive risk management is the best way to operate in this bear market. Key Takeaway: I rate QQQ a "Sell" at $290, with a target of $215-235 by the end of Q2 2023. Thanks for reading, and happy investing. Please share your thoughts, questions, and/or concerns in the comments section below. Are you looking to upgrade your investing operations? Your investing journey is unique, and so are your investment goals and risk tolerance levels. This is precisely why we designed our marketplace service - "The Quantamental Investor" - to help you build a robust investing operation that can fulfill (and exceed) your long-term financial goals. TQI's core idea is to generate wealth sustainably through tailored portfolio strategies that meet investor needs across different investor lifecycle stages. Each of our five model portfolios comes with thoroughly vetted investment ideas, embedded risk management, and specialized financial engineering for alpha generation. CLICK HERE TO GET A TWO-WEEK FREE TRIAL This article was written by I am the Investing Group Leader at "The Quantamental Investor" - a community pursuing financial freedom via bold, active investing with proactive risk management. At TQI, we help retail investors build and preserve generational wealth in public markets. To do so, we share highly-concentrated, risk-optimized model portfolios that meet investor needs across different stages of the investor lifecycle. In addition to deep fundamental research, all of our investment ideas are thoroughly vetted using a mix of quantitative, technical, and valuation analysis. Furthermore, a TQI membership includes access to our proprietary software tools and group chats. If you're interested in learning more about our community, visit: The Quantamental Investor In addition to my investing experience of 10+ years, I have a professional background in equity research, private equity, and software engineering. Prior to joining The Quantamental Investment Group LLC, I served as the Head of Equity Research at a growth-focused SA Investing Group. In the past, I have worked as an Associate Fellow with Jacmel Growth Partners, a middle-market private equity firm in New York. And my resume also includes a stint at Capgemini as a software engineer. With regards to academia, I hold a Master of Quantitative Finance degree from Rutgers Business School and a Bachelor of Technology degree in Electronics and Communication Engineering, whilst I am also pursuing the CFA certification (Level 2 candidate). If you're interested in reviewing my performance, feel free to view this tracker: Performance tracker for my SA research. If you would like to connect with me, please feel free to send me a direct message on SA or leave a comment on one of my articles! To learn more about our company and services, visit: The Quantamental Investment Group LLC's website - TQIG | Home Analyst’s Disclosure: I/we have a beneficial long position in the shares of META, TSLA, GOOGL, AMZN, MSFT, AAPL, AMD either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (5)

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Tracking David Tepper's Appaloosa Management Portfolio - Q3 2022 Update

David Tepper’s 13F portfolio value decreased from $1.59B to $1.36B this quarter. Read more to see Appaloosa Management's holdings and trades for Q3 2022.

SeekingAlpha

Tracking David Tepper's Appaloosa Management Portfolio - Q3 2022 Update Summary - David Tepper’s 13F portfolio value decreased from $1.59B to $1.36B this quarter. - Appaloosa reduced Amazon.com and dropped Kohl's Corp and Occidental Petroleum. - Constellation Energy, Alphabet, Amazon.com, Meta Platforms, and Energy Transfer LP are the five largest positions. This article is part of a series that provides an ongoing analysis of the changes made to David Tepper's 13F portfolio on a quarterly basis. It is based on Appaloosa Management's regulatory 13F Form filed on 11/14/2022. Please visit our Tracking David Tepper's Appaloosa Management Portfolio series to get an idea of his investment philosophy and our previous update for the fund's moves during Q2 2022. This quarter, Tepper's 13F portfolio value decreased from $1.59B to $1.36B as many positions were reduced or sold. The number of holdings decreased from 32 to 29. The top five positions are Alphabet, Meta Platforms, Amazon.com, Constellation Energy, and Macy's. They add up to ~50% of the portfolio. To know more about Tepper's distress investing style, check out the book Distress Investing: Principles and Technique. New Stakes: None. Stake Disposals: Occidental Petroleum (OXY): OXY was a 3.23% of the portfolio stake established in Q4 2020 at prices between ~$8.90 and ~$21.30. H2 2021 saw a roughly one-third selling at prices between ~$23.20 and ~$32.90 while next quarter there was a ~15% stake increase at prices between ~$22 and $33. There was a ~85% reduction over the last two quarters at prices between ~$31 and ~$71. The disposal this quarter was at prices between ~$57 and ~$75. The stock currently trades at $70.28. Micron Technology (MU): MU was a ~2% of the portfolio position. The original large stake was built in Q3 2019 at prices between $39.50 and $51. There was a one-third increase in Q4 2019 at prices between $42 and $55.50. The next three quarters had also seen a ~50% increase at prices between ~$34.50 and ~$60. There was a ~93% selling over the last six quarters at prices between ~$54 and ~$97. The elimination this quarter was at prices between ~$49 and ~$65. The stock currently trades at $58.41. Note: MU is a frequently traded stock in Tepper's portfolio. Kohl's Corp (KSS): The 4.20% KSS position saw a ~170% stake increase last quarter at prices between ~$29 and ~$61. It was sold this quarter at prices between ~$25 and ~$36. The stock is now at $31.93. Aptiv PLC (APTV): The 1.40% of the portfolio stake in APTV was purchased last quarter at prices between ~$86 and ~$120. It was sold this quarter at prices between ~$78 and ~$111. It is now at ~$106. Netflix Inc. (NFLX), Caesars Entertainment (CZR), PG&E Corp (PCG), and Walt Disney (DIS): These small (less than 0.5% of the portfolio each) stakes were disposed during the quarter. Stake Increases: None. Stake Decreases: Constellation Energy (CEG): CEG is currently the largest position in the portfolio at ~16%. It was established last quarter at prices between ~$53 and ~$67 and the stock currently trades well over that range at ~$97. There was a minor ~3% trimming this quarter. Note: Constellation Energy is Exelon's (EXC) power generation and marketing business that was spun off in February. Alphabet Inc. (GOOG) (GOOGL): GOOG is currently the second largest 13F position at ~14% of the portfolio. It has been a significant presence in the portfolio since Q1 2012 and the original purchase was at prices between ~$14.50 and ~$16.25. The stake has wavered. Recent activity follows: Q1-Q3 2020 saw a ~40% reduction at prices between ~$53 and ~$86. That was followed with a ~60% reduction over the last six quarters at prices between ~$87 and ~$151. The stock currently trades at $97.60. There was marginal trimming this quarter. Amazon.com (AMZN): The large (top three) ~12% AMZN stake was purchased in Q1 2019 at prices between ~$75 and ~$91. The next three quarters saw a ~75% stake increase at prices between ~$84.50 and ~$101. There was a ~50% selling from Q1 to Q3 2020 at prices between ~$84 and ~$177. Q4 2020 saw an about turn: ~40% stake increase at prices between ~$150 and ~$172. There were two-thirds selling over the next three quarters at prices between ~$148 and ~$187. Q1 2022 saw a ~20% stake increase while this quarter there was similar selling The stock currently trades at $93.41. Meta Platforms (META): META is a top-five 8.72% of the portfolio stake established in Q3 2016 at prices between $114 and $131 and increased by ~50% in the following quarter at prices between $115 and $133. H2 2017 saw a stake doubling at prices between $148 and $183. The position has since wavered. Recent activity follows. Q1-Q3 2020 had seen a ~40% selling at prices between $146 and $304 while next quarter saw a ~14% stake increase. The five quarters through Q1 2022 had seen a ~55% selling at prices between ~$187 and ~$382. The stock is currently at ~$111. Last quarter saw a ~12% increase while this quarter there was similar trimming. Note: META has seen several previous roundtrips in the portfolio. The latest was a 3.28% of the portfolio position established in Q1 2016 at prices between $94 and $116 and sold the following quarter at prices between $109 and $121. Energy Transfer LP (ET): Energy Transfer Partners merged with Energy Transfer Equity and the resulting entity was renamed Energy Transfer LP (ET). The transaction closed last January, and terms were 1.28 shares of ETE for each ETP. Tepper held shares in both and those got converted to ET shares. There was a stake doubling in Q4 2019 at prices between $11 and $13. Next three quarters saw the stake again doubled at prices between $4.55 and $13.75 while Q2 2021 saw a ~45% selling at prices between ~$7.70 and ~$11.35. The stock is now at $12.36, and the stake is at 8.27% of the portfolio. Last quarter saw a ~12% increase while this quarter there was marginal trimming. EQT Corp. (EQT): EQT is a 7.56% of the portfolio position built over the two quarters through Q3 2021 at prices between ~$16 and ~$23. There was a ~50% reduction over the last three quarters at prices between ~$20 and ~$50. The stock is now at ~$43. Microsoft (MSFT): The ~4% MSFT stake was built in 2020 at prices between $152 and $232. The two quarters through Q2 2021 had seen a ~45% selling at prices between ~$212 and ~$272. Q1 2022 saw a ~25% stake increase at prices between ~$275 and ~$335 while last quarter there was a roughly one-third reduction at prices between ~$242 and ~$315. The stock currently trades at ~$248. This quarter saw a ~6% trimming. Antero Resources (AR) and Sysco Corp (SYY): The 2.80% stake in AR was established in Q1 & Q3 2021 at prices between ~$6 and ~$19. There was a ~55% reduction over the last three quarters at prices between ~$17 and ~$48. The stock currently trades at $37.27. SYY is a ~1% stake established in Q2 2020 at prices between ~$40 and ~$62. The position has seen selling since. Last three quarters saw a ~75% reduction at prices between ~$71 and ~$90. The stock is now at $86.45. Salesforce, Inc. (CRM): CRM is a ~2% of the portfolio position established this quarter at prices between ~$156 and ~$221 and the stock is now at ~$153. There was a minor ~5% trimming this quarter. Alibaba Group Holding (BABA) and Mosaic Company (MOS): These small (less than ~0.60% of the portfolio each) stakes were reduced during the quarter. Kept Steady: Macy's, Inc. (M): The large ~7% Macy's stake was almost doubled in Q3 2021 at prices between ~$16 and ~$25. There was a ~45% stake increase next quarter at prices between ~$22 and ~$37. Last two quarters saw a ~40% reduction at prices between ~$17.50 and ~$28. The stock is now at $23.65. UnitedHealth (UNH): UNH is now a 5.57% of the portfolio position. The stake was built in Q4 2020 and Q1 2021 at prices between ~$305 and ~$377. Last five quarters saw a ~45% selling at prices between ~$367 and ~$546. The stock currently trades at ~$538. Uber Technologies (UBER): UBER is now a ~2% of the portfolio position. The original large stake was purchased in Q2 2021 at prices between ~$44 and ~$61. Q4 2021 saw that stake almost sold out at prices between ~$36 and ~$48. The position was rebuilt next quarter at prices between ~$29 and ~$44.50 but was again sold down last quarter at prices between ~$20.50 and ~$36.50. The stock currently trades at $28.50. Chesapeake Energy (CHK) & wts: The ~4% stake was kept steady this quarter. The original position is from the conversion of senior debt they held as the company emerged from Chapter 11 bankruptcy in Q1 2021. Since then, both the common and warrant stakes were reduced substantially. Alps Alerian MLP ETF (AMLP), Enterprise Products Partners (EPD), HCA Healthcare (HCA), and MPLX LP (MPLX): These small (less than ~1.50% of the portfolio each) stakes were kept steady this quarter. The spreadsheet below highlights changes to Tepper's 13F stock holdings in Q3 2022: This article was written by Analyst’s Disclosure: I/we have a beneficial long position in the shares of AMZN, GOOGL, META either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (9) Tepper is never too late to reduce technology companies whose leadership is worsening ie $META. Thanks for your work, John! John. John.

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Microsoft (MSFT) Dips More Than Broader Markets: What You Should Know

Microsoft (MSFT) closed the most recent trading day at $240.45, moving -1.73% from the previous trading session.

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Microsoft (MSFT) Dips More Than Broader Markets: What You Should Know Microsoft (MSFT) closed the most recent trading day at $240.45, moving -1.73% from the previous trading session. This change lagged the S&P 500's daily loss of 0.9%. Elsewhere, the Dow lost 0.5%, while the tech-heavy Nasdaq lost 0.27%. Prior to today's trading, shares of the software maker had gained 1.44% over the past month. This has outpaced the Computer and Technology sector's loss of 4.11% and the S&P 500's loss of 2.66% in that time. Microsoft will be looking to display strength as it nears its next earnings release. The company is expected to report EPS of $2.28, down 8.06% from the prior-year quarter. Our most recent consensus estimate is calling for quarterly revenue of $52.93 billion, up 2.32% from the year-ago period. For the full year, our Zacks Consensus Estimates are projecting earnings of $9.54 per share and revenue of $212.38 billion, which would represent changes of +3.58% and +7.12%, respectively, from the prior year. Investors might also notice recent changes to analyst estimates for Microsoft. These revisions help to show the ever-changing nature of near-term business trends. As such, positive estimate revisions reflect analyst optimism about the company's business and profitability. Research indicates that these estimate revisions are directly correlated with near-term share price momentum. Investors can capitalize on this by using the Zacks Rank. This model considers these estimate changes and provides a simple, actionable rating system. The Zacks Rank system ranges from #1 (Strong Buy) to #5 (Strong Sell). It has a remarkable, outside-audited track record of success, with #1 stocks delivering an average annual return of +25% since 1988. Within the past 30 days, our consensus EPS projection has moved 0.85% lower. Microsoft is holding a Zacks Rank of #3 (Hold) right now. Digging into valuation, Microsoft currently has a Forward P/E ratio of 25.64. Its industry sports an average Forward P/E of 25.2, so we one might conclude that Microsoft is trading at a premium comparatively. It is also worth noting that MSFT currently has a PEG ratio of 2.38. This metric is used similarly to the famous P/E ratio, but the PEG ratio also takes into account the stock's expected earnings growth rate. MSFT's industry had an average PEG ratio of 2.09 as of yesterday's close. The Computer - Software industry is part of the Computer and Technology sector. This industry currently has a Zacks Industry Rank of 82, which puts it in the top 33% of all 250+ industries. The Zacks Industry Rank gauges the strength of our individual industry groups by measuring the average Zacks Rank of the individual stocks within the groups. Our research shows that the top 50% rated industries outperform the bottom half by a factor of 2 to 1. You can find more information on all of these metrics, and much more, on Zacks.com. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Microsoft Corporation (MSFT) : Free Stock Analysis Report To read this article on Zacks.com click here.

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Mobile Games Are Being Dethroned In the Post-Pandemic World

Changes in player behavior and the drop in consumer spending due to inflation are harming companies in the mobile gaming universe. According to Financial Times, the once thriving market is set to decline for the very first time since the beginning of the smart phone era. The cards have changed We might know mobile games since Nokia’s snake from the late 90s and Nintendo, but Apple’s App Store launched them to unforeseen heights when it was created in 2008, fueling the industry to its $100 billio

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Mobile Games Are Being Dethroned In the Post-Pandemic World Changes in player behavior and the drop in consumer spending due to inflation are harming companies in the mobile gaming universe. According to Financial Times, the once thriving market is set to decline for the very first time since the beginning of the smart phone era. The cards have changed We might know mobile games since Nokia’s snake from the late 90s and Nintendo, but Apple’s App Store launched them to unforeseen heights when it was created in 2008, fueling the industry to its $100 billion value and making it accountable for half of the gaming industry’s overall revenues. Even the streaming pioneer Netflix took part in the game with two more games to be launched soon and bringing the total number of games available on its platform to 48. August data of Netflix showed that less than 1% of its streaming subscriber base is playing these games on a daily basis, even Netflix is determined to position itself in the gaming universe. But after more than a decade of extraordinary growth for Netflix, once a fast-growing industry is now facing limitations such as rising advertising costs, weakened customer power and the end of the pandemic that boosted player engagement to unforeseen heights. Many fear that the industry is maturing and even reaching saturation as the pace of innovation has also slowed down. A wakeup call for the industry According to the forecast made by gaming data company Newzoo, this year’s revenues are forecasted to fall by 6.4 per cent to $92.2 billion, making a sharp reversal from last year’s 7.3 percent growth and 2020’s impressive 25.6 percent rise owed to lockdowns that made inhouse entertainment the center of our lives. Besides setting a high bar in user engagement, COVID-19 also brought on major supply chain issues that hampered sales of Sony Group’s (NYSE: SONY) eagerly awaited PlayStation 5 console that was the most popular this year, both in terms of units and dollar value. Last month, Ampere Analysis, another research group, also downgraded its revenue forecast, targeting $6 billion less than 2021, due to drops in the world’s biggest markets, namely the US, China and Japan. Even the leaders behind the mobile gaming revolution have seen their income from app purchases of virtual outfits and in-game currencies drop by as much as 20%, according to the Financial Times. Changes are on the horizon for Big Tech Last year, 97% of mobile web browsing was on browsers that are powered by Apple or Google's software, but their dominance will be investigated by the UK’s competition regulator, potentially bringing changes to the industry, along with new limitations. Last year, Apple’s new restrictions on targeted advertising erased billions of dollars from advertising revenues on largest platforms including Facebook, Twitter, Snapchat and YouTube, with the gaming industry still grappling with this blow. Many developers that thrived on using behavioral data to target players who were likely to spend significant funds in their gaming universe literally lost this income source altogether. A different set of rules Unlike in other industries, VR or AI is not as important in the world of mobile gaming because only quality content can keep gamers engaged. Market players know this which is why Nintendo (OTC: NTDOY) has released generous amounts of content this year despite delays and component shortages that harmed the console sales of Nintendo. Unfortunately for Nintendo, content alone is not enough to protect the bottom line. Outlook Although FIFA and the holiday season always help to boost sales, it’s usually only the top sellers like Microsoft who get to benefit. Microsoft reported that gaming revenues increased 4% with Xbox hardware sales rising 13% in the first quarter of fiscal 2023. But turning the fortune of the industry is a different matter even for Microsoft. Positive news are always a good sign for the holiday season and not only for Microsoft as in the case of Activision Blizzard (NASDAQ: ATVI) whose Call of Duty: Modern Warfare 2 (2022) instantly became the top game of the month. Electronic Arts' sales have been getting a boost from FIFA 23. But financial figures are what matters at the end of the day and numbers don’t lie. Even Roblox (NASDAQ: RBLX)’s November update showed slowing growth as revenue declined YoY due to the strength of the U.S. dollar. Although new releases always give the top line a boost, the gaming industry altogether is facing a broader weakness and an entirely new set of factors shaping its macroenvironment. Only time will show its ability to play the new “game” that is in the making. See more from Benzinga Legacy Automakers Keep Taking Pages From Tesla's Playbook Despite CEO Controversy Don't miss real-time alerts on your stocks - join Benzinga Pro for free! Try the tool that will help you invest smarter, faster, and better. © 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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Why Apple Is A High Risk Stock Today

I have been long Apple since 2011, when I first wrote it up on Seeking Alpha. That is, until 2022. Find out why I sold my last Apple shares early this year.

SeekingAlpha

Why Apple Is A High Risk Stock Today Summary - Either personally or professionally I have been long Apple (AAPL) since 2011, when we first wrote it up on Seeking Alpha. - That is, until 2022. We sold our last Apple shares early this year, as the risk reward now appears quite asymmetric to the downside. - The best performing factors in the past decade have been size and growth, which Apple has displayed in spades. - However, the forward winners are likely to be small/mid caps and value names. Apple certainly does not fit into that category. - Below we highlight why Apple is a sell, with earnings growth likely slowing rapidly and the stock still trading at 23x earnings. - Looking for a helping hand in the market? Members of Cash Flow Compounders get exclusive ideas and guidance to navigate any climate. Learn More » Summary At Cash Flow Compounders we have detailed why we view the next cycle of outperformers to be primarily small cap value equities. Big cap growth continues to trade at exceedingly rich multiples, while midcap and small cap names are at 20 year record cheap levels (see our recent blog post here). Smaller names already are likely pricing in a mild to moderate recession in our view. Among tech/growth, near term the bubble has largely deflated, but valuations remain still above long term averages in many cases. In the overvalued/over-owned bucket is Apple (NASDAQ:AAPL). We view AAPL as a lower risk short/underweight for those hoping to capture big cap de-rating/slowing growth. Unlike other bad business models we have written up, Apple is a high quality Compounder with a track record we like. In fact, we have been long Apple in either funds I manage or personally for well over a decade. I first wrote up Apple in on Seeking Alpha in 2011 here. I loved the stock, frankly, writing at the time “who wouldn’t pay a 9.4x multiple (or 11% FCF yield) for a stock that is growing by 30-40% and generating ROE’s of 74%.” I wrote it up multiple times in the ensuing years. Today, AAPL trades at a 23x multiple with growth anticipated to be 5%. And I am still a big Tim Cook fan; he is perhaps the best operator/CEO on the planet. In FY 2011, the company earned $1.58 in EPS. In FY 2023 (year ending September), EPS is expected to be $6.24. That is an 11 year CAGR of 13.2% in EPS, quite an impressive feat for such a large company. Importantly, the stock is up almost 11x in that time, even though earnings are only up 3.9x. The ubiquity of their products, massive free cash flow generation and dominance in iPhones and iGadgets certainly makes for a compelling case to own this stock in any account. Buy and hold has worked well with AAPL. Not to mention that Berkshire Hathaway (BRK.A) (BRK.B) owns 5.75% of the stock, a huge endorsement of Tim Cook and Apple. But the company faces many headwinds going forward, including cycle risk (upgrade and economic), valuation risk, regulatory risk, China risk, and slowing growth. We will outline each below. We sold our last shares of Apple early this year and caution investors that forward returns look quite unattractive from current levels. In our bull case, if we assume 2026 EPS estimates of $8.00 (above Street estimates of $7.63), and a healthy P/E multiple of 20x, we only see upside to $160, or 5% annual returns for Apple shareholders. On the downside, it seems unlikely that Apple can keep its premium valuation forever. P/E multiples are collapsing all around Apple and among tech stocks in particular. Given slowing forward growth rates (under 5% over the next three years per Street estimates), and higher interest rates today, we deem fair value at a 10% premium to the S&P, or about 17.8x. That implies almost 20% downside in a year, or a $110 on the stock. Below we highlight risks worth considering. But first the cap structure for a quick background. Cycle risk Apple revenue and earnings tend to go through boom and bust periods, just like any other company. Above we highlight in yellow the years post a phone upgrade cycle. Typically, the transition from 3G to 4G, 4G to 5G et cetera have been big tailwinds to iPhone purchases. Upgrade cycles spur revenue growth of course, only to be followed by disappointing revenue/EPS growth and weak stock market performance the following year. Analysts forecast only 3% revenue growth next year and 2% EPS growth. But, it could be far lower in 2023, especially should we have a recession. Note revenue declined in 2016 and 2019 after upgrade cycles ended. 5G rollouts have been ongoing since 2020. Indeed, the promises of 5G are incredible, with data throughput speeds of at least 1 gigabit per second (5x faster than current 4G speeds). Ultimately 5G could reach 20G/second speeds. Latency (delays) is also virtually eliminated from 100 milliseconds to only 1 millisecond with 5G. The problem is that this could be the end all of upgrade cycles. Movies that took 7 minutes to download will only take 8 seconds with 5G speeds. And that is for ultra high definition 4k movies. How much faster will iPhone users need their internet to operate? Users visually will not be able to distinguish movies at much better than 4k levels, especially on a smaller device. The use case for better than 5G speeds is largely limited to big data (self-driving cars perhaps being one application). But speeds beyond these are not likely to be ones you will ever need on your phone or laptop. Below are iPhone unit sales which have been strong as 5G networks have been rolling out over the past 2-3 years. But Apple iPhone sales are likely at cyclical peaks, with an estimated 259 million units shipped last year (FY ending September 2022). Indeed, for the December 2022 quarter, Morgan Stanley (MS) estimates that iPhone shipments will fall 11% year over year (to 75.5 million units). While again this fall is partly due to supply chain issues, the cycle does appear to be weakening. In 2023-2025, average analyst EPS growth estimates looks quite unimpressive at only 4.8% per year. The large of large numbers applies to Apple too. Growth gets tougher the bigger you become. Comps are very tough next year. Interestingly, many investors view Apple as a consumer staple, deserving of a 20-23x multiple as a recession would not impact them as much as other technology players. We view this as not terribly likely. The secular growth story is fading especially as 5G buying demand is decelerating. Just because we have not seen a tech downcycle in a 3-4 year doesn't mean that it isn't out there. A weak upgrade cycle might indeed shock some investors. Supply Chain Risk A full 90% of Apple’s products are manufactured in China (and 98% of iPhones). With mounting tensions between the US and China plus ongoing lockdowns there (which do not appear to be abating as zero-COVID policies remain intact), there have recently been numerous delays in manufacturing Apple phones. Indeed, on November 6th, Apple reported that production of the iPhone 14s were at “significantly reduced capacity.” While we view these as temporary headwinds, the reality is that Apple is desperate to reduce its manufacturing footprint in China. Their 2025 goal is to migrate 25% of their production to India. But even then, 2/3s of production will come from China. Any global hiccup from the Chinese Communist Party, tariffs, crackdowns on Apple manufacturers, or especially risks related to Taiwan would be devastating to Apple. Nobody thought Russia would invade Ukraine, but the risk of China going after Taiwan is real and only a matter of time in our view. Also, 19% of Apple's revenue is within China. While military escalation surrounding Taiwan is probably a low probability risk, it is one that the market is entirely ignoring. The pain that stocks like Alibaba (BABA) and Tencent (OTCPK:TCEHY) have struggled with is one to pay attention to. Pandemic Demand Pull Forward Certainly, a lot of demand was pulled forward during the pandemic. Services experienced particularly high growth as online shopping spurred food purchases online and a surge in app downloading. As of today, consumers likely have purchased the Mac’s and iPads that they probably need for a while. iPhone sales did not really gather steam until 2021, but as we noted, iPhone unit growth will likely struggle with the 5G upgrade cycle now a couple years in. So far revenue has been quite resilient. Even Apple's CFO said in an interview with the Wall Street Journal that September quarter sales were "better than we anticipated at the beginning of the quarter." But Apple faces very tough comps heading into 2023 and consumers could also reduce spending on expensive Apple products in a recession. Risk to Apple App Store and Services One element to the Apple bull story are its services, which are high margin and have been growing faster than any other part of the portfolio. Services totals 20% of revenue at Apple, and probably are 25-30% of earnings. Korea, the UK, the US, and the EU are taking a hard look at the 30% commissions that app developers pay to Apple. If you open a coffee shop and sell through your app on Apple, Apple will get 30% of your revenue (with some exceptions its 15%). We wonder why regulators continue to probe the card companies (Visa and Mastercard), who only charge 2-3% per transaction compared to the 30% platform fees that Apple takes. We don’t know if there will be any kind of enforcement action, but the likelihood of fees falling and Apple paying fines is out there. Apple may reduce fees proactively in order to avoid government's meddling here. Regulatory scrutiny against Meta Platforms (META) no doubt pushed that stock down (well before the iOS changes impacted its growth). We also note the deceleration in services revenue last quarter as advertising revenue (Apple TV+) and online shopping slowed. Valuation The biggest risk to Apple stock is its persistently high valuation in the face of slowing growth. Cycle risk comes in two forms too as we see it: 1) economic cycle risk, as consumers are increasingly strapped and likely to reduce spending as inflation takes a toll, and 2) 5G upgrade risk as we have discussed. Today Apple is trading at 22.4x earnings (compared to 9.4x in 2011). High absolute and relative multiples on peak earnings, with slowing growth, seems a bad combination. Below is Apple on a forward P/E basis since 2011. At 22.4x earnings with growth now looking slower than it has in years, the stock appears poised to re-rate lower. On an EV/EBITDA basis, AAPL now fetches a 17.0x forward 2023 multiple compared to its pre-pandemic average of 7.3x. Today the S&P 500 trades at 12.0x 2023, putting Apple at a 40% premium to the S&P today. Below is a graph of Apple’s EV/EBITDA valuation since 2011. Notice how Apple’s valuation ran up in mid-2020. Many may or may not recall, but Apple split its stock 4-1 on August 31, 2020. In the frenzied run up leading up to the split, Apple re-valued from 18.5x EBITDA to almost 25x EBITDA. That 40% gain occurred in only 2 months, largely based on massive call buying from retail investors. The stock has stayed at elevated levels ever since. As we look at forward growth estimates, revenue is expected to grow by 3% in 2023, and 6% in each of 2024 and 2025. We are not going to pretend we can forecast earnings for a company as complex as Apple. But these are unimpressive figures for a company that trades at a growth multiple. Assuming they hit these estimates and beat in 2026 ($8.00 in EPS vs $7.63 current estimates), then we come up with a number of valuation scenarios. We see a range of $100 to $168 on Apple shares. The bubble scenario might be 25x $8 in earnings, or $200 per share. That is roughly the highest analyst price targets, with an average of $173. Other large cap tech names are probably the best comps. Google (GOOG) (GOOGL) trades at 10.2x 2023 EBITDA (40% cheaper than Apple). Microsoft (MSFT) trades at 15x 2023 EBITDA (15% cheaper) and Oracle (ORCL) trades at 11.6x 2023 EBITDA (35% cheaper). Google is expected to grow EPS over 2.5x as fast as Apple from 2023 to 2025. And, Oracle is expected to grow EPS over twice as fast as Apple in that time frame. Note how Apple has outperformed the pack. Conclusion The likelihood of continued valuation de-rating of Apple appears high as 1) higher interest rates and capital migration away from growth and into value names continues, 2) revenue and earnings growth appear to be slowing rapidly and 3) the market appears largely saturated with Apple products, with both the computer/iPad and iPhone upgrade cycles very long in the tooth. On the downside, any hiccups with China would be a tail risk that could potentially devastate AAPL. While these are not likely scenarios, they are still non-zero probabilities, and not even remotely priced into the stock. Regulators may have something to say about Apple's 30% take on their app store too. FWIW, Google, our favorite tech name, has zero exposure to China. Valuation wise AAPL appears to be not quite at bubble levels anymore, but arguably Apple will not grow faster than the S&P 500, and yet trades at a 40% premium to the market. Given the risks to the stock, we have no position in Apple and merely wanted to highlight the downside. If you are long, we recommend lightening here and selling above $150. Aggressive investors may consider a small short position between $150-160 per share, but admittedly there are better shorts among profitless tech companies with bad business models and excessive valuations. Thanks for reading! We offer stock market insights in our Marketplace service entitled Cash Flow Compounders: The Best Stocks in the World. These are high return on equity, high free cash flow stocks with a proven track record in compounding earnings at higher than market rates. There we provide our BEST 2-4 ideas per month. Our picks going back to 2011 have produced just under 30% annual returns, and this year to date our two portfolios are outperforming the market by 10% and 20%. Sign up for a free 2 week trial to get our latest ideas! This article was written by I am a former hedge fund portfolio manager who trades for my personal account. I espouse Graham and Dodd/Buffett style investing, always on the lookout for high-quality equities at attractive valuations. A graduate of Vanderbilt University with an MBA from Northwestern's Kellogg School of Management, I lived in NYC for a decade before relocating to the Charlotte, NC area with my family. I am collaborating with NJ Value Investor on my Marketplace service Cash Flow Compounders. Analyst’s Disclosure: I/we have a beneficial long position in the shares of MSFT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (253) Also there are efforts at cost savings through employment reduction and layoffs. This is not the only way there is cost reduction as component suppliers well know. Also there will be pre-announcements of shortfalls in net earnings prior to reporting. AAPL stock has recently made several excursions to the $129 level where it appears to have found support. That is -30% a previous 52 Wk High. If one missed out on selling above 150, should one sell now at around $130 or consider buying near 129? or do you think it will drop a further 23% down to around $100 in 1Q23? Go to 14 minutes into this interview with Peter Zeihan to hear specifics on why there is a supply issue (not a demand issue!) www.youtube.com/... en.wikipedia.org/... The stock price will move much higher, while the increased profits and share buybacks will keep P/E where it is. And Apple does not need a new product for that. Just incremental changes and constant improvements to the ecosystem will do the trick. Of course, new products are always welcome. I'm waiting to Buy an Apple 20 Pro. My Apple 6 is going Strong.

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Microsoft Corp. stock falls Monday, underperforms market

Shares of Microsoft Corp. slipped 1.73% to $240.45 Monday, on what proved to be an all-around rough trading session for the stock market, with the S&P 500...

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Shares of Microsoft Corp. MSFT, +0.19% slipped 1.73% to $240.45 Monday, on what proved to be an all-around rough trading session for the stock market, with the S&P 500 Index SPX, +0.67% falling 0.90% to 3,817.66 and Dow Jones Industrial Average DJIA, +0.93% falling 0.49% to 32,757.54. This was the stock's third consecutive day of losses. Microsoft Corp. closed $103.85 below its 52-week high ($344.30), which the company reached on December 29th. The stock demonstrated a mixed performance when compared to some of its competitors Monday, as Apple Inc. AAPL, -0.28% fell 1.59% to $132.37, Alphabet Inc. Cl C GOOG, +0.72% fell 1.88% to $89.15, and Alphabet Inc. Cl A GOOGL, +0.59% fell 2.02% to $88.44. Trading volume (29.5 M) remained 1.9 million below its 50-day average volume of 31.4 M. Editor's Note: This story was auto-generated by Automated Insights, an automation technology provider, using data from Dow Jones and FactSet. See our market data terms of use.

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Here's When to Buy Microsoft Stock (Again)

Microsoft stock is back under pressure as the market is selling off. Here's where to look for support.

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TheStreet.comHere's When to Buy Microsoft Stock (Again)December 19, 2022 at 8:22 AM·2 min readHere's When to Buy Microsoft Stock (Again)Microsoft stock is back under pressure as the market is selling off. Here's where to look for support.Continue reading

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Amazon and Microsoft are backing this battery-powered generator startup

California-based startup Moxion Power is building high-powered, mobile energy storage technology that can be used pretty much anywhere. 

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Diesel generators are staples at construction sites, movie sets, or anywhere portable power is needed. But they are dirty, emitting carbon dioxide as any other fuel-burning engine does. While big legacy companies like Generac and Caterpillar are beginning to offer small battery-powered units in addition to their larger diesel generator lines, California-based startup Moxion Power is focused entirely on this new power frontier. It is building high-powered, mobile energy storage technology that can be used pretty much anywhere. "We design, engineer and manufacture all of the core technologies that we use. So we're not buying someone else's battery module. We are actually manufacturing battery modules in house," said Paul Huelskamp, CEO of Moxion. Huelskamp says diesel generators are notoriously difficult and expensive to maintain and burn diesel fuel very inefficiently. "And so that's extremely wasteful and terrible for the environment," he added. Under Moxion's model, clients can either buy the units or rent them. For rentals, Moxion uses technology that alerts them when the batteries are running out, so they can replace them with no lapse. They claim to know exactly what the state of charge is. For companies looking to buy, the generators are competitive in price, and may in fact end up cheaper because they are less expensive to maintain than diesel models, says Huelskamp. Amazon is both investing in the company and currently leasing Moxion units for two video productions, a movie and a series. The generators will power cameras, base camps, lighting, hair and makeup trailers, and other production equipment. "One of the beauties of Moxion's unit is it is dead quiet, and zero-emission," said Nick Ellis, principal at the Amazon Climate Pledge Fund. Roughly half of the carbon emissions from the average movie come from the fuel used to power generators and transportation. "It can be moved indoors for unique shots indoors that previously we couldn't do, and they really allow our team to think about new ways of filming productions than they used to," said Ellis. "The other real benefit here is because you can hook up these units really close to the set, you eliminate a lot of the cabling that's a trip and danger for your production teams. And so suddenly, these units are sitting right there quietly operating with zero emissions, and taking up a very small footprint on the production set." In addition to the Amazon Climate Pledge fund, Moxion's backers include the Microsoft Climate Innovation Fund, Enterprise Holdings, Energy Impact Partners, Tamarack Global and Sunbelt Rentals. Total funding so far: $110 million.

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2 Top-Ranked Stocks to Buy From the Edge Computing Space in 2023

Here we present two top-ranked tech stocks, ANET and NET, which are poised to benefit from growth opportunities in the edge computing market in 2023.

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2 Top-Ranked Stocks to Buy From the Edge Computing Space in 2023 Edge computing is a distributed computing architecture that relocates processing and data storage near data sources. The speed of 5G, combined with edge computing, further reduces the latency to support use cases, wherein near-real-time processing is critical. The edge computing industry is being shaped by several trends. With the rise of the Internet of Things (IoT), and the increasing need for greater data processing and analytics, the demand for edge computing is growing. According to a report by Grand View Research, the global edge computing industry is expected to attain a value of $11.24 billion by the end of 2022, and grow, witnessing a compound annual growth rate (CAGR) of 38.9% from 2022 through 2030, reaching a value of $155.90 billion at the end of the forecast period. This is driving companies such as Arista Networks ANET and Cloudflare NET to adopt edge solutions to better manage their data, reduce latency and improve overall user experience. With the rising demand for edge computing solutions, investors are pouring money into the space. Edge computing use cases are expanding, as businesses look for new ways to leverage the technology. Because 5G creates a bigger, faster medium to carry data, it can deliver the ultra-low latency required for many applications, including the widespread deployment of autonomous vehicles, advanced healthcare services such as remote telesurgery and the metaverse. Edge Computing Players Leading the Way to Growth Some of the top companies leading the global edge computing industry are Microsoft Corporation MSFT, Alphabet GOOGL and NVIDIA NVDA. These are well-positioned to benefit from the secular tailwinds in the enterprise software and edge computing space. Microsoft has a large and diverse portfolio of products and services, from cloud computing and machine learning to artificial intelligence and IoT. This gives the company a unique advantage in the edge computing market, as it can offer customers a comprehensive solution that covers all their needs. Azure Edge Zones provide customers with secure, low-latency networks that help them optimize their edge computing performance. Alphabet is an industry leader in edge computing, allowing businesses to leverage the power of cloud computing, while maintaining control of their data. The company is investing heavily in edge computing solutions, such as its Google Distributed Cloud Platform, to help businesses reduce latency and increase efficiency. NVIDIA is at the forefront of the edge computing market. The company is a leading provider of edge computing hardware and chips. NVDA’s edge computing solutions leverage its graphic processing units to enable organizations to process large amounts of data quickly and efficiently. The NVIDIA EGX platform is designed to bring AI, machine learning and other advanced analytics to the edge. The platform can be used in a wide range of applications, including autonomous vehicles, factory automation and smart cities. Our Picks Given the above-mentioned positives, we have picked two tech stocks that offer solid investment opportunities and are well-poised to grow in 2023. Each company sports a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) and has a positive earnings estimate revision. You can see the complete list of today’s Zacks #1 Rank stocks here. Year-to-Date Performance Image Source: Zacks Investment Research Arista Networks is engaged in providing cloud networking solutions for data centers and cloud computing environments. The company offers 10/25/40/50/100 Gigabit Ethernet switches and routers optimized for next-generation data center networks. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. It is well-poised for growth in the data-driven cloud networking market with its proactive platforms and predictive operations. ANET’s edge computing solutions are designed to help customers reduce latency, increase network performance and improve security. Arista announced unified edge innovations across wired and wireless networks for its Cognitive Campus Edge portfolio for Enterprise Workspaces. It presented an enterprise-grade Software-as-a-Service offering for the flagship CloudVision platform. The company also introduced several additions to its multi-cloud and cloud-native software product family with CloudEOS Edge, which are expected to drive demand in 2023. This Zacks Rank #1 company expects continued growth within its enterprise vertical in the forthcoming quarters, with customer mix being the key driver. The Zacks Consensus Estimate for the company’s 2023 earnings has been revised upward by 0.6% to $5.19 per share, indicating growth of 18.6% from the year-ago reported figure. Cloudflare is an internet services company that provides a range of services, including cloud computing, cybersecurity and edge computing. The company’s integrated cloud-based security solution helps secure a range of combinations of platforms, including public cloud, private cloud, on-premise, software-as-a-service applications and IoT devices worldwide. NET’s security products comprise cloud firewall, bot management, distributed denial of service, IoT, SSL/TLS, secure origin connection and rate limiting products. Cloudflare offers performance solutions, which include content delivery and intelligent routing, as well as content, mobile and image optimization solutions. NET provides reliability solutions, comprising load balancing, anycast network, virtual backbone, DNS, DNS resolver, and online and virtual waiting room solutions. Increasing demand for the Zacks Rank #2 company’s cloud-based solutions from new large customers (annual billings of more than $100,000) is expected to boost its top-line growth in 2023. The Zacks Consensus Estimate for the company’s 2023 earnings is has been unchanged at 15 cents per share, indicating year-over-year growth of 33.6%. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Microsoft Corporation (MSFT) : Free Stock Analysis Report NVIDIA Corporation (NVDA) : Free Stock Analysis Report Alphabet Inc. (GOOGL) : Free Stock Analysis Report Arista Networks, Inc. (ANET) : Free Stock Analysis Report Cloudflare, Inc. (NET) : Free Stock Analysis Report To read this article on Zacks.com click here.

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Google, Amazon, Microsoft's Growing Finance Business Is Getting Them Bank-Like Treatment. Are Beaten Down Tech Stocks A Buy Now?

Tech stocks are trading below their 50-day moving average. Watch these support and resistance levels on your tech watchlist.

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Apple Hubs In India, Vietnam Next Year; China Exodus By 2025. Are Beaten Down Tech Stocks A Buy Now? Tech stocks are trading below their 50-day moving average. Watch these support and resistance levels on your tech watchlist. Tech stocks are trading below their 50-day moving average. Watch these support and resistance levels on your tech watchlist.

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Dow Jones Falls As Stock Market Continues To Drop; Tesla Jumps On Elon Musk Twitter Poll

The Dow Jones Industrial Average fell Monday after last week's heavy losses. Tesla stock jumped on Elon Musk's Twitter poll that said he should step down.

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Dow Jones Falls As Stock Market Continues To Drop; Tesla Down After Elon Musk Twitter Poll The Dow Jones Industrial Average fell Monday after last week's heavy losses. Tesla stock jumped early on Elon Musk's Twitter poll that said he should step down, but quickly reversed lower.

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Cisco (CSCO) Joins Forces With T-Mobile to Boost Prospects

Cisco (CSCO) partners with T-Mobile to address growing megatrends and spread its newly launched solutions globally.

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Cisco (CSCO) Joins Forces With T-Mobile to Boost Prospects Cisco Systems CSCO recently announced its partnership with T-Mobile TMUS to launch the world’s largest highly scalable and distributed nationwide cloud native converged core gateway. T-Mobile moved its 5G and 4G traffic to the new cloud-native core gateway boosting performance for customers with more than a 10% improvement in speed and latency. The world is going through its fourth industrial revolution, which is data-driven and a primary reason behind the rise of Internet of Things (IoT). Various enterprises are investing heavily to rapidly digitize their organizations, reflecting the shift to IoT, Artificial Intelligence (AI) Machine Learning (ML), digitization and various cloud solutions. The recent partnership with T-Mobile is amongst its various strategic alliances with global tech companies, which will help Cisco to address growing megatrends and spread its newly launched solutions globally. Cisco Systems, Inc. Price and Consensus Cisco Systems, Inc. price-consensus-chart | Cisco Systems, Inc. Quote Cisco Banking on Partnerships to Address Megatrends Cisco shares have been impacted by the overall negative sentiments among investors for the broader tech sector. Rising inflation and recession in the United States have investors bearish regarding the performance of the Zacks Computer and Technology sector, which fell 34.8% in the year-to-date period and pulled down the stock price performance of Cisco, which fell 24.6% in the same period. Further, as it ventures into new markets, Cisco is experiencing stiff competition from the likes of Wipro Limited WIT in cloud securities solutions. Wipro recently expanded its collaboration with VMware to help customers move data to the cloud at a reduced cost and operate in a multi-cloud infrastructure. With the recent collaboration, Wipro FullStride cloud services will be able to provide its security services to customers for no additional cost and protect data while operating in a multi-cloud architecture. This is expected to help Wipro garner more customers amid rising competition. However, per Gartner, worldwide spending for cloud solutions is expected to reach $500 billion in 2022. This will create a new revenue source in the industry. Cisco is investing heavily to build its portfolio to support cloud data centers, which is expected to generate positive ROI and win market share against stiff competition. Cisco has been building strategic partnerships to build its portfolio. It recently announced its partnership with OTEGLOBE to increase the capacity and performance of its network to deliver faster, more efficient connections to its customers with a full-scale, 800G-ready infrastructure. This partnership will help the company to spread its recently unveiled solutions across Europe and drive top-line growth. Cisco partnered with Microsoft MSFT to bring Microsoft Teams to its meeting room devices. Per the alliance, Cisco and Microsoft Teams will soon offer the ability to run Microsoft Teams natively on Cisco’s room and desk devices from the first half of 2023. Initially, six of CSCO’s most popular meeting devices like Cisco Room Bar, Board Pro and Cisco Room Kit Pro will be certified by Microsoft Teams, followed by Cisco Desk Pro and Cisco Room Navigator. Cisco has formed this partnership with Microsoft to benefit from the growing market demand for a hybrid work environment. Microsoft Teams is experiencing growing usage, which will help Cisco expand its customer base in the enterprise communication space. Per Industry Research data, the enterprise market is expected to witness a CAGR of 17.3% between 2022 and 2028. Cisco, with its recent product launches and strategic alliances, is trying to address what the global economy needs right now, which is likely to drive the stock in the long run. CSCO currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Microsoft Corporation (MSFT) : Free Stock Analysis Report Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report Wipro Limited (WIT) : Free Stock Analysis Report TMobile US, Inc. (TMUS) : Free Stock Analysis Report To read this article on Zacks.com click here.

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12 Most Advanced Countries in Agriculture Technology

In this article, we discuss the 12 most advanced countries in agriculture technology. You can skip our detailed analysis of the agricultural industry, the looming food-insecurity problem and trends to watch in 2023, and go directly to 5 Most Advanced Countries in Agriculture Technology. Agricultural Apocalypse Unsustainable agricultural practices have resulted in 40% of the […]

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12 Most Advanced Countries in Agriculture Technology In this article, we discuss the 12 most advanced countries in agriculture technology. You can skip our detailed analysis of the agricultural industry, the looming food-insecurity problem and trends to watch in 2023, and go directly to 5 Most Advanced Countries in Agriculture Technology. Agricultural Apocalypse Unsustainable agricultural practices have resulted in 40% of the land becoming too degraded for productive agriculture, according to UN results, with 90% of the world’s overall topsoil further at risk by 2050. If that wasn’t bad enough, there’s an 11 gigaton GHG mitigation gap between the anticipated agricultural emissions by the mid-century, and the target level required to hold temperatures from rising above 2°C. Further, agriculture requires 70% of the world’s fresh water supply, which we are quickly running out of. Pew Trusts notes that by 2025, more than half of the global population would be residing in water stressed regions. However, the human population is projected to reach 10 billion by 2050 according to UN estimates. With that, the food demand is expected to increase by 59% to 98%, as noted by Harvard Business Review. To keep up, food production will have to increase by over 50% but pushing that rate with the present conditions is too far out in the overshoot zone to be sustainable, all other things constant. Technological Solutions The situation is bleak and given the momentum the population projection has right now, technology is the best bet to avoid a crisis that could otherwise create mass hunger, civil unrest and chaos at a global scale. In this regard, agricultural technology, more simply known as agri-tech, is poised to become far too important in the near future. Agritech Industry: An Analysis The above fact is reflected in the quantitative projections for the agri-tech industry. It was valued at $19.5 billion in 2021 and is projected to reach $46.4 billion by 2030, growing at a solid CAGR of 17.3%, per Spherical Research’s market insights. Governments, especially in the US, are also expected to step in and support the agri-tech market through subsidies, owing to the emergency, which is factored-in the forecast. That said, investment in agri-tech has hit a bump on the road due to supply-chain constraints and stagflation which may disturb the timeline. Key Agri-Tech Players and Trends to Watch in 2023 Some of the most decisive agricultural technologies have to do with sustainability, since it's the most pressing problem faced by the sector. In this regard, Indoor Vertical Farming is an important technology, which has been shown to reduce land and water usage by 99% and 70% respectively. Prominent players in this domain are AeroFarms, InFarm and Agricool, based in the US, Germany and France, respectively. Then there’s N-Drip micro-irrigation systems that save 50% in water usage while improving crop yield. Major companies in the micro-irrigation industry include Lindsay Corporation (NYSE:LNN) and The Toro Company (NYSE:TTC), among others. Some Information-Technology companies are also involved in the business. For instance, Microsoft Corporation (NASDAQ:MSFT)’s FarmBeats uses machine learning and cloud computing to track soil temperature and moisture to assist in efficient irrigation management to conserve water. The majority of countries that are advanced in agri-technology have two things in common - advanced economies and high agricultural output. High agricultural output has compelled these countries to invest in innovation in agri-technology to sustain and grow their outputs. Let’s move on to the list of 12 most advanced countries in agriculture technology. Subbotina Anna/Shutterstock.com Our Methodology For our list of 12 most advanced countries in agriculture technology, we’ve ranked them based on the number of agri-technology startups operating in the countries. We’ve sourced the data from Tracxn, a premier platform that tracks startups in different countries across more than 230 sectors. We’ve also discussed the important companies, as well as other factors like investment and practical implementation of these technologies. 12. South Korea Number of Agri-Tech Startups: 72 South Korea is one of the wealthiest and most scientifically advanced countries in East Asia, with a GDP size of $1.8 trillion as of 2021. In the same year, its agriculture sector accounted for 1.84% of its GDP. The main crop in the country is rice. Smart-agriculture ecosystem has been taking root in the country. In 2014, only 405 hectares of land and 23 households were dedicated to smart farms and smart livestock respectively. In 2021, these figures have jumped to 6,485 hectares of land and 4,743 livestock households respectively. South Korea has some notable startups that are trying to disrupt the industry and solve problems relating to agricultural sustainability. Prominent companies include Green Labs, G+ Flas Life Sciences and EGG Tube. 11. Japan Number of Agri-Tech Startups: 76 Japan is another East Asian country on the list of most advanced countries in agriculture technology. Agricultural sector has made up 1% of its GDP in 2022 according to the World Bank. Japan wants to more than double its agriculture exports from 2019, when they amounted to $9 billion. The country aims to export $19 billion worth agricultural products by 2025, sensing the market need. The agritech sector in Japan is valued at $1.66 billion. In that order, the far East Asian nation is transforming its agricultural industry through technology. Spread and Routerek are two examples of highly innovative companies that are disrupting the industry. The former produces hydroponically grown lettuce while the latter has developed sensor-based systems for drip irrigation. Routerek's business model is roughly similar to those of Lindsay Corporation (NYSE:LNN), The Toro Company (NYSE:TTC) and Microsoft Corporation (NASDAQ:MSFT) when it comes to irrigation efficiency. 10. New Zealand Number of Agri-Tech Startups: 185 Agriculture made up 5.65% of New Zealand’s GDP in 2019, per Statista figures. New Zealand has a healthy agritech sector that contributes $1.5 billion to the country’s export economy, according to the official numbers from the government. Some startups include BioLumic and Opo Bio. The former manufactures and supplies ultraviolet equipment as well as treatment solutions to enhance crops’ pest/disease resistance, yield and hardiness. The latter develops cell-culture-based meat products, to offset the impact of cattle farming on the planet. 9. Israel Number of Agri-Tech Startups: 225 Israel is an important country when it comes to the most advanced countries in agriculture technology. It is home to Simcha Blass, the inventor of Drip Irrigation, a highly efficient irrigation method that requires 20-50% less water than other irrigation methods. Further, Professor Uri Shani, a prominent Israeli water expert, is credited with the development of the N-Drip micro-irrigation system, which further cuts costs for expensive pumps and water filters and reduces 50% of water usage. All this is thanks to an atmosphere of innovation, with the country drawing 28 times more venture capital per capita than the United States in 2021, despite the US having some of the biggest companies in the world like Lindsay Corporation (NYSE:LNN), The Toro Company (NYSE:TTC) and Microsoft Corporation (NASDAQ:MSFT) Some notable agritech companies in Israel include Kaiima, Equinom and Fieldin. 8. France Number of Agri-Tech Startups: 292 France is the biggest producer of agricultural products in Europe. Agricultural output accounted for 1.6% of the country’s GDP in 2021. The country has 292 agritech startups as of 2022. Some of these include Ynsect, Limagrain and Agronutris. Ynsect is involved in developing insect cultures that convert cereals into nutrient sources for pet feed. Limagrain on the other hand, is involved in production and supply of GMO and non-GMO-based seeds while Agronutris is a manufacturer of insect-based organic fertilizers. 7. Germany Number of Agri-Tech Startups: 297 Germany has the second highest agricultural output behind France but the country has a slightly higher number of agritech startups than the latter. As of 2022, 297 agritech startups are operating in Germany. The EU leader has a strong economy and according to Global Data, the agritech industry is valued at nearly $0.6 billion in the country in 2021, with an YoY increase of 14%. Its top startups include Infarm and FarmInsect. While agritech has the smallest share in the overall number of startups in Germany, the R&D done in the country is highly impactful. According to the National Science Foundation, Germany’s share in the global Knowledge and Technology Intensive (KTI) industries output is 6%, one of the highest in the world. 6. The Netherlands Number of Agri-Tech Startups: 320 The Netherlands is a country in Northwestern Europe. It is the second largest exporter of agricultural products behind the United States. The country has been described by the Washington Post as well as by World Economic Forum as a model to follow for technology-based sustainable agriculture. About twenty years ago, the country made the commitment to produce twice as much food as resource usage. The initiative has led to many farmers across the country reducing reliance on water for major crops by as much as 90%, as noted by National Geographic. Use of pesticides has also been virtually phased out and its Duijvestijn tomatoes are grown in greenhouses using geothermal energy and hydroponic systems that rely on less water. This is all thanks to a culture of innovation. Some of its top startups include Protix, DNA Genetics and PlantLab. Click to continue reading and see 5 Most Advanced Countries in Agriculture Technology. Suggested articles: 10 Biggest Issues in the World and The Companies Working on Solving Them 15 Biggest Issues in America and the Companies Working on Solving Them Disclosure: none. 12 Most Advanced Countries in Agriculture Technology is originally published on Insider Monkey.

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Microsoft Corporation (MSFT) is Attracting Investor Attention: Here is What You Should Know

Zacks.com users have recently been watching Microsoft (MSFT) quite a bit. Thus, it is worth knowing the facts that could determine the stock's prospects.

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Microsoft Corporation (MSFT) is Attracting Investor Attention: Here is What You Should Know Microsoft (MSFT) has recently been on Zacks.com's list of the most searched stocks. Therefore, you might want to consider some of the key factors that could influence the stock's performance in the near future. Over the past month, shares of this software maker have returned +1.4%, compared to the Zacks S&P 500 composite's -2.7% change. During this period, the Zacks Computer - Software industry, which Microsoft falls in, has lost 0.7%. The key question now is: What could be the stock's future direction? While media releases or rumors about a substantial change in a company's business prospects usually make its stock 'trending' and lead to an immediate price change, there are always some fundamental facts that eventually dominate the buy-and-hold decision-making. Earnings Estimate Revisions Here at Zacks, we prioritize appraising the change in the projection of a company's future earnings over anything else. That's because we believe the present value of its future stream of earnings is what determines the fair value for its stock. We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors' interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. For the current quarter, Microsoft is expected to post earnings of $2.28 per share, indicating a change of -8.1% from the year-ago quarter. The Zacks Consensus Estimate has changed 0% over the last 30 days. For the current fiscal year, the consensus earnings estimate of $9.54 points to a change of +3.6% from the prior year. Over the last 30 days, this estimate has changed -0.9%. For the next fiscal year, the consensus earnings estimate of $10.92 indicates a change of +14.5% from what Microsoft is expected to report a year ago. Over the past month, the estimate has remained unchanged. With an impressive externally audited track record, our proprietary stock rating tool -- the Zacks Rank -- is a more conclusive indicator of a stock's near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #3 (Hold) for Microsoft. The chart below shows the evolution of the company's forward 12-month consensus EPS estimate: 12 Month EPS Revenue Growth Forecast Even though a company's earnings growth is arguably the best indicator of its financial health, nothing much happens if it cannot raise its revenues. It's almost impossible for a company to grow its earnings without growing its revenue for long periods. Therefore, knowing a company's potential revenue growth is crucial. For Microsoft, the consensus sales estimate for the current quarter of $52.93 billion indicates a year-over-year change of +2.3%. For the current and next fiscal years, $212.38 billion and $239.4 billion estimates indicate +7.1% and +12.7% changes, respectively. Last Reported Results and Surprise History Microsoft reported revenues of $50.12 billion in the last reported quarter, representing a year-over-year change of +10.6%. EPS of $2.35 for the same period compares with $2.27 a year ago. Compared to the Zacks Consensus Estimate of $49.47 billion, the reported revenues represent a surprise of +1.32%. The EPS surprise was +2.62%. Over the last four quarters, Microsoft surpassed consensus EPS estimates three times. The company topped consensus revenue estimates three times over this period. Valuation Without considering a stock's valuation, no investment decision can be efficient. In predicting a stock's future price performance, it's crucial to determine whether its current price correctly reflects the intrinsic value of the underlying business and the company's growth prospects. While comparing the current values of a company's valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S) and price-to-cash flow (P/CF), with its own historical values helps determine whether its stock is fairly valued, overvalued, or undervalued, comparing the company relative to its peers on these parameters gives a good sense of the reasonability of the stock's price. As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued. Microsoft is graded C on this front, indicating that it is trading at par with its peers. Click here to see the values of some of the valuation metrics that have driven this grade. Conclusion The facts discussed here and much other information on Zacks.com might help determine whether or not it's worthwhile paying attention to the market buzz about Microsoft. However, its Zacks Rank #3 does suggest that it may perform in line with the broader market in the near term. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Microsoft Corporation (MSFT) : Free Stock Analysis Report To read this article on Zacks.com click here.

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Dow Jones Futures Fall As Stock Market Looks To Bounce; Tesla Jumps On Elon Musk Twitter Poll

Dow Jones futures fell Monday after last week's heavy losses. Tesla stock jumped on Elon Musk's Twitter poll that said he should step down as Twitter CEO.

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Dow Jones Falls As Stock Market Continues To Drop; Tesla Down After Elon Musk Twitter Poll The Dow Jones Industrial Average fell Monday after last week's heavy losses. Tesla stock jumped early on Elon Musk's Twitter poll that said he should step down, but quickly reversed lower.

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Nasdaq Bear Market: 2 Once-in-a-Decade Buying Opportunities in 2022

These industry leaders have been dragged lower by the downturn, creating a rare buying opportunity for investors.

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Nasdaq Bear Market: 2 Once-in-a-Decade Buying Opportunities in 2022 These industry leaders have been dragged lower by the downturn, creating a rare buying opportunity for investors. These industry leaders have been dragged lower by the downturn, creating a rare buying opportunity for investors.

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Dow Jones Futures Rise After Stock Market Rally's Ugly Outside Week; Here's What To Do

The market rally started strong, but sold off hard in a big outside week. Apple, Tesla dived. Leading stocks tumbled. Here's what to do.

Yahoo

Dow Jones Futures Rise After Stock Market Rally's Ugly Week; Tesla Bounces On Musk Twitter Poll The market rally started strong, but sold off hard in a big outside week. Leading stocks tumbled. Tesla plunged, but is trying to bounce. Here's what to do.

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Gaming benefits from being largely platform agnostic, says Cowen's Doug Creutz

Cowen's Doug Creutz joins 'TechCheck' to discuss investment strategies in the gaming sector, the leading names in gaming and new game releases that are expected to perform well.

CNBC

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Best Idea: Renren And Beyond

One top idea for 2022 was Renren. Read more on key investment ideas for 2023.

SeekingAlpha

Best Idea: Renren And Beyond Summary - Three things I look for when looking at companies. - 2022: It was all about Renren. - 2023: What ideas are out there? - Looking for a helping hand in the market? Members of Sifting the World get exclusive ideas and guidance to navigate any climate. Learn More » Best Ideas Each year, I highlight one top position as a best idea for the subsequent year. This year, the idea has been Renren (RENN), one of my top three holdings. How do I pick? I look for three things: Something safe, lucrative, and uncorrelated with the overall markets. Bottoms up! I look for ways to make money in any market – up, down or sideways. Macro prognosticators are far greater in quantity than quality. What I don’t do: Macro I stay out of the whole discussion of which way the stock market will go. I have no idea. I doubt many of the people who make bold macro calls get it right a statistically significant percentage of the time. What I do: Events Instead I focus on discreet corporate events that unlock shareholder value and do detailed firm-level analysis to find and exploit them to make money in any market. What kind of events? Mostly litigation, M&A, and in particular merger securities (which overlaps quite a bit with litigation). What are we really doing here? Counterparty selection. Avoiding being the patsy. Narrowing down who you’re competing against due to narrow mandates and complexity. Renren My best idea for 2022 was Renren. The year is not yet out but with the S&P 500 down 18%, RENN is up over 120% year to date. It started the year under $15. It will end the year with a $31.62 cash distribution. This was the result of a complex litigation that I was intimately involved with for a long time. It was safe, lucrative, and had absolutely nothing whatsoever to do with what the overall stock market did - it just happened to be publicly traded. When first presented, I estimated the probability of its upside scenario at 90%, now that's 100%. Excluding the cash distribution, I estimated that equity stub would be worth at least $1 and maybe as much as $4. Today, it costs under $1. It's exactly what I look for when sizing a top position and picking an annual idea. Spectrum As I approach the decision on what to name my best idea for 2023, I’m looking for another case that will be safe, lucrative, and uncorrelated with the stock market. One candidate is Spectrum Brands (SPB). It finished this past quarter under $40 per share, has recovered a bit but still trades for under $60 and is worth over $80. The kicker, as with Renren, is litigation. The US Department of Justice sued to block a transformative asset sale that would pay SPB in cash more than their entire market cap. It's a great deal but the current administration is quite wary of deals and claims this would be monopolistic. My view is that the case is weak, especially after the companies named a strong buyer for the entire overlapping product lines. The deal will probably get done by the middle of next year, which could catapult SPB shares regardless of what the rest of the market is doing. Antitrust I blurted out two edgy, actionable ideas – a favorite recent one and upcoming one. But now let me back up to discuss M&A heading into 2023 more generally. This category is a great solution for capital if you don’t know what the market is going to do next. But the solution has a few problems worth highlighting. First the aforementioned antitrust agencies: They're particularly hostile at the moment and will bring a lot of suits to block deals, especially customer-facing deals in tech or healthcare. I like cases such as SPB that are already in front of a judge. The FTC and DoJ can bring cases, but they have to make their case. I prefer to avoid getting hit with the stock price reaction to such suits and then load up when the government brings dumb ones likely to lose. Financing A second problem: The credit market for deal financing is quite weak. If buyers need to raise a lot of debt from banks for their deals, those deals are not likely to get done. While antitrust has been making life hard for strategic deals, the credit market has been making life particularly hard for private equity’s leveraged buyouts. In fact one of the best places in the market for short ideas in 2022 has been in speculated takeover candidates. Many of these made it into the press without making it to definitive merger agreements. So I like M&A but I'm wary of both antitrust risk and financing risk – what kind of deal does that leave me? Looking back at 2022, that left me Twitter, my biggest and best risk arbitrage position ever. Activision Looking forward, here are some of the opportunities. Microsoft (MSFT) is buying Activision (ATVI) in a deal that the FTC is trying to block on dubious antitrust grounds. They can delay it and even interfere enough to stop it, especially if they get an assist from foreign regulators such as the UK’s CMA. But the deal price is $95, as of this writing the shares cost about $77 and they aren’t worth all that much less than they cost even without the deal. So this was not worth it before the antitrust problems were fully priced in but is increasingly interesting since then. This may be one of the best definitive merger arbs at the moment, so is another I have my eye on. Amplify In terms of deal financing, eventually the credit market will stabilize. It doesn’t even need to strengthen as much as just settle down so participants know where to price debt. That’s why I’m focusing on situations for 2023 that need a few more months anyways. One in particular is Amplify Energy (AMPY). It costs about $7 per share and is worth at least twice that. The value is likely to be unlocked well before the end of next year. First, they have a damaged pipeline that needs fixing. Then, they have commodity hedges that can be rolled off. They will be able to use the repaired pipe for the cash flow necessary to completely deleverage their balance sheet. At which point, this wildly undervalued and undersized oil and gas company will be a layup of a sale candidate to a larger strategic buyer. This is safe, lucrative, uncorrelated, and likely to be a one-decision investment from here. If you can buy any under $10 per share, you will probably get a significant premium to that price in a sale. Ideally, the timing could work out so that it closes late enough in 2023 to get long-term tax treatment on what could be a monster gain. This is my biggest and favorite position at the moment (a best idea candidate, but it's volatile, so no decision until closer to Year End so I can see the starting price). Abiomed This one will actually be over (in terms of the window for taking advantage of it) by month end. It's a merger security that avoids any antitrust or financing risk. You could lose a little over a dollar (depending on the specific price you get) or make over $33. Johnson & Johnson (JNJ) is buying Abiomed (ABMD). It has already secured all regulatory approvals including the US, Germany, Austria, and Japan. Then by the end of this week they will tender for shares and send you $380 in cash per share, returning approximately your entire cost basis. That leaves you with, at worst, a tie. Then what? Then you get a non-tradable contingent value right worth up to $35. Sometimes these pay out, sometimes they don’t, and often they settle years later when holders sue the issuers over their treatment. You’re paying just over a dollar (I paid less than nothing) for a ticket that could settle or payout many times that. Details from the offer: Each CVR represents a non-tradable contractual contingent right to receive the following cash payments, in each case without interest and less any applicable tax withholding (the “Milestone Payments”) if the following milestones (the “Milestones”) are achieved: • $10.00 per CVR, payable upon earliest to occur of the following (the “Clinical Recommendation Milestone”): • results from the STEMI DTU study undertaken by the Company contribute to the publication of a Class I recommendation in the Clinical Practice Guideline (as defined in the Merger Agreement) recommending the use of any device in the Impella Product Family (as defined in the CVR Agreement) in patients presenting with ST-Segment Elevation Myocardial Infarction (“STEMI”) or Anterior STEMI, without cardiogenic shock, if such milestone is achieved prior to the earlier of (i) four years following the publication of results relating to the secondary clinical endpoint in the STEMI DTU study and (II) December 31, 2029 (the “STEMI Recommendation Milestone”); • results from the PROTECT IV study undertaken by the Company contribute to the publication of a Class I recommendation in the Clinical Practice Guideline recommending the use of any device in the Impella Product Family in high-risk patients with complex coronary artery disease and reduced left ventricular function, if such milestone is achieved prior to the earlier of (i) four years following the publication of results relating to the primary clinical endpoints in the PROTECT-IV study and (II) December 31, 2029 (the “HRPCI Milestone”); and • results from the RECOVER IV study undertaken by the Company contribute to the publication of a Class I/1 recommendation in the Clinical Practice Guideline recommending the use of any device in the Impella Product Family in patients with STEMI-Cardiogenic Shock, if such milestone is achieved prior to the earlier of (i) four years following the publication of results relating to the primary clinical endpoints in the RECOVER-IV study and (II) December 31, 2029 (the “Cardiogenic Shock Milestone”); • $7.50 per CVR, payable upon the occurrence of approval by the U.S. Food and Drug Administration of a premarket approval application or premarket approval application supplement for the use of any device in the Impella Product Family in patients with STEMI, or Anterior STEMI, without cardiogenic shock (the “FDA Approval Milestone”), if such milestone is achieved prior to January 1, 2028 (the “FDA Approval Milestone”); and • (i) $17.50 per CVR, payable upon achievement of aggregate worldwide Net Sales (as defined in the CVR Agreement) of $3.7 billion during the period from the first day of Parent’s second fiscal quarter of 2027 through the last day of Parent’s first fiscal quarter of 2028, or (II) if clause (i) is not satisfied, $8.75 per CVR, payable upon achievement of aggregate worldwide Net Sales of $3.7 billion in any four consecutive fiscal quarters during the period from the first day of Parent’s third fiscal quarter of 2027 through the last day of Parent’s first fiscal quarter of 2029 (the “Net Sales Milestone”). Willis Lease Willis Lease (WLFC) costs less than $60 and is worth over $100 per share. Management has been uglifying it in preparation for an MBO. They offered $45 and could easily offer $60-70 per share. They will get most of its value. While engines that they buy and lease out actually typically increase in market value early in their lives, they mark them at the lesser of their appraised and depreciated value, so always downward. That leads to a stock trading at a big discount to book value and book that is massively understated. Why is this a great opportunity just sitting there to be picked up? Public majority owned companies have been good places to look even in this terrible year for takeover candidates. We have exploited many for safe and lucrative investments and this one is our next big priority among minority investments with a majority, following Turquoise Hill (TRQ), Continental, and a basket of publicly traded MLP subsidiaries. 2023 Which one will be my No. 1 pick for 2023? It may be none of the above but will share their most salient characteristics - massively undervalued with a route to getting that value in this next year. It will be a top position and one I first disclose, along with all my best ideas, first on StW. Then, once we get into the New Year, I’ll subsequently release it to the general public. Conclusion I don’t know what the market will do in 2023. But I do know that with enough work, you can uncover and understand corporate events that can make you money in any market. Some of my favorites at the moment involve complex litigation and M&A, especially focused on public subsidiaries. TL; DR RENN is still a top position. The equity stub could double, triple, or quadruple from here following the imminent cash distribution. Want one last one for December? ABMD. Buy SPB, WLFC, and AMPY for 2023. Have longer to wait? Maybe some ATVI. Stay in touch I discuss my best ideas in detail on Sifting the World, my community of long-term value investors that focuses on event driven opportunities. I invest in them for Rangeley Capital, my hedge fund. And if you want to follow any of my other pursuits outside of stocks, then you can check out my journal Vale Tudo. This article was written by #1 ranked arbitrage service #1 ranked event driven service #1 ranked M&A service Analyst’s Disclosure: I/we have a beneficial long position in the shares of RENN, ABMD, AMPY, ATVI, SPB, WLFC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. https://seekingalpha.com/instablog/957061-chris-demuth-jr/5549358-legal-disclosure Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (69) whats the float? plus 10 mill buyback?

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Bill Gates Net Worth, Investments and Holdings

In this article we are going to take a look at an overview of Bill Gates’ net worth, his investments in some interesting startups and his 10 biggest holdings as of the third quarter of this year. If you want to skip this part and see his top 5 holdings, click Bill Gates’ Top 5 […]

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Bill Gates Net Worth, Investments and Holdings In this article we are going to take a look at an overview of Bill Gates' net worth, his investments in some interesting startups and his 10 biggest holdings as of the third quarter of this year. If you want to skip this part and see his top 5 holdings, click Bill Gates' Top 5 Holdings. Bill Gates' Net Worth Bill Gates has been featuring in world’s richest people lists for quite some time now. As of December 19, Bill Gates’ net worth, according to Forbes’ real-time billionaires list, stands at $104.2 billion. He ranks sixth in the list. Gates enjoyed the title of the richest person in the world from 1995 until 2017, except for 2010 and 2013. In 2017, Jeff Bezos surpassed Gates to become the richest person in the world. What made Bill Gates one of the richest people on this planet was Microsoft Corp (NASDAQ:MSFT), which Gates co-founded in 1975. Microsoft Corp (NASDAQ:MSFT) now has a market cap of $1.8 trillion. Bill Gates has given billions in charity. Earlier this year, in a tweet, Gates said that he eventually plans to give away all his wealth to Bill & Melinda Gates Foundation. “I will move down and eventually off of the list of the world’s richest people,” the tweet said. Bill & Melinda Gates Foundation’s annual spending is expected to rise to $9 billion per year by 2026. Bill Gates' Investments in Startups Bill Gates invests in several up-and-coming startups that are working to solve some of the world’s biggest problems. As climate has been the focus area of Bill Gates over the past few years, his investments in startups are also concentrated in the energy sector. Gates invests in these promising companies via Breakthrough Energy Ventures. We will discuss five of the most prominent startups Bill Gates has invested in according to the BEV website. - A notable investment of Bill Gates is in Turntide Technologies, a company that is working on various solutions to accelerate decarbonization. The company makes smart motors and technologies for buildings and agriculture to reduce carbon emissions. - Bill Gates also invested in C16 Biosciences, which produces sustainable alternatives to palm oil using biotechnology. Media reports suggest C16 Biosciences is ready to launch a palm oil alternative as early as next year. - Blue World Technologies is working on fuel cell technology that can be used in various applications to replace diesel generators and combustion engines. Bill Gates’ Breakthrough Energy Ventures took part in a 37 million euros series-B investment round for the company. - Dandelion Energy is a geothermal startup that installs geothermal systems in homes. Last year the company received a $30 million investment from BEV. - Another important investment of Bill Gates is LuxWall, which creates transparent, thermal insulation using vacuum glass technologies to significantly reduce building energy consumption and carbon emissions. In addition to BEV, Bill Gates also invests in interesting startups via Bill & Melinda Gates Foundation. All these investments are listed on the trust’s website. Some notable startups which the trust is currently backing include: - AgBiome: a biotechnology company that is working on crop protection. - Atreca: a biotech company that makes therapeutics based on its ability to rapidly characterize the human adaptive immune response at the single cell level. - CureVac: a Germany-based company that makes therapies and vaccines based on messenger RNA. - Clinvet: a global veterinary contract research organization (CRO) that specializes in the conduct of clinical and pre-clinical trials to evaluate the safety, metabolism and efficacy of animal health products. - CropIn Technology: an India-based startup that is using technology to solve problems like food insecurity, low crop yields, climate change and much more. - Lyndra Therapeutics: a Massachusetts-based company whose drug delivery platform is designed to deliver medicine for a week or longer in an oral form. Bill Gates' 10 Biggest Holdings To see Microsoft Corp (NASDAQ:MSFT) co-founder Bill Gates' holdings, we will take a look at the 13F portfolio of Bill & Melinda Gates Foundation and pick the 10 biggest holdings of the trust as of the end of the third quarter. 10. Waste Connections Inc (NYSE:WCN) Waste Connections Inc (NYSE:WCN) was a new arrival in Bill Gates’ portfolio in the third quarter. Bill & Melinda Gates’ foundation ended the September quarter with a $290.4 million stake in the company. Waste Connections Inc (NYSE:WCN) is a North American integrated waste services company which provides waste management services like waste collection, transfer, disposal and recycling services, primarily of solid waste. Last month, Waste Connections Inc (NYSE:WCN) declared a dividend of $0.255/share, which shows a 10.9% increase from prior dividend of $0.23. Of the 920 hedge funds tracked by Insider Monkey as of the end of the September quarter, 33 had stakes in Waste Connections Inc (NYSE:WCN). The total value of these stakes was about $1.2 billion. 9. Coca-Cola Femsa SAB de CV (NYSE:KOF) Headquartered in Mexico, Coca-Cola Femsa SAB de CV (NYSE:KOF) is a subsidiary of FEMSA. Coca-Cola Femsa SAB de CV (NYSE:KOF) markets and sells Coca-Cola trademark beverages. For the third quarter, Coca-Cola Femsa SAB de CV (NYSE:KOF) posted a net income of Ps.4.37 billion. Revenue in the period jumped about 18% on a year-over-year basis. Coca-Cola Femsa SAB de CV (NYSE:KOF) is not very popular among the elite hedge funds tracked by Insider Monkey as just 9 of the 920 funds in our database reported having stakes in the company at the end of the September quarter. However, Coca-Cola Co (NYSE:KO) remains one of the most popular stocks among elite funds. At the end of the third quarter, 59 hedge funds reported having stakes in the beverage company. 8. Walmart Inc (NYSE:WMT) Microsoft Corp (NASDAQ:MSFT)'s Bill Gates’ fund entered the last quarter of 2022 with a $392 million stake in Walmart Inc (NYSE:WMT). Last month, Bank of America analyst Robert Ohmes said that Walmart Inc (NYSE:WMT) had a stunning Black Friday shopping season. The analyst said that in the stores he visited, traffic was strong, especially in the electronics, grocery & toys sections. The analyst noted that Walmart Inc (NYSE:WMT) stores were well-staffed and well-stocked. In a separate report earlier in November, Ohmes had noted that Walmart Inc (NYSE:WMT) had a strong ability to survive any possible recession in the US. He had said in a report that Walmart Inc (NYSE:WMT) has less exposure to discretionary spending when compared to other players in the market like Target. He reminded investors that Walmart Inc (NYSE:WMT) had outperformed the market in the last five recessions. 7. Ecolab Inc (NYSE:ECL) Bill Gates’ fund has been holding stakes in Ecolab Inc (NYSE:ECL) for over a decade now. At the end of the September quarter, Bill & Melinda Gates Foundation reported having a $703 million stake in Ecolab Inc (NYSE:ECL). Ecolab Inc (NYSE:ECL) develops and offers services, technology and systems to clean and purify water. Recently, Ecolab Inc (NYSE:ECL) stock took a dive after the company gave a weak Q4 guidance and also announced Q3 results. Net earnings in the September quarter came in at $347.1 million, up from $324 million reported in the comparable quarter last year. Ecolab Inc (NYSE:ECL) expects its Q4 earnings to take $0.11 per share hit due to foreign currency headwinds and higher interest expenses. 6. Caterpillar Inc. (NYSE:CAT) Microsoft Corp (NASDAQ:MSFT)'s co-founder Bill Gates’ fund has a $1.21 billion stake in Caterpillar Inc. (NYSE:CAT), as of the end of the third quarter. Caterpillar Inc. (NYSE:CAT) was in the news recently as the company posted strong Q3 results, thanks to the increasing demand of its earth-moving equipment and solid pricing power. Caterpillar Inc. (NYSE:CAT) rose and led the large-cap industrials group during the week ending October 28. However, Deutsche Bank analysts downgraded the stock, citing global recession fears. Nonetheless, Caterpillar Inc. (NYSE:CAT) remains one of the strongest players in the market. The stock has gained 10% year to date despite the global market headwinds. Caterpillar Inc. (NYSE:CAT) has been increasing its dividend for the last 28 years without a break. As of the end of the third quarter, 43 hedge funds tracked by Insider Monkey had stakes in Caterpillar. The total value of these stakes was $2.84 billion. Among the biggest stakeholders of the company are Ken Fisher's Fisher Asset Management ($1.2 billion stake) and Ric Dillon's Diamond Hill Capital ($311 million stake). Click to continue reading and see Bill Gates' Top 5 Holdings. Suggested articles: Disclosure: None. Bill Gates Net Worth, Investments and Holdings is originally published on Insider Monkey.

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Better Buy: Atlassian vs. Microsoft

A decade ago, most investors wouldn't have mentioned Atlassian (NASDAQ: TEAM) and Microsoft (NASDAQ: MSFT) in the same breath. Atlassian, which is based in Australia, provides software which helps employees plan their product launches and collaborate with each other. Microsoft, one of America's top tech companies, develops a much wider range of enterprise software.

Yahoo

Better Buy: Atlassian vs. Microsoft A decade ago, most investors wouldn't have mentioned Atlassian (NASDAQ: TEAM) and Microsoft (NASDAQ: MSFT) in the same breath. Atlassian, which is based in Australia, provides software which helps employees plan their product launches and collaborate with each other. Microsoft, one of America's top tech companies, develops a much wider range of enterprise software.

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3 Top Growth Stocks I'd Buy Right Now Without Any Hesitation

It has been a difficult year for stocks generally, and especially growth stocks. As inflation spiked and interest rates followed, the hit to growth stocks, with the bulk of their profits well out in the future, has been especially large. After all, Microsoft (NASDAQ: MSFT) has been able to consistently grow by double digits in most quarters over the past decade, especially under CEO Satya Nadella, who took the helm in 2014.

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3 Top Growth Stocks I'd Buy Right Now Without Any Hesitation It has been a difficult year for stocks generally, and especially growth stocks. As inflation spiked and interest rates followed, the hit to growth stocks, with the bulk of their profits well out in the future, has been especially large. After all, Microsoft (NASDAQ: MSFT) has been able to consistently grow by double digits in most quarters over the past decade, especially under CEO Satya Nadella, who took the helm in 2014.

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Microsoft: Cyclical Negatives Obscuring Secular And Technology Positives

Microsoft's latest quarter showed the effects of cyclical headwinds of various kinds on the company's business. See why I will still continue to own MSFT stock.

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Microsoft: Cyclical Negatives Obscuring Secular And Technology Positives Summary - Microsoft's latest quarter showed the effects of cyclical headwinds of various kinds on the company's business. - Growth guidance for the company's Azure business disappointed. - Earnings and cash flow estimates were cut. - Yet none of this represented a deterioration in the company's market position or loss of share in any relevant market. - The company's various strategies to grow faster than the market and to improve margins are battling macro headwinds but remain successful. Microsoft’s latest quarter: Warts on display; Opportunities on the horizon I don’t usually write about specific quarterly results for different companies. I realize that many readers are anxious to see an evaluation of quarterly results in the shortest possible time. I used to do that as part of my job as a brokerage analyst; for the most part, providing a horseback evaluation for clients was not the most productive use of my time-or so far as it goes, theirs either. While quarterly results and the following conference calls are the best insight most investors will have into the current state of demand for a company’s services and the issues and opportunities of its business model, at the end of the day, they are just quarterly results. By the time you read this, 45 brokerage analysts will have published 45 reports on Microsoft (NASDAQ:MSFT) trying to evaluate the company in the context of its guidance and to a lesser extent, its quarterly numbers. There will also doubtless be many SA articles, and articles from other market commentators on the same point. There will be a couple of ratings changes-and they will be downgrades, 45 estimate changes, all down, probably 45 price target changes, all of them reductions. By the time you read this, all of those changes in both numbers and dialogue will be incorporated into the share price, I believe. I am not going to try to persuade anyone that black is white. The quarter that Microsoft reported was mediocre to put the best spin on it, and the guidance certainly has shaken some shareholders and analysts, although the shares wound up the day after earnings with just a marginal loss. This is not an article that suggests a trading strategy for Microsoft shares or their likely relative performance over the next few weeks or even months. A large part of the trend of Microsoft’s share price in the short term is going to be a function of market sentiment toward risk-on trades that rely on future growth for their justification. And in turn, that sentiment will mostly be a function of investor beliefs about recessions, soft or medium or hard landings, inflation and the cadence of a Fed pivot. This is NOT intended to be an article about any of those subjects. Trying to forecast the “hardness: of the landing is not something that I think I can do; frankly, given the recent track record of professional economists, I am not so sure that such a forecast is possible given the technologies that currently undergird how economists make projections. Should readers buy or hold Microsoft shares. One SA contributor has rated the shares a sell in the wake of the recently released earnings. I own the shares, have done for several years, and expect I will continue to do so. But I acknowledge that owning the shares is not necessarily part of a strategy of maximizing short-term percentage returns. As I will explore in this article, Microsoft is dealing with both the cyclical slowdown in cloud consumption, a slowdown in growth of its most popular applications, and a unique cyclical slowdown in Windows OEM which has impacted margins and cashflow. The Morgan Stanley analyst team recently opined that “messy prints look increasingly priced in.” That is basically my conclusion when it comes to Microsoft shares and the recently reported quarter. No, the quarter wasn’t pretty to consider, but anyone who has owned the shares, or even those just considering the establishment of a position, ought to have been well aware of the shoals that have made the recent Microsoft investment journey more than a bit choppy. Microsoft’s valuation has long been supported by its lofty free cash flow margin has been in the mid 30% range. The free cashflow margin fell to about 10% last quarter, down from about 17% in the year earlier period-there is significant seasonality in free cash flow margin with free cash flow margins reaching a peak in the company's fiscal Q4. Microsoft has a broad range of businesses, some of them more cyclically sensitive than others. It is worthy of comment, that Windows OEM revenues fell by 39% last quarter, and in turn this caused revenues in the More Personal Computing segment to fall by 19% year on year, although because of seasonal factors the segment’s revenues rose sequentially. More Personal Computing represented about 27% of Microsoft’s revenues last quarter, and about 16% of the company’s operating income. Segment operating income declined more than 45% this past quarter. This was hardly surprising to anyone who has followed or invested in Microsoft shares for a significant period-after all this is what was forecast by the company CFO the prior quarter and for that matter even in earlier conference calls. Should Microsoft’s result’s and guidance shake readers? The broadly consensus view is that until the company can demonstrate that Azure growth is no longer declining, the shares will be range bound. I don’t think I need to quarrel with that view so far as it applies to the next few weeks or even the next quarter, although I will observe that stocks often anticipate actual turns in operational performance. I don't expect that anyone buying IT shares Wednesday afternoon in the wake of the Fed Chairman's press conference was doing so because they expected the earnings of IT companies to accelerate significantly in the next 1-2 quarters. Looking at Microsoft, specifically, Is the guidance now sufficiently de-risked? There is some thought that the company chose to be more conservative than usual in providing a forecast, and its forecasts are almost invariably conservative. Just to answer the question above, there was nothing in these results that was much of a surprise, or which should shake the convictions of long term investors about the company’s future. To be quite specific, the Azure revenue model is based on usage. For some quarters now management has been telegraphing that its users were “optimizing” their usage of Azure and this was leading to constrained revenue growth. The CEO, specifically, said that the savings users were achieving through optimization were going into new workloads for its cloud. And based on what he actually said, rather than the construction some have chosen to put on his comments, these new workloads should begin to buoy revenue growth going forward-actually within the next 2-3 quarters as the year cited in the quote below is the fiscal year that ends 6/30/23. Kash Rangan Thank you very much. Satya, I am curious if you could talk about how long the cycle time for optimization lasts. Are we talking a couple of quarters, few quarters or multiple years, because I do take your comment about tech spending as a percentage of global GDP going higher? So, if that were to happen, this – how do you frame the duration of this optimization that’s happening in the industry? Thank you so much. Satya Nadella I mean I think that you can – you have a workload, you optimize the workload and you start a new workload. So, the thing that I would say is when you are done with optimizing a workload is when you are done with the cycle. So, I think if you sort of say, when did we enter this, we accelerated existing [ph] workloads during the pandemic over a period of 2 years. So, we are optimizing. I don’t think we are going to take 2 years to optimize, but we are going to take this year to optimize. And then as we optimize the new projects start and the new project starts don’t start instantly at their peak usage. They start and then they scale. And so those are the two cycles that will happen where there will be a time lag. Honestly, this is not really a new concept, it is an old concept played out in a new context. IT spending has always had a very high demand elasticity. Optimizing is not a code word, as one commentator suggested, for flagging demand. It is the strategy of reducing the cost of a unit of compute in a workload. In turn, that leads to stronger demand for new workloads, and starts the growth cycle again. I will also observe that these results and this guidance are in the context of macro headwinds and as such has been anticipated by most Microsoft investors and commentators for some quarters now. Microsoft exists in the economy; its results are not going to show positive trends when economic activity is contracting. Even more specifically, as mentioned, Azure, which is the flash point of negative reviews, is a usage based service. Azure annual bills can easily top $100 million for larger users. When companies look to control their expenses, payments to opex vendors that exceed $100 million/ year are going to be carefully scrutinized. Microsoft is being impacted by macro headwinds. And macro headwinds are going to persist for a couple of quarters, perhaps until the Fed pivots, or perhaps until the value or the necessity of the using cloud applications to run enterprise business becomes more evident to Microsoft customers. While Microsoft’s results are going to be impacted by macro headwinds, the question that arises is whether its long-term expectations have changed, and whether its valuation will be more impacted by a Fed pivot than by the short term operational issues that were outlined during the earnings presentation. The company’s opportunities, of which there are many, are not being upended or even greatly deferred by quarters that reflect macro headwinds. At least to me, the investment that Microsoft is making into OpenAI, and the solutions that will come from that investment, are of far more importance than the confirmation that Azure’s usage based revenues can be impacted by macro headwinds. I have been a long time investor in shares of Microsoft shares; I initially established a position in 2017 and have added to it opportunistically and have written about its investment merits on SA from time to time - 24 times the record says. So, perhaps that inflects my comments to some extent. I will review the reasons why I think the company’s overall strategy has been successful, and how infusing its stack with OpenAI technology will build on that success. Migrating applications to the cloud is not going on hiatus, and the factors that have led Azure’s market share gains haven’t changed either. The cloud barely existed as a major factor in IT demand when there was last a recession. The fact that its usage, as opposed to adoption, has some cyclical sensitivity is not a huge surprise, or something that ought to lead to investor consternation. The ability the company has had to sustain margins despite the substantial headwind created by the cyclical decline of More Personal Computing revenue should be quite heartening to long term investors. The decline in Azure Growth-Worrisome or just cyclical headwinds? The growth of Azure revenues has been the basic reason why many investors have made a significant commitment to Microsoft shares. Microsoft doesn’t specifically report Azure revenues and their actual level has been a source of controversy. At this point, the preponderance of the evidence suggests that Azure revenues on a standalone basis have reached to the low $40 billion level on an annualized run rate basis, or around 20% of the company’s revenue. There has been and remains some uncertainty with regards to the exact level of Azure revenues; some months ago, competitor Google (GOOG) (GOOGL), apparently working with purloined documents, said that Azure’s revenue were lower than the then mid-point of analyst guesses. Some of that report has subsequently been discredited. Regardless of the precise revenue number, and even the precise margin contribution (Google has suggested that Azure operating margin is negative because of aggressive pricing; that is supposed to explain its above market rate growth-and by inference the inability of Google to match Microsoft's growth in this market.), it is obvious, I believe, that Azure has been gaining share in the public cloud IaaS space and has been doing so for some time now. There are reasons for that. I won’t even try to suggest that Azure is a “better” service in terms of key performance metrics, or it is cheaper for users. There are all kinds of claims in this space, and third party analysis certainly doesn’t suggest a clear choice as to whose solution is best, and for whom-although the link above, suggests Azure is the best of the bunch. The waters are even more muddied when it comes to considering the cost of ownership. It is really a function of workloads, and the specific mix of services that users elect to purchase. Nor, I believe, is Microsoft’s success a product of a more or less effective sales motion than its competitors. Anecdotal evidence that I have suggests that none of the large public cloud companies excel in sales execution and this last quarter, for what it is worth, the CEO of Microsoft called out sales execution as a problem rather than a positive differentiator. My view is that Microsoft’s success with Azure is basically because of its platform approach. For example, Teams, is a wildly popular application. Teams is optimized to work with Azure and some users will consider buying Azure simply because the performance of Teams is so important for their operations. Probably the most important integration offered by Microsoft is that of Dynamics365 with Azure. The success of Dynamics365 in terms of its own market share gains has been substantial. Dynamics365 is optimized to work with Azure. It would be foolish to even try to suggest that Teams is better or worse than what is being offered by Slack/Salesforce (CRM) or that Dynamics 365 is a better offering than the Oracle (ORCL) Cloud ERP or SAP's (SAP) cloud offerings. There has been and will be much written about vendor consolidation. Microsoft Azure is perhaps the service that has derived the greatest benefit from that trend. It is obvious, I think, that the Microsoft stack offers users a far more comprehensive set of solutions, that the offerings of either GCP or AWS (AMZN). And while Azure may or may not have a more attractive pricing structure when compared to GCP and AWS in isolation, many users are going to achieve an overall lower cost of ownership when using a Microsoft centric stack. I don’t want to suggest that the stack approach is some kind of universal panacea. That isn’t the case and some users prioritize the avoidance of vendor lock-in as opposed to vendor consolidation. But I think the stronger growth of Azure has been mainly a function of its being part of a comprehensive stack, while the offerings of its rivals simply have no such exogenous demand driver. There is every reason to believe that Azure’s above market growth will continue, and that is certainly true in the wake of the company’s announcement with regards to its investment in and collaboration with OpenAI. The other question some may ask is what is the outlook for the growth of the public cloud? As mentioned, the public cloud barely existed at the time of the last recession so there is no real guide as to how users will moderate their growth in usage. The market size for the public cloud, overall is projected to be about $525 billion this year as suggested by the link here. Of that amount about half is from apps, and the other half is from the infrastructure, the market addressed by Azure. That said, the study doesn’t really break down the infrastructure space, and thus overestimates the TAM actually addressed by Azure. The CAGR through 2027 is forecast to be 14%. But what about this year, 2023? Gartner in the link presented here, forecasts growth in the space will be about 21% this year. Infrastructure, the part of this survey in which Azure competes, is expected to rise by 29% this year to $150 billion. So, that suggests that Azure has a market share of a bit less than 25% and is still growing faster than the overall market. The study does show that growth of cloud based applications, as opposed to infrastructure, is experiencing some impact from macro headwinds. Given the near unanimity of IT company managements suggesting that their sales cycles are elongating, and deals are being postponed and are being broken into smaller agreements, this is not terribly surprising. This has happened to Microsoft; it sells public cloud infrastructure and cloud applications and the growth of the offerings has slowed, but is still at rates indicating market share gains. There are some commentators who have made the assumption that the current growth slowdown in the growth of cloud usage relates to something more than a cyclical headwind. The migration to the cloud is not a matter of style, but one of substance. Simply put, running applications in the cloud has significant advantages in terms of cost, performance, time to deployment (efficiency of cloud native development) and security. While the growth in usage of cloud infrastructure is self-evidently slowing, the migration of apps to the cloud is continuing and seems likely to continue. Users may be looking to optimize cloud usage; on the other hand, any user looking to optimize overall IT spend will seek to move as many workloads to the cloud as possible-the savings in opex by doing so is just that substantial. Usage growth seems partially correlated with economic activity; while it can be difficult to forecast, its decline is likely to be more in the nature of a speed bump than a trend. The rest of Microsoft This is not meant to be a comprehensive analysis of all of the company’s many different businesses. I have tried to touch on the highlights that can move the needle. While Azure has been the growth driver for Microsoft for some time now, 80% of the company’s revenue comes from other sources. The company reports specific revenues and operating margins in 3 discrete categories which are productivity and business processes, intelligent could, and more personal computing. It also reports the growth of many other segments in terms of percentages. At this point, the Intelligent Cloud segment, which is the largest segment with almost 42% of total revenue, is also the fastest growing, despite the growth rate declines of the past 2 quarters. It is also the most profitable segment, accounting for almost 44% of net operating income. Microsoft is now enduring the return of its Windows OEM business to the business levels seen before the spike caused by the pandemic and its aftermath. And it is also dealing with declines in gaming revenue with Xbox revenues falling by 10% overall and also with a very noticeable decline in revenues from its Surface PC business. While the More Personal Computing segment saw revenues decline by 18% year on year, operating income in the segment fell by 47%, or $2.9 billion. The company is forecasting a slightly slower rate of decline in this current quarter with no significant improvement in any of the negative trends the company has reported. Windows OEM is not likely to return to growth any time soon. What is more likely is that the precipitous fall in revenues will abate simply because comparisons lap and no longer will reflect the growth in PC shipments during and shortly after the pandemic In turn. that will stabilize the revenue performance of the More Personal Computing segment. With more stable revenues and the recently announced layoff, the segment operating profit ought to stop falling; I think it can even start to grow by the end of the year based on cost containment measures. It is one reason why I anticipate that the company’s EPS growth can exceed consensus levels by the end of the current fiscal year. One of Microsoft’s major businesses is Dynamics, the company’s application software brand. Microsoft now gets 80% of its Dynamics revenue from its cloud offering. That is one of the key factors in its ability to continue to grow app revenue at greater than market rates-it simply doesn't have the boat anchor of on-premise application revenues of its rivals. In addition, some of the sales execution issues currently plaguing Salesforce, have enabled the company to pick up some share points as well. At this point I think most industry analysts consider Dynamics 365 and its competitors to have rough functional equivalence. But the fact that Dynamics 365 is optimized for Azure, and vice versa is a significant strategic advantage. The application software business, even its cloud component, is not terribly exciting. But market share gains and improving segment margins in this category can be exciting for investors. The other business segment on which I focus has been Office Commercial 365. In constant currency, Office Commercial 365 grew by 18% last quarter, despite the issue of macro headwinds. Seats are still growing and ARPU is still rising. This is the segment that includes Teams as well as the traditional apps associated with Microsoft such as Outlook, Word, Excel and PowerPoint. Microsoft has managed to keep in front of the curve here by adding features that seemingly resonate with users. Some of the growth in this segment has been inorganic as the result of the company’s acquisition of Nuance, but other than that growth has remained fairly stable, and the company is forecasting that to continue despite macro headwinds. The Nuance speech recognition solution is based on AI technology and will likely benefit from the technology available through the OpenAI partnership. There are of course many other segments of some significance in assessing Microsoft’s growth rate, both currently and in the future. LinkedIn has seen some contraction of growth as part of the overall pullback in digital advertising as well as lower hiring. Overall, the company has a variety of solutions that address the digital advertising market, and like much else in the digital advertising space, it is facing macro headwinds (although perhaps Meta's results reported Wednesday afternoon suggest that the demise of the digital advertising space has been...exaggerated.) At this point, the headwind posed by the decline in digital advertising spend is not really material, and it isn’t likely to be all that material when the tide starts to reverse. The company has an extensive security portfolio; it is one of the leaders in endpoint security, and it offers Defender for the Cloud as well as Sentinel, a SIEM offering. If its cybersecurity offerings were an independent company, it would be the world’s largest-but of course if it were an independent company, it could never have grown to the extent that it has. The advantage of Microsoft security is not specifically functionality; it is that a Microsoft solution is available at a lower price than what is available from point providers, and it is available on a single platform. As mentioned earlier, platforms provide significant sales synergies, and Microsoft is reaping those benefits. Overall, security revenues were indicated to be around 10% of the company’s total, and the company maintains that it is taking share. While given the nature of the security space it can be difficult to precisely measure market share, security is a component of the Microsoft offering growing more rapidly than the company as a whole, and this should persist into the foreseeable future. Lots of commentators want to comment on Microsoft’s proposed acquisition of Activision (ATVI). I simply lack the second sight necessary to make an informed judgment as to how this plays out. The field of antitrust is one in which there are a multiplicity of opinions. I personally do not see this merger as anti-competitive or that it violates any of the relevant anti-trust laws in this country or that is breaks with precedent. The current administration has different views and so, apparently, does the competition authority in the EU. I think it is best to analyze the company as it is…and if a deal is eventually reached to buy some or all of AVI on a reasonable basis that would be lagniappe. OpenAI/ChatGPT-Hype, game changer or something in between? Yes, AI is overhyped. It has been overhyped for some years since IBM’s (IBM) Watson was going to change that company, or when Einstein was supposed to have a similar impact on the growth of Salesforce. On the other hand, somewhat stealthily, AI has come to suffuse a vast preponderance of new applications as they are developed. As I think most readers are aware, Microsoft has made a significant investment (probably $10 billion) into a company called OpenAI. OpenAI was founded at the end of 2015 and is organized as a non-profit research company, and a for-profit limited partnership. Initially, the company was funded by some high profile investors including Elon Musk and Peter Thiel. The company adopted its structure in 2019 so it could be competitive for talent. It is a rather complicated structure with some ostensibly conflicting roles for investors, employees and directors. In any event, Microsoft began investing in the company and was one of two investors who put $1 billion into the company at that point. Since that time the company has introduced GPT-3, a natural language for asking and answering questions. GPT-3 is the heart of the company’s product strategy. In 2023 the company introduced DALL-E, a deep learning model that can produce digital images when an object is described orally. The product that has received the greatest attention is ChatGPT based on GPT-3. While Chat’s ability to write term papers and play games has gotten most attention, in fact it can be used to write and debug computer programs. The models were trained in collaboration with Microsoft, using the company’s Azure infrastructure. Microsoft has developed a service based on that technology available as part of Azure. Azure is OpenAI’s exclusive cloud provider and Microsoft will be deploying the models that have been created across the company’s various products. While Azure Machine Learning revenues have been growing at triple digit rates according to the company CEO, the company hasn’t disclosed what that means in absolute dollars. Obviously it is nowhere near enough to overcome the contraction in usage growth. The use of ChatGPT to write term papers and articles, to compose music and poetry and to simulate an entire chat room has gotten lots of attention. The technology has some serious limitations; the one called hallucination is most prominent which can cause the bot to write incorrect or nonsensical answers. It is still in shakedown mode; it doesn’t recognize events that have occurred since 2021 and it is going to have issues-as it really should-in dealing with political opinions. I really am quite unable to answer the question as to how Chat’s technology compares to what is on offer by Google or by C3.ai (AI) and others and how its development path might look over time. My guess is that ChatGPT does have a significant lead in terms of the functionality of its models, but the overall opportunity is of a magnitude that there certainly will be more than a single winner. Google is said to be ramping its AI investment and investors, and users will be faced with a plethora of competing claims about which model is more accurate, and which service provides the best business value. I have no way of attempting to handicap the race other than the obvious comment that ChatGPT is an early leader. Microsoft's CEO, of course, has been very positive in his evaluation of the development. Now on to AI. The age of AI is upon us and Microsoft is powering it. We are witnessing non-linear improvements in capability of foundation models, which we are making available as platforms. And as customers select their cloud providers and invest in new workloads, we are well positioned to capture that opportunity as a leader in AI. We have the most powerful AI supercomputing infrastructure in the cloud. It’s being used by customers and partners like OpenAI to train state-of-the-art models and services, including ChatGPT. Just last week, we made our Azure OpenAI service broadly available and already over 200 customers from KPMG to Al Jazeera are using it. We will soon add support for ChatGPT, enabling customers to use it in their own applications for the first time. And yesterday, we announced the completion of the next phase of our agreement with OpenAI. We are pleased to be their exclusive cloud provider and we will deploy their models across our consumer and enterprise products as we continue to push the state-of-the-art in AI. All of this innovation is driving growth across our Azure AI services. Azure ML revenue alone has increased more than 100% for five quarters in a row with companies like AXA, FedEx and H&R Block choosing the service to deploy, manage and govern their models. Daniel Ives of Wedbush said that the collaboration between Microsoft and OpenAI had the potential to be a game-changer. That is probably hyperbole. I do think the AI paradigm can add about 200-300 bps to Microsoft’s CAGR over time. That means that it is reasonable to anticipate the company will be able to achieve mid-teens revenue growth at margins that are comparable to the corporate average. The various AI services now available and to be available as part of Azure seem to have the potential to step up the usage of Azure, and it will probably help Azure to continue to grow at greater than market rates. Microsoft's Bing search engine is apparently set to incorporate OpenAI technology in the next several weeks, perhaps leading to a spike in Bing usage and thus Bing advertising revenues. Eventually, I expect to see AI being used in many of Microsoft’s applications and it may provide it with competitive advantages in areas such as Dynamics365 and all of the many aspects of Office 365. I certainly wouldn’t base a share purchase recommendation solely on the tailwind that the OpenAI collaboration is likely to provide to Microsoft’s CAGR. But equally, it is quite a bit more than a non-event as some have suggested. Wrapping Up: Microsoft’s Valuation and reviewing the investment case Microsoft reported a rather mediocre quarter a week ago. The shares, after initially falling are now trading a bit above where they were before the earnings release, helped in part by a decent market environment for IT equities. Microsoft has a relatively elevated EV/S ratio for its current growth rate-I have estimated its 3 year CAGR will be around 13% and my estimate of its EV/S ratio is 7.6X. Its relative valuation is much more reasonable when considering the combination of its free cash flow margin and its growth rate. While its free cashflow margin is compressing this year as it deals with the major cyclical downturn in its Windows OEM business, the rest of its business is continuing to enjoy strong margins despite constrained growth. I am estimating that the company’s free cash flow margin will bounce back to 31% from its current level over the next 12 months. Microsoft is having to deal with the same ills that almost all IT companies are facing; i.e. a noticeable moderation in demand growth. This has become most noticeable in the growth of Azure where usage growth has slowed noticeably although it is still projected to be in the low 30% range. But almost all segments of the company’s business are seeing slowing demand growth. Specifically for Microsoft, its results are burdened as well by significant cyclical pullback in Windows OEM revenues as PC demand reverts to pre pandemic trends. In turn, the sharp fall in demand for Windows OEM has severely impacted the margins in the More Personal Computing segment and has also led to a drop in the free cash flow margin. None of this was really unanticipated. I believe that most of the current revenue growth issues have already been priced into the valuation of the shares. Usage levels for Azure will probably see a nadir in the next couple of quarters although to some extent, usage can be a function of how enterprises respond to challenging economic conditions. Migration to the cloud-and that means Azure-will continue despite the uncertain economy. Growth of the other segments of the company will probably start to see a recovery later in the current calendar year, somewhat due to the lapping of difficult comparisons. The company will lap the comparisons that have caused its Windows OEM revenues to crater. In addition, the company’s announced layoffs, painful as they are, will start to positively impact margins and free cash flow as well over the next 2 quarters. I believe that Microsoft’s platform strategy has done much to enable its various offerings to grow their market share. And I think that the strategy will continue to be a substantial tailwind for demand for the foreseeable future. The ability of Azure to grow at above market rates is a function of this strategy and the ability of the company’s application suite, Dynamics 365 to take share is part of this same paradigm. Trying to quantify the exact parameters of Microsoft’s collaboration with OpenAI is more of a guess than a forecast at this point. OpenAI’s ChatGPT is winning lots of attention these days, and that functionality is getting built into many Microsoft services including Azure and Bing. For now, investors should consider the collaboration, and the associated products as more in the way of lagniappe than a core part of the company’s business. But saying that, I expect that Microsoft will achieve a lead in the deployment of useful AI technology, and in turn this will lead to additional market share gains across the Microsoft stack and to a noticeable acceleration in the company’s CAGR. I don’t believe such acceleration is priced in since it is not really feasible to quantify at this point. Buying Microsoft shares currently means having to look through another couple of messy quarters. Investors seem more disposed to do that kind of looking these days than in the recent past. Some analysts have advised investors to wait for some demonstrated bottom in usage before committing to new positions in the shares. In my own experience, if investors wait until the demand headwinds have abated, and such abatement is broadly visible, the opportunity to buy the shares at a reasonable valuation will be lost. Microsoft shares will not tick the boxes for all growth investors. I don’t expect this to be the leading recovery candidate if a risk-on bias persists in 2023. I tend to regard the position in Microsoft shares in my own portfolio as ballast in what is mainly a highly risk-on set of commitments. Thus, in a balanced IT portfolio Microsoft shares are well placed, and that is why I have owned them and will continue to do so. And if the company’s AI initiative takes flight and produces substantive revenue gains sooner and with greater magnitude than I have guessed, that will be the kind of lagniappe I enjoy sampling these days. This article was written by Analyst’s Disclosure: I/we have a beneficial long position in the shares of MSFT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (15) AI needs to be useful in the context of what users want. ChatGPT as the name implies, was designed to do what it does-provide users with the ability to make natural language queries, and get natural language answers. But I was at pains, I thought, to try to distinguish the ChatGPT app, and the technology of OpenAI which is, by all relevant definitions just that. Of course it is getting integrated into Microsoft's stack. What do you imagine this is? azure.microsoft.com/... The ChatGPT app will shortly be part of Bing. Call it what you wish-many users will find it useful, I imagine, and this, in time, will help Bing's competitive position and its ability to garner advertising.If you do not like Microsoft stock, at least do the other participants in this dialogue some specifics as to why you do not like it, rather than saying that ChatGPT is not a product of AI technologyu. As for CharGPT, competitions dilutes its importance and regulatory headwinds will limit it’s success. These include, charges of plagiarism and inaccuracies for technical decision making. While my understanding of the the way Microsoft dealt with IBM is similar to yours, what happened in the 1980s has nothing to do with any evaluation of Microsoft these days. And the fact that the company is taking appropriate actions to remediate costs, and to direct investment to higher growth opportunities is really what I want to see in the companies in which I invest. Just what free cash flow margin are you forecasting. And what is your revenue CAGR, and how do you get to that value. It probably doesn't help a dialogue too much without that understanding. Why lower $200s. Why not some other value. And over what time frame, and in what kind of market environment? I never forgot how MSFT got started, Bill Gates got rich off of IBM who he fooled into thinking it was buying an operating system. Fundamentally Microsoft knows it has to cut the fat out of its expenses. (Employment cuts, Atlanta HQ cancellations. Just to mention 2 signs in addition to Azure negative guidance. Winners with ChatGPT? This is not true AI (artificial Intelligence). AI programs computers to think and weigh logic. I disagree this will be integrated into MSFT as a AI program. All that this software does is search relevant databases and cuts and pastes. I absolutely love $MSFT team. The exponential growth is behind us but, there will be growth nonetheless. $MSFT is the only stock I have from the " big guys family " and I plan on keeping it like that. The company guided negatively for 2023 based on Azure missing. Activation Blizzard is a non starter. Gaming is declining. Chat GPT is not the AI program they hoped it would be. Employment of overpaid Microsoft employees with stock bonuses will continue. A major Microsoft HQ on a 90 acre site in west Atlanta, GA was cancelled and announced yesterday. HoloLens2 for $3,500 will suck more research money from Microsoft at it never was a winning technology. Apple is eating Microsoft’s lunch in hardware and chip technology. Great company. $MSFT will do just fine. Can't have them all. Good luck.

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ChatGPT on track to surpass 100 million users faster than TikTok or Instagram: UBS

ChatGPT is on track to surpass 100 million monthly active users, according to data compiled by UBS.

Yahoo

ChatGPT on track to surpass 100 million users faster than TikTok or Instagram: UBS ChatGPT, the AI chatbot that's garnered widespread attention since its launch two months ago, is on track to surpass 100 million monthly active users (MAUs), according to data compiled by UBS. This would mean that ChatGPT has been adopted more quickly than even TikTok or Meta-owned (META) Instagram. By UBS's count, TikTok took nine months to reach 100 million MAUs, while Instagram took 30 months to hit the same benchmark. ChatGPT could be on pace to break even TikTok's record, gaining 100 million MAUs since its November launch. "Data on DAUs suggests [ChatGPT] will surpass 100M MAUs in January, a massive achievement in such a short period of time,” UBS analysts wrote in the Feb. 1 note. “In 20 years following the Internet space, we cannot recall a faster ramp in a consumer internet app.” [Read more: AI-related stocks soar on ChatGPT craze] Big Tech's taken notice. For one, Microsoft (MSFT) has upped the ante on its investment in OpenAI, ChatGPT's San Francisco-based developer, committing another $10 billion in January. Additionally, the conversational AI app's popularity has been widely spoken about as a threat to the dominance of Google parent Alphabet (GOOG, GOOGL). Though the talk of ChatGPT as a full-fledged "Google killer" is likely overblown, UBS analysts – including Lloyd Walmsley, Karl Kierstead, and Timothy Acuri – believe that the app's success has put Google in a bind. "Google is in a catch-22, where it either (1) fails to impress, feeding questions around competitive position or (2) it overcommits, causing concern around (i) monetization risk and (ii) margin erosion," they wrote. 'The market has the potential to be exceedingly large' UBS research also suggests that the total addressable market that ChatGPT is operating in could be worth as much as $1 trillion – a number that analysts heard from VCs that, while bullish, isn't totally out of the question. "This may seem like a crazy bullish scenario and pricing could fall, but our core point is that the market has potential to be exceedingly large," the UBS analysts wrote. OpenAI this month announced that it was launching a subscription called "ChatGPT Plus" that's priced starting at $20 a month. There's a chance people will buy in, especially if ChatGPT continues to gain momentum – quite simply, right now, people are talking about it and searching for it, of course, on Google. "Google Trends data shows that worldwide Google search queries for the terms ‘chatgpt’ and ‘chat gpt’ are near peak volumes since the site was launched in November 2022, with search interest reaching the highest level to-date just a few days ago," the group of analysts wrote on Feb. 1. Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks and on LinkedIn. Click here for the latest trending stock tickers of the Yahoo Finance platform. Read the latest financial and business news from Yahoo Finance. Download the Yahoo Finance app for Apple or Android. Follow Yahoo Finance on Twitter, Facebook, Instagram, LinkedIn, and YouTube.

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Apple misses Q1 earnings expectations as iPhone sales fall short

Apple's iPhone sales fell short of analysts' expectations in Q1.

Yahoo

Apple misses Q1 earnings expectations as iPhone sales fall short Apple (AAPL) reported its Q1 earnings after the closing bell on Feb. 2, missing analysts' expectations on the top and bottom line as iPhone sales came up short, declining more than 8% year-over-year. Here are the most important numbers from the report compared to what Wall Street was expecting, as compiled by Bloomberg. Revenue: $117.1 billion versus $121.1 billion expected Adj. earnings per share: $1.88 versus $1.94 expected iPhone revenue: $65.7 billion versus $68.3 billion expected Mac revenue: $7.7 billion versus $9.72 billion expected iPad revenue: $9.4 billion versus $7.7 billion expected Wearables: $13.4 billion versus $15.3 billion expected Services: $20.7 billion versus $20.4 billion expected Apple shares were down more than 3% immediately following the report. “As we all continue to navigate a challenging environment, we are proud to have our best lineup of products and services ever, and as always, we remain focused on the long term and are leading with our values in everything we do,” Apple CEO Tim Cook said in a statement. Apple faced significant headwinds throughout November and December, from COVID lockdowns and worker protests at manufacturer Foxconn’s facility in Zhengzhou, China. The plant, which employs 200,000 workers, produces the bulk of Apple’s iPhone 14 Pro and iPhone 14 Pro Max handsets. The Pro and Pro Max, which start at $999 and $1,099, respectively, are two of Apple’s most important devices. Their steeper prices help boost the average iPhone selling price, driving higher revenues for the tech giant. According to IDC’s Worldwide Quarterly Mobile Phone Tracker, shipments of Apple’s iPhone fell 14.9% year-over-year, from 85 million units in Q4 2021 to 72.3 million units in Q4 2022. While iPhone sales slipped, Cook announced that there are now two billion active devices among Apple's installed base. Mac and Wearables sales also fell year-over-year, though Apple telegraphed those declines during its Q4 earnings report. Despite the slowing sales, Apple has still managed to avoid large scale layoffs, unlike its peers including Microsoft, Google, and Amazon (AMZN). Sign up for Yahoo Finance's Tech newsletter More from Dan Apple says using its own chips gives it a 'unique advantage' over PC industry Big Tech layoffs are a problem of the industry's own making: Morning Brief Got a tip? Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley. For the latest earnings reports and analysis, earnings whispers and expectations, and company earnings news, click here Read the latest financial and business news from Yahoo Finance Download the Yahoo Finance app for Apple or Android Follow Yahoo Finance on Twitter, Facebook, Instagram, Flipboard, LinkedIn, and YouTube

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Google: My Top Anti-Bubble Pick

After Q4 earnings, Alphabet Inc. remains the cheapest name in my beaten-down 4. See why I think it may be a while before we get deals like this for GOOG stock again.

SeekingAlpha

Google: My Top Anti-Bubble Pick Summary - With tech and IT obliterated and energy gravitated, we are in a tech anti-bubble. - Google stock remains the cheapest name in my beaten-down 4. - With the S&P 500 forming its first Golden Cross since the downturn in stocks, it may be a while before we get deals like this again. The anti-bubble quartet In previous articles addressing the "anti-bubble" framework used by Nick Sleep and Qais Zakaria in the Nomad Letters, this is something I have used as a foundation for happy value hunting. Whilst energy was down in 2020-21, tech was soaring. Now the tables have turned and we should turn to tech to hunt. While energy is certainly not a bubble based on current fundamentals, the underlying cyclical commodity from which they profit may have hit a peak. On the other hand, digital advertising and e-commerce are seeing a downturn leading to a sell-off in my favorite tech names. The quartet includes Alphabet Inc. (NASDAQ:GOOG, NASDAQ:GOOGL) ("Google"), Amazon (AMZN), Meta Platforms (META), and Microsoft Corporation (MSFT). I would throw Apple Inc. (AAPL) in there as well, but that chart is still defying gravity. All of these companies are the cream of the crop when we look back at what management has demonstrated in the allocation of capital. This is easily seen through the lens of ROIC and high-profit margins; when a segment of the market gets hit, I don't have to look far. Give me the best-managed companies at a fair discount to the historical averages. Although META stock has fallen out of my top-end price range of $146, Google is still squarely in it. Alphabet Inc. stock is a buy. Although I'm no chartist, the Golden Cross for the S&P 500 (SP500) is forming, and all boats may be lifted for some time. I hope my chance to accumulate lasts a little longer. Alphabet's story 'til now Alphabet Inc., like Meta, derives a lion's share of its earnings from digital ad revenue. It is my opinion, that until some amazing VC comes up with an acceptable way to put a chip in our heads and beam ads directly to us, digital advertising will continue to grow. Yes, we should expect a pullback in all company marketing expenses when the economy slows, but when it snaps back, look out. Google and Meta will be on a hiring spree again once that fulcrum hits. Top line numbers for Alphabet Inc. are still growing on a TTM basis while the bottom line is slowing. Non-GAAP earnings are still growing as well on the other hand. Google's digital advertising businesses have become so dominant and effective that they are now being sued by the U.S. Government to break up their monopoly. While this is a risk, it is also a reaffirmation that Alphabet has the crème de la crème digital ad portfolio. When the government calls you out, you know you've made it! Hot off the presses, you can also find the Q4 2022 Alphabet top-line numbers above. Total revenues came in slightly ahead of 2021, with ad revenue down a couple of billion dollars and cloud services up a couple of billion to offset that decline. All in all, Google revenue is flat, with the most positive item being the growth in cloud services revenue up 32% yoy. Even with the news of layoffs at Alphabet, they still ended 2022 with 33,734 more employees than in 2021. Management effectiveness Warren Buffett has said on more than one occasion that effective management, creates value with their retained earnings: "For every dollar retained, make sure the company has created at least one dollar of market value." In the case of Alphabet Inc., it has one similarity to Berkshire Hathaway (BRK.B, BRK.A) in that returns to the investor are through retained earnings and the growth of their holdings and businesses. Neither pays a dividend, so we have to trust them with their capital allocation decisions. Very few stocks without a dividend are even worth buying. This, like Berkshire, is one of them. Market cap to retained earnings ratio Charting out the ratio between market value and retained earnings is rather easy. Since retained earnings is a cumulative number on the balance sheet, the most recent TTM number will be your total retained earnings number. Even with the drop, if we look at Alphabet's cumulative retained earnings of $191.48 Billion and a market cap of $1.387 trillion, we get a market cap to retained earnings ratio of 7.26. In other words, over time Alphabet's management has created $7.26 of market value for every dollar of retained earnings. The retained earnings value creation number is astounding. However, Alphabet, Amazon, Meta, and Microsoft also have a secret weapon, an expense called R&D. This is listed as an operating expense, but in essence, is also a part of retained earnings. They get to expense this item, and then you as the investor reap the fruits of the businesses that it spawns from the research and development. Mohnish Pabrai likes to use a framework addressing these companies as "spawners" - and I certainly concur with the analogy. While much of the market value of Alphabet Inc., especially at its peak capitalization, was based on a bubble mentality, you still had the option of realizing a huge return if you chose to do so. Sometimes, promotion and product perception can add as much value as effective capital allocation. Tesla, Inc. (TSLA) is a good example of this. ROIC Including both the debt and equity of the business, ROIC (return on invested capital) is Joel Greenblatt's favorite metric for effective management. According to my brokerage, Alphabet has a return on assets of 22.4%, a return on equity of 32%, and a return on invested capital ROIC of 28.94%. Throw in a gross profit margin of 56.9% and a net of 30% and you can see how Alphabet management has created so much value for its investors with their retained earnings, R&D investments, and acquisitions. This is blue-chip management team through and through. Valuation In my previous article on Alphabet Inc., I used a standard trailing PEG ratio incorporating GAAP earnings to create a price target. At the time, the existing data indicated a GAAP earnings growth rate of 22.74%. Therefore, I used 22.74 as the multiplier and the GAAP EPS as a multiplicand to get my low-end price target of around $96. We can see in the GAAP instance that growth for the TTM is trending lower than the previous year, but if we look at Non-GAAP EBITDA, Google is still growing. The TTM EBITDA numbers for Google/Alphabet are at $93.733 Billion. With 13.242 Billion shares outstanding, that equates to $7.078 in EBITDA per share. The EBITDA CAGR, incorporating the TTM as our terminal value to end 2022, would equal a trailing 5-year growth rate of 17.8%. Using 17.8 as a multiple and $7.078 as our multiplicand, we get a price target of $120.89. This is getting toward our upper-end, but still within value parameters. In spawners with lots of R&D and tax benefits, the non-GAAP under-the-hood methods are my preferred method. Although growth has slowed a bit from my last article, where I pegged the upper-end based on EBIT growth at $143, the price still fits value within the reduced price target. Balance sheet trends The Alphabet balance sheet hasn't changed much since my last article. Still loads of cash at $116 Billion, a debt-to-equity ratio of 11.57%, and a current ratio of 2.52 X. With this enormous cash balance, it certainly helps me sleep well at night knowing the Alphabet will never be in a cash crunch regardless of interest rates. How many stocks do you hold where you could say the same? Truth is, there are only a handful of stocks whose balance sheets I feel supremely confident in, and Google/Alphabet is one of the few. Cash flow trends With a TTM free cash flow ("FCF") of just over $62.5 Billion, the rich get richer. With TTM EBITDA for Alphabet at $93.733 Billion, that's an EBITDA to FCF conversion ratio of 66%. The CAGR in free cash flow from 2018 to TTM is over 22% per annum, more evidence that management is doing an amazing job to help us relax and hold with confidence. Catalysts TikTok ban. While ad revenue and earnings beating estimates are great, a banning of rival TikTok would be all too juicy for the market to digest. The issue is now getting bipartisan support on the Hill. TikTok, owned by China's ByteDance, should be removed from app stores run by Apple Inc and Alphabet's Google because the short video social media app poses a risk to national security, Senator Michael Bennet, a Democrat on the intelligence committee, said in a letter dated Thursday. An all-out ban of the TikTok app would leave Alphabet and Meta as the chief candidates to absorb the business that would be left in TikTok's wake. Both have been optimizing their short video products to match. There should be enough business out there for both to have a nice lunch. Risks There is an anti-trust lawsuit to break up Google's "monopoly" on digital advertising. Below is a summary of the lawsuit. Filed in the U.S. District Court for the Eastern District of Virginia, the complaint alleges that Google monopolizes key digital advertising technologies, collectively referred to as the “ad tech stack,” that website publishers depend on to sell ads and that advertisers rely on to buy ads and reach potential customers. Website publishers use ad tech tools to generate advertising revenue that supports the creation and maintenance of a vibrant open web, providing the public with unprecedented access to ideas, artistic expression, information, goods, and services. Through this monopolization lawsuit, the Justice Department and state Attorneys General seek to restore competition in these important markets and obtain equitable and monetary relief on behalf of the American public. What would a breakup of Alphabet look like? Nobody knows. A slew of spinoffs as from the old AT&T (T) (Baby Bells), maybe. Either way, the digital advertising businesses of Google/Alphabet are invaluable and would receive a much higher multiple to EBITDA than what we pay for Google stock currently in my opinion. Investors will be compensated one way or another. Plus adept lobbyists are certainly working while we speak with defense attorneys hand in hand. I'm not extremely worried, but the price could suffer from perception if action is taken and Google flat-out loses the suit. Conclusion Alphabet Inc. remains one of the best-managed businesses in the world. CEO Sundar Pichai has done wonders, maintaining high-profit margins and ROIC with a lot of sharks in the water. I have moved my focus from energy to tech as my anti-bubble of choice. I do fear that the window may be closing without being able to accumulate enough, but there are certainly worse things in the world than that. I remain unconstrained in where I hunt, and adore value wherever it may be. Google is my favorite anti-bubble stock because it has the strongest balance sheet of the bunch plus one of the more modest GAAP and Non-GAAP valuations. Not as cheap as it used to be, but I reiterate buy for GOOG with a PT of $120. This article was written by Analyst’s Disclosure: I/we have a beneficial long position in the shares of GOOGL, GOOG, AMZN, MSFT, META, AAPL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (47) The first problem is they went from only hiring people with PHDs to a bloated big company. The second problem is they took sides in politics and social issues and alienated a large number of customers. The third problem is their business model relies on spying on their customers which people are becoming less and less accepting.

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Apple Fiscal Q1: That's Gotta Hurt

Apple Inc. reported a big double miss on its fiscal Q1 2023 earnings report. While it is a quality company, read why I rate AAPL stock a Hold.

SeekingAlpha

Apple Fiscal Q1: That's Gotta Hurt Summary - Apple Inc. reported a big double miss on its fiscal Q1 2023 earnings report. - Apple is facing serious macro challenges. - Apple is a quality company, but it's not perfect, and it trades at a high valuation right now. - Looking for a helping hand in the market? Members of Cash Flow Club get exclusive ideas and guidance to navigate any climate. Learn More » Article Thesis Apple Inc. (NASDAQ:AAPL) reported fiscal Q1 2023 results that significantly underperformed estimates. Growth has turned negative, for one of the weakest performances among big tech companies so far this earnings season. Since shares are still pricey, they don't look attractive going into a potential recession, I believe. What Happened? Apple reported its fiscal first-quarter earnings results on Thursday afternoon. The company missed estimates on both lines, and it wasn't especially close: The company saw its revenue decline 6% year-over-year, missing estimates by 4%. EPS estimates trailed the consensus estimate by 4% as well. Not surprisingly, the market reaction has been negative, as shares trade down about 4% at the time of writing. Apple's Fiscal Q1: One Of The Worst Big Tech Quarters The current environment isn't the most beneficial one for major tech companies -- they previously benefitted from the pandemic quite a lot, as home-schooling, work-from-home, and screentime-based hobbies were major growth drivers for Apple, Alphabet (GOOG, GOOGL), Microsoft Corporation (MSFT), Meta Platforms (META), and so on. However, the current environment isn't as helpful. In fact, there are some macro trends that are hurting the business performance of these large-cap tech players: consumers prefer to go out more and are spending less time at their homes and in front of their computers, tablets, or TVs. At the same time, high inflation and a potential recession are bad for the willingness of consumers to buy high-priced discretionary consumer goods, and businesses are less willing to spend heavily on advertisements. It's thus not really surprising to see that these big tech names have not reported overly attractive results so far this earnings season. Alphabet reported a 1% revenue increase, while Meta Platforms reported a 4.5% revenue decline. Microsoft grew its revenue by 2%, while Netflix (NFLX) reported a similar growth rate. None of that was too compelling, and yet, they all outperformed Apple, which saw its sales fall the most, by 6% year-over-year. I believe that there's a good explanation for that: Apple's products are the most discretionary ones among these companies, thus consumers can save money easily by avoiding a new phone purchase. When consumers want to save money, keeping their old phone for an additional year is an easy choice. Cancelling Netflix saves less money and means that Netflix can't be used anymore, while almost all phone functions are available from a 1,2, or 3-year-old iPhone. When consumers stop their Windows or Office subscription, that has a large impact on what they can do with their PCs -- but prolonging one's phone purchasing cycle has relatively few impacts on one's life. I thus am not surprised to see that Apple has fared the worst so far this earnings season among these big tech companies when it comes to revenue generation. The fact that spending that is "easy to avoid" is being avoided the most is also seen in Apple's revenues when we look at its different product categories: Service spending is the hardest to avoid, as this means that subscriptions can't be used any longer. As a result, services revenue was up -- app purchases are small, thus consumers don't think about these purchases a lot, and getting rid of subscriptions hurts, which is why few consumers do it. But keeping existing hardware for a little longer before buying the next upgrade is a rather easy choice, as it means that consumers don't really have to forego anything they've had so far (which is true when subscriptions are canceled). At the same time, Apple's hardware has sizeable price tags, thus these aren't buy-them-without-thinking-too-hard-about-it purchases for most consumers. Hardware revenue, thus, performed a lot worse than service revenue. Mac revenue performed the worst on a relative basis -- I do believe this is not surprising. Macs are Apple's most expensive products, thus consumers that suffer from inflation and that are worried about a potential recession are especially likely to forego the purchase of such a big-ticket item. The macro environment isn't Apple's fault, of course -- it can't control the fact that inflation makes consumers spend more money on food, energy, housing, and so on, which means they have less cash available for discretionary purchases. Apple also can't control the Fed's tightening path, which will possibly cause a recession, which hurts consumer spending further. It's thus not Apple that is at fault for a difficult macro environment where Apple's hardware-based sales are hurting, relative to more subscription-based companies such as Microsoft that are outperforming Apple. But the fact that Apple is not at fault for the macro environment does not mean that Apple's shares should trade at a very elevated valuation forever. Apple has seen down years and no-growth years in the past as well. Overall, the revenue trend has been upward, but the last two years aren't very representative of Apple's historic business growth. As shown earlier, the pandemic was a boon for Apple, whereas its sales growth has been rather moderate in prior years, with some ups and downs in between: That's not really surprising -- after all, Apple mostly is a hardware consumer goods company, and those tend to experience ups and downs, while growth generally isn't outrageously high. And that can work out well for shareholders if shares are purchased at reasonable valuations. That's where one of Apple's current issues comes from: AAPL stock is too expensive, and one might argue it's almost priced for perfection. When an at least somewhat cyclical hardware consumer goods company that is mostly active in more or less mature markets (the smartphone market isn't growing much these days) is priced for perfection, that can cause considerable downside potential. Apple clearly is experiencing major headwinds from the macro environment right now, as inflation and an economic downturn hurt its sales potential due to consumers becoming more reluctant to buy high-priced tech products. If Apple was valued at 10x earnings or 15x earnings, that wouldn't be a major issue -- but Apple is going into this downturn at a historically high valuation: Apple currently trades at a 44% premium to its long-term average earnings multiple, while the premium to its long-term average EV/EBITDA ratio is even larger, at 67%. I believe that the EV/EBITDA multiple is more telling, as it accounts for changes in debt usage and for the changing size of Apple's cash position. But even a 44% premium to its historic net profit multiple is pretty sizeable. Keep in mind that these calculations use the current EPS estimates for this year, which will surely get revised downwards over the next couple of days as analysts factor in the weaker-than-expected results for fiscal Q1 2023 into their models. EPS downward revisions thus seem likely, which will result in an even higher valuation, all else equal. In short, we have a situation where Apple's consumer-focused business model is facing major headwinds. And yet, at the same time, shares are historically pricy. I do believe this does not make for an attractive combination -- pressure on Apple's share price in the foreseeable future would not be too surprising. Of course, if the market rallies, e.g., due to Fed pivot hopes, Apple would most likely climb as well. But if that does not happen, Apple is at risk of performing badly, I believe. Final Thoughts Apple Inc. is not a bad company at all -- I am a user of some of its products and have been a shareholder in the past. But it is a company with vulnerabilities, as the consumer-facing business of selling discretionary goods is vulnerable to an economic downturn, showcased by the rather bad business growth performance Apple has shown for the most recent quarter. This holds true in absolute terms, and also on a relative basis versus other big tech names. Since Apple Inc. is trading at a pricey valuation while the macro environment is moving against the company, I believe Apple is not an attractive investment at current prices. AAPL is a quality stock, but a too-expensive one that will face headwinds in the current adverse macro environment. The double miss on Apple Inc.'s fiscal Q1 earnings hurts -- the market reaction has, unsurprisingly, not been positive. Is This an Income Stream Which Induces Fear? The primary goal of the Cash Flow Kingdom Income Portfolio is to produce an overall yield in the 7% - 10% range. We accomplish this by combining several different income streams to form an attractive, steady portfolio payout. The portfolio's price can fluctuate, but the income stream remains consistent. Start your free two-week trial today! This article was written by If you want to reach out, you can send a direct message here on Seeking Alpha, or an email to jonathandavidweber@gmail.com. Disclosure: I work together with Darren McCammon on his Marketplace Service Cash Flow Club. Analyst’s Disclosure: I/we have a beneficial long position in the shares of GOOG, META, MSFT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (116) My average is so low with AAPL a downturn only adds to my position. Keep up the good work. A major “wide moat” competitive advantage for Apple is that the product features and functions listed by @Tig operate within a highly integrated, synchronized, and secure environment. Mac Pro Mac Studio AirTag AirPods HomePod…in addition to Apple's world-leading M-series processors. The AirPods lines alone comprise a major product category. Analysts have been pretty positive as they held their price targets or even increased them.So yes, they had a bad quarter but held up pretty well. And they are not slashing jobs like virtually all tech which means management has been disciplined while others not so much. Alphabet -34% Amazon -98.1% Microsoft -12.5%Apple -13.4%Were you just hoping we wouldn't notice, Mr Weber? These are good signs 🙂

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Amazon Q4 2022 Quick Take: 2 Immediate Risks In AWS

Amazon.com, Inc. delivered mixed Q4 2022 results, combining an impressive revenue beat and an EPS miss. Click here for our take on what this means for AMZN stock.

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Amazon Q4 2022 Quick Take: 2 Immediate Risks In AWS Summary - Amazon.com, Inc. delivered mixed fourth quarter results, combining an impressive revenue beat that was supportive of a resilient holiday shopping season, and an EPS miss that was indicative of AWS challenges. - In addition to continued pressure from its Rivian investment and restructuring charges, Amazon's most profitable cloud-computing business continued to decelerate at a faster pace than expected. - The latest results indicate a shift in the cloud demand environment, raising two critical risks at AWS that will continue to overshadow improvements in e-commerce and Amazon's burgeoning ad business. - Looking for more investing ideas like this one? Get them exclusively at Livy Investment Research. Learn More » Amazon.com, Inc. (NASDAQ:AMZN) reported an impressive revenue beat in the fourth quarter despite the tough operating backdrop due to rapidly deteriorating macroeconomic conditions. However, earnings missed by a “wide margin,” underscoring how recent cost-optimization initiatives implemented have likely yet to flow through its results. Adding to pressure on the Amazon bottom-line remains its investment in Rivian Automotive, Inc. (RIVN), which drove a “pre-tax valuation loss of $2.3 billion,” as well as other restructuring charges that have likely occurred in the quarter to account for the recent reduction in force (“RIF”) as well as ongoing facility footprint optimization efforts. Although Amazon's forward outlook came in tepid (+4% y/y to +8% y/y) when compared to previous March quarters, it remained in line with market expectations given elevated uncertainty in the consumer. This will likely become more prevalently felt across corporate America – at least through the first half of the year. Since mid-July, analysts have cut 2023 consensus earnings-per-share estimates by nearly 8%, with the lion’s share coming during the two most recent earnings season. Each quarter, the cuts have become progressively deeper…If the trend continues, analysts’ downward revisions this quarter should be expected to be even steeper than they have been in the past, translating into consensus 2023 EPS outlook cuts of as much as 5% to $215 by the end of February. Source: Bloomberg News. Admittedly, the bar was set low for Amazon, too, especially given the pace of slowdown observed in recent quarters. Investors have largely held onto cautious optimism, bracing for results from an uncertain fourth quarter holiday season at Amazon’s e-commerce segment due to the subdued consumer that looks to be taking a turn for the worse soon, as well as anticipation for greater calls for “cloud optimization” that could weigh on Amazon Web Services ("AWS") demand. Meanwhile, advertising sales continued to be a growing bright spot for the company, as we had expected, expanding 19% y/y. In addition to macroeconomic headwinds and other industry-specific challenges such as pulled-forward demand during the pandemic that will continue to unwind and normalize within the foreseeable future across both e-commerce and cloud-computing, AWS – the key source of Amazon’s cash flows – also faces an inevitable trajectory of deceleration as it grapples with two looming threats – namely, the combination of growing cloud optimization calls from customers and the sheer size its market share has grown into in general. However, Amazon’s moat in not only e-commerce, but also AWS. Its industry-leading margins are likely to cushion some of the impact and usher the company through a sustained path of structural expansion without losing out meaningfully to competition. With cash flows generated from AWS alone likely the core driver of Amazon’s consolidated market cap today, and a durable secular growth backdrop in which the cloud segment remains poised to capitalize on, AMZN stock continues to exhibit promising longer-term upside potential from current levels. AWS Deceleration AWS revenues grew 9% y/y (+12% y/y cc) in the fourth quarter to $149.2 billion, with a moderate guidance for the current quarter indicating further deceleration ahead. However, AWS sales – where Amazon’s bread and butter is at – decelerated substantially, growing only 20% y/y to $21.4 billion, underperforming consensus estimates of 23% y/y growth. This was already downward-adjusted based on the currently challenging macroeconomic environment, as well as key competitor Azure’s (MSFT) caution of looming weakness last week. As discussed in our previous coverage on AMZN stock, gradual deceleration at AWS from here on out is largely the consensus call among investors, despite broad-based digitization and cloud migration trends still in the early innings. Specifically, the sheer size of AWS’ leading market share, combined with a shift in corporate narratives towards a more cautious strategy in migrating workloads to the cloud (e.g., growing calls for optimization; increasing multi-cloud strategy adoption) supports the narrative that “the last mile is always the hardest.” Today, AWS holds a leading 34% share in the global market for public cloud-computing solutions, leading Azure’s 21% and Google Cloud Platform’s (GOOG, GOOGL) 10% by wide margins still. Yet, it is more likely than not for that gap to narrow going forward due to challenges facing the sheer size of AWS’ operations. To put into perspective, AWS has been expanding at a 5-year CAGR in the 20%-range, while competitors like Azure and GCP have been catching up in the high 30% to 40% range. This has accordingly raised concerns in recent quarters over whether the segment can achieve the level of growth that market has priced into the stock. Meanwhile, the growing shift in customer demands for an enhanced cloud migration strategy has also made it more difficult for AWS, as well as the broader cloud-computing industry, to penetrate new opportunities. Specifically, the pricing power that hyperscale once held due to the industry’s previously limited expertise in supporting seamless cloud migration strategies have now shifted to customers who are more aware of their options (thanks to growing competition in the field) and demand an optimized balance between performance and cost (discussed further in the following section) in ongoing digitization efforts. For instance, the growing adoption of a multi-cloud strategy makes an immediate risk to AWS by diluting its upcoming share of as much as 30% of corporate IT budgets that will be allocated to building out their respective cloud infrastructure alone. This is because AWS has long been a primary cloud service provider in the industry already, making it potentially more difficult for the segment to partake in customers’ expansion efforts. And normalizing growth rates at AWS in recent quarters is likely reflective of this new reality. Given AWS is already the dominant public cloud service vendor on the market, it is hard for it to take further advantage of increasing multi-cloud momentum. In a recent sentiment check survey performed by RBC Capital Markets, about 57% of corporates looking to ramp up investments in cloud have noted AWS as a potential beneficiary over the next 12 months, compared with 73% for GCP and 71% for Azure. AWS is also starting to lose share to key rival Azure amongst large enterprise cloud spending – the latter has taken over AWS as the leading public cloud service provider for enterprises generating more than $5 billion in annual revenues, acquiring more than 50% share in the cohort while AWS only captures a little more than 30%. Source: “Is Amazon a Buy After Q3 2022 Earnings? The Cloud is Dissipating.” And the looming macroeconomic challenges are also compounding pains ahead, risking a tightening of the cash flow tap at AWS. However, while the next mile for AWS on capitalizing on enterprise cloud adoption growth – the largest cloud spending segment – will likely become more difficult, growing AI momentum could potentially re-accelerate the industry’s total addressable market ("TAM") expansion and compensate for the near-term challenges. Specifically, demand from the high performance computing (“HPC”) segment continues to exhibit robust momentum, especially with the recent frenzy created by OpenAI’s ChatGPT that has raised awareness of how seemingly complex AI models can now be applied in mass market use cases. This will likely further fuel an “exascale AI era” in which AWS is ready to take on. The cloud-computing unit already facilitates multiple exascale computing offerings on its marketplace to capitalize on the next era of AI opportunities, while also continuously improving its in-house designed processors to address growing performance demand required by the increasingly complex workloads. AWS’ launch of the Graviton3 server processor last year, which powers its EC2 (or Elastic Compute Cloud) instances, has been designed to optimize performance for increasingly complex computing workloads, spanning: “application servers, microservices, HPC, CPU-based machine learning inference, video encoding, electronic design automation, gaming, open-source databases, and in-memory caches.” The latest generation boasts “up to 25% better compute performance” when compared to its predecessor, the Graviton2, and addresses the demanding requirements of HPC applications that could potentially overtake the currently dominant enterprise cloud spending segment and drive AWS’ double-digit growth trajectory over the coming years. Cloud Optimization Meanwhile, the growing discord on cloud optimization across the broader enterprise cloud spending segment will likely become the next-greatest challenge to AWS and the broader cloud-computing industry. Specifically, “cloud spend optimization,” which refers to customers’ growing demand to “enhance applications, performance, and business needs in the cloud while eliminating costs and inefficiencies”, will likely compound the near-term macro-related challenges (e.g., higher energy costs; FX headwinds) and add more structural pressure to AWS’ margins. With the ongoing macroeconomic uncertainties we’ve seen an uptick in AWS customers focused on controlling costs, and we’re proactively working to help customers cost-optimize, just as we’ve done throughout AWS’ history, especially in periods of economic uncertainty. Source: Amazon 3Q22 Earnings Call Transcript. This is consistent with the slight narrowing in AWS’ operating margins in the fourth quarter, which went from 26% in the third quarter and 30% in 4Q21 to 24% in the three months through December 2022. While Amazon management had previously pinned the deceleration to expected “[fluctuations] over time as [AWS balances] investments versus renegotiating pricing with the long-term customer commitments…, offset by increasing productivity and efficiencies in [its] data centers," the continuing downward trend in the segment’s profitability, though still attractive, underscores new structural cost challenges ahead. While we expect the related cost headwinds to further eat into AWS’s margins over the near- to mid-term, the segment continues to exhibit sustained scalability across its operations that would potentially lead to moderation of related impacts on longer-term profitability. Continued innovation, such as the incorporation of the Graviton3 processors into its EC2 instances, will not only allow AWS to further penetrate cloud spending opportunities across wide-ranging verticals, but also help it enable customers to do more with less and address the growing demand for cloud spending optimization. And in return, ensuing scale would accordingly help AWS restore “great cost for performance ratios” over time to reinforce the segment’s attractive margins that have long been a driving force in the stock’s uptrend. I would say this is [one of the] real valuable points about cloud computing is that it’s turning fixed cost into variable for many of our customers. And we help them save money either through alternative services or Graviton3 chips. There’s many ways that we have to help them lower their spending and still get great cost for performance ratios. Source: Amazon 3Q22 Earnings Call Transcript. This is also consistent with CEO Andy Jassy’s reaffirmation on his optimism “about the long-term opportunities for Amazon,” bolstered by its continued commitment to investing prudently in order to capitalize on future secular growth trends: In the short term, we face an uncertain economy, but we remain quite optimistic about the long-term opportunities for Amazon. The vast majority of total market segment share in both Global Retail and IT still reside in physical stores and on-premises datacentres; and as this equation steadily flips, we believe our leading customer experiences in these areas along with the results of our continued hard work and invention to improve every day, will lead to significant growth in the coming years. When you also factor in our investments and innovation in several other broad customer experiences (e.g. streaming entertainment, customer-first healthcare, broadband satellite connectivity for more communities globally), there’s additional reason to feel optimistic about what the future holds”. Source: Amazon 4Q22 Earnings Results. The Bottom Line Despite the two looming risks to AWS’s forward performance, Amazon’s cloud-computing unit will likely continue to boast a strong competitive advantage to peers. Specifically, the unit’s double-digit profit margins still makes it easier to cushion the impact when compared to peers like GCP – which is still unprofitable – and absorb the near-term cost headwinds and challenges stemming from the shift in enterprise demands. Amazon's robust operating cash flows, which increased by 1% y/y to total $46.8 billion during full year 2022, also allows AWS to further its moat in building out hyperscale capacity to address cloud-computing opportunities from verticals beyond the maturing enterprise spending segment. Paired with improving utilization in its retail arm, positive margin impacts from recently implemented cost-cutting initiatives flowing through the broader business as the year progresses, and supportive longer-term secular growth trends, Amazon stock remains primed for sustained upside potential from current levels. Thank you for reading my analysis. If you are interested in interacting with me directly in chat, more research content and tools designed for growth investing, and joining a community of like-minded investors, please take a moment to review my Marketplace service Livy Investment Research. Our service's key offerings include: - A subscription to our weekly tech and market news recap - Full access to our portfolio of research coverage and complementary editing-enabled financial models - A compilation of growth-focused industry primers and peer comps Feel free to check it out risk-free through the two-week free trial. I hope to see you there! This article was written by Boutique investment research shop providing professional coverage on disruptive thematic equities. Our analysis provides a deep dive on growth drivers present in the secular market to identify outperforming investments. Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (23) Optimize Your Existing... · Automated Instance Type... · Autoscaling"

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Post-Earnings Accumulation List With Alex King (Growth Investor Pro)

Alex King from Growth Investor Pro joins us in this episode to break down some stocks he has rated as accumulate to kickstart the year.

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Post-Earnings Accumulation List With Alex King (Growth Investor Pro) Summary - We're joined by Alex King from Growth Investor Pro (Cestrian Capital Research.). - Alex shares with us stocks he has rated as accumulate. Including one extremely controversial stock that the market dumped after their recent earnings call. - We also cover Microsoft's earnings, and a few cybersecurity names as well. Editor's Note: This is the transcript version of the previously recorded show. Due to time and audio constraints, transcription may not be perfect. We encourage you to listen to the podcast embedded above or on the go via Apple Podcasts or Spotify. Find more of Alex King's research at Growth Investor Pro. This episode was recorded on February 1st, 2023. --------- Daniel Snyder: Welcome back to Investing Experts Podcast. I'm Daniel Snyder. In this episode, we're back with audience favorite, Alex King, from Growth Investor Pro, to get his views on some recent earnings and stocks that he is rating as accumulate. And honestly, one of these stocks peaked my interest since their recent earnings were not exactly welcome by the market. Also, Alex explains his method of how he utilizes both fundamental and technical analysis within his investing strategy. Just a reminder, anything you hear on this podcast should not be considered investment advice. At times myself, or the guest, might own positions in the securities mentioned, but this is for entertainment purposes only and should seek advice from a licensed professional before investing. If you enjoyed this episode, please do us a favor, share it with a friend, leave a rating or review on your favorite podcasting app. And now let's get into the conversation. Alex, I just - for the people that don't know who you are, let's just start at the very top. Do you have, like, a one- to two-minute background of how you got into investing in your background and where you are now? Alex King: Yeah, sure. Of course. So I have a background in institutional investing. I started my career as a venture capitalist, moved into leverage buyouts. And then when I finished, I was investing my own money in public stocks. I started writing stuff down because I figured that if I didn't write it down, then I'd probably just spray money around and make a terrible job of it. And I figured if I wrote it down, that would make me do good work. And then I thought what would be really good way to force myself to do good work is to write stuff down and then publish it. So I've known Seeking Alpha for a long time, 10-plus years before I started publishing on it. And so I thought, “Okay, well, I'll write some stuff and put it up on there.” And it was never meant to be a business, to be honest, but it took off. It was a really big hit, quite quickly. I came across the Seeking Alpha Marketplace platform, and I'd subscribe to a couple of people there. I still do and really like that. And I thought, “Okay, well, I wonder if we could do that, and we did it. Set the company up. It's our first service in Seeking Alpha. We've done a bunch of other stuff as well now, but it's still a big part of our business. And yeah, we run a pure-play investment research business. We're a grown-up company. We're SEC regulated. We have - there's me, I'm a fellow or independent director. We have many, many authors now writing on everything from equities to options to credit to rates to, you name it. We cover investing, we cover trading, all sorts of stuff, all of which came from basically not wanting to mess up investing my own money. So it's been a slightly unpredictable ride, but big success. Companies growing all the way through ‘22, which has been a delight in the surprise. And, yeah, it all starts with Seeking Alpha, so we're really grateful for the opportunity. Daniel Snyder: Why don't we just dive right in? Dynatrace (DT) is a company that you follow that just reported earnings. Wanted to see what's your overall thought just top level about Dynatrace? Alex King: Yeah. So Dynatrace reported today before the open. It's unusual like software stocks sitting at reports before the open. The stock's up. I see the market has died for a bit last couple of minutes, but it was up somewhere between 10% and 13%, 14% around the open today. Dynatrace is a really boring business in many respects, right? The thing it does is incredibly boring unless you're a software person It's software that spends all of its time watching other software. That's the way it does. It's called the observability category. All large companies, all enterprise customers, have observability software. They buy it from Dynatrace. They buy it from Datadog, that's (DDOG). They buy it from Splunk, (SPLK); New Relic, (NEWR), kind of adjacency; PagerDuty, (PD). Dynatrace, along with Datadog, are the newer members of the category. Datadog's high-growth, Dynatrace is an older business, but it's run like a machine. It's a thing of beauty. So the business IPOs 2019, from memory, and it came to market with 4 times leverage, 4 times trailing 12 months EBITDA worth of debt. It's now in a net cash position. It's redeemed $1 billion of leverage loans in four years from its cash flow. And at the same time, it's grown at 25% to 30% a year. That's what it looks like in fundamentals. The important thing this quarter was, it's the first software stock which reported, at least in our universe, and we cover most things. That showed accelerated revenue growth. So revenue growth this quarter versus the December quarter in 2021 was a higher rate of revenue growth than was the September quarter versus its prior year. That's really important in tech and software. People look for accelerating stories. And it's the first story to accelerate. Now the charts look bullish for a while, we've had it accumulate rating for some time. I found a low toward the end of last year, like many of the tech names that it's been moving up, but this, I think, can really propel it up. So Dynatrace, we're still accumulate on. We're bullish on the stock. I own i personally for this closure. And I think that can be a real winner. If the market even stays flat for this year, no doubt that Dynatrace can win. If there's any tailwind with the market, so it can be a big success, I think. Daniel Snyder: So I want to ask you though. So I'm looking here on Seeking Alpha about Dynatrace; ticker symbol, (DT). And Seeking Alpha authors have a buy. Wall Street analysts have a buy. The Quant System's currently a hold. But under the Factor Grades, the valuation is an F grade, and it looks a little bit overvalued. So is the story here that this company is going to grow into the valuation? Alex King: Find me a software stock that isn't always overvalued, right? So the Seeking Alpha Quant system is super. It's really, really good. But you have to read it through your own lens, okay? So what you have to know is the best growth stocks always look too expensive through that lens. And so you have to apply your own filter, okay? So if you're looking for low-valuation stocks, then you'll find it with basically relatively low growth, very high accounting earnings, high EPS, high earnings per share, accounting earnings. What those systems don't generally pick up is super high rates of recurring contracted revenue growth, big rates of cash flow margin, and big deferred revenue and big remaining performance obligation. And we talked about these last time, which is use remaining performance obligations, as your guide. You've got a big fat order book, it’s growing quickly. It's a big multiple of trailing 12-month revenues. That's a great software stock to own. And so those Factor Grades just don't look at those things. So in their own way, it's a great system, but you won't find opportunities like this just through those quantitative metrics. So you got to pick the tool that works. Daniel Snyder: Yeah, completely. Just had to ask you that a little clarification on that. So talking about software stocks, let's talk about one of the behemoths that you also follow that just announced earnings, and that's Microsoft (MSFT). And we know Microsoft is bigger than just software. But what did you take away from their quarterly earnings in regards to the overall company, I mean, and the guidance, the AI side of everything, what did you think? Alex King: Yeah. I thought the numbers are awful, but the market didn't care. So I took that as a big bullish sign for the market, right? And we said that in our coverage. So I've got the numbers right here. So we had 2% revenue growth in the quarter, 10% on our trailing 12-month basis. Cash flow margins were terrible, 37% on a trailing 12-month basis, that's low for Microsoft. Dreadful numbers. Didn't matter. Stock went up anyway. And so I think that what that tells you is a number of things. One, as always, the market looks forward not back. So I hate the phrase priced in, but what the market will always do is bottom out before fundamentals bottom out. And as everyone knows, because if they didn't know before, they do know now monetrary policy is prime, prime, prime driver of equity valuations, more important than any individual stock earnings performance. And so I think the stock - the market reaction to Microsoft was basically, okay, it's not great, but we're expecting a monetary easing coming, and so we'll hold the stock up on that basis. Plus, which if you look on the technical side of Microsoft, yeah, normally, Microsoft is a really resilient stock. It doesn't sell off much when the market dumps, but it sold off a lot in ‘22. So in technical terms, put in a low around the 61.8% Fib retracement off of its 2021 highs. That's a big drop from Microsoft. Not normal for the stock. And so I think the stock, the market reaction was really, okay, numbers aren't great and probably improve, and the selling is done again even in a flat market. Of course, the market can dive tomorrow, who knows, but in a flat market, probably Microsoft's hit a low. And so again, it's stock we rate to accumulate. I only personally for disclosure, and we would expect it to move up in the course of this year. Again, absent some fed apocalypse or something, we really expected to move up this year. Daniel Snyder: Do you have any opinion or thoughts about the Activision (ATVI) acquisition that Microsoft is trying to do? Alex King: Kind of. I mean, we don't cover Activision. I don't much know the company, read the headlines like everybody else. I would say two things. It's the first I would say regulatory misstep that the CEO Nadella has made. So one of the things that's marked in Nadella's tenure from the prior CEOs get, it's born and so on, that’s been an incredibly good lobbying effort. Microsoft's monopoly or quasi monopoly in many segments as we all know. And yet, regulators have left it alone for a decade, and that's not an accident. That's because Nadella has been better occurring in favor in DC and with the EU than the previous CEOs. Previous CEOs have kind of bull in a China shop method, which is, well, I don't care. We're the big guy. And governments don't tend to react well to that. Going after Activision, given Microsoft's other strength in gaming, they've attracted that regulatory attention that's unusual for them. So I'd view it, I mean, we will see. I mean, if they hit problems with that, I think it's Nadella's first major strategic mistake, to be honest. Personally, from a Microsoft stock perspective, it don't have a strong view on whether it does or does not complete. I'm not sure it's desperately relevant to the stock going forward. I think if markets recover in ‘23, Microsoft's going up. If you look at Microsoft stock chart, it's basically the stock chart of the NASDAQ, it's the same thing. If you look from the 2018 lows through to the 2019 highs, COVID crisis lows, 21-highs, 22-lows, it's the exact chart of the NASDAQ. I mean, just the same chart. And so Activision will or won't close. There'll be a whole lot of noise available one way or the other. I'm not sure it's that pertinent to Microsoft's overall stock trajectory. That's it. No kind of expert on Activision, so others may well have a better view on that. Daniel Snyder: What about their angle with AI? We know that they've been putting a lot of money towards Open AI. They're going to end up with 49%, I think, share in the company. Is that going to be one of your big catalysts that you think will propel it? Alex King: I think so. Again, if you look at, I mean, Nadella has been a genius CEO. I mean, up there with Lisa Su just taking on an old established business and just dragging it up, that's right. And the same as Lisa Su. He's achieved it because he's an engineer, a software developer, in his case, a silicon engineer in Lisa Su case at AMD (AMD). And you have to give them great credit for dragging Microsoft into the cloud here. Now Microsoft is synonymous with cloud, right? Everyone uses Office 365 or some version of it. Everyone knows about the Azure cloud product. But when Nadella took over, Microsoft still had that error of resisting the Internet. I'm trying to process everything on a device in the enterprise or the consumers’ home and just reflecting that whole gates' former reluctance to engage. And he's changed that completely. And that's what's propelled Microsoft up from the mid-60s to where it is today. And the next leg I'm sure is, as you say, is open AI. AI, more generally, but I think they've picked a good candidate with OpenAI. They invested early. As you know, they're talking about, she just mentioned a new investment right now. They also get it for the coverage I've seen, it's a preferred investment, so they get priority returns on a number of other investors. And over and above the financial benefit, and I would be confident that they will integrate the technology well into their own. And so, yeah, I would see AI, unlike Activision, as a big driver of the next, not just this year for a tad longer than that, but the next whole growth leg from Microsoft. And again, you got to put that credit, to the door, the CEO. And he probably wasn't his personal idea. I'm sure he has many attempts reporting to us. But as the gatekeeper, what money gets spent on and what doesn't, it's a really good allocation of capital. These things, to your point about valuation earlier, these things always look ridiculously expensive when they happen. If you remember Meta (META) platforms Facebook ads was bought Instagram for $1 billion, ridiculous, right? No revenue. $1 billion complete nonsense, ridiculous. WhatsApp $19 billion, ridiculous. No revenue. Turned out actually both fabulous acquisitions because of that technical vision of the founder. And I think OpenAI will be the same Microsoft. Yeah. So I agree. Daniel Snyder: Now you just mentioned in that last answer about AMD, and, of course, AMD released earnings and we can talk about Lisa Su and everything else. But you had this great article that you put up about Intel (NASDAQ:INTC). And with Intel's earnings and kind of just a quick background for everybody is you say this is possibly the worst quarter of any company we have reviewed since you started your service. That is a bold statement, sir. So I got to ask you, I mean, why? Alex King: Well, let me just run these through. I'm just looking at my other screen this, I mean, Intel numbers. Okay. So this is a company, Intel, which supposedly is the bedrock of the semiconductor industry, right? So until quite recently, if you wanted a good desktop or laptop computer, you chose an Intel processor until quite recently. Until quite recently, they were absolutely dominant in the server market. They missed mobile, as everybody knows, got late into Apple. But nonetheless their home territories were holding up. But this company in a GDP plus 3% environment, right? Everyone's talking about recession, not in a recession, right? We talked about this last time. really, you had me on last time. And I said there isn't a recession. We just - since then, we've come on U.S. GDP plus 2.9%. The economy is good, right? People are buying more stuff. Okay. In that environment, Intel managed to shrink its revenues by 32% this quarter. It managed to take its gross margins down from a peak of 58% in the June ‘20 quarter down to 43% now. And its cash flow margins were even more spectacularly bad, which for a company that used to be just a cash machine is bizarre. The company is in a tailspin. I mean, all results from a decade-plus of underinvestment in manufacturing process technology, design technology, management teams run by accountants, not by engineers, it is a carbon copy in my view, a silicon copy, I guess, of Boeing (BA), right, which is the stuff we also cover. We cover growth names. We also cover value names in Boeing. We've been covering for some time and we've rated it accumulate for quite some time now. And it has been a rocket ride of a stock based on awful fundamentals. I mean, the only company with worst fundamentals we cover at Intel is Boeing. And Boeing, if it wasn't called Boeing, would be bankrupt because nobody would lend it a $1. But because it's called Boeing, 13 banks got together when the thing couldn't generate $0.02 of cash to bail it out. Wasn't called a bail out. It didn't see a Fed guarantee written anywhere, federal government guarantee anywhere, but it was there quietly. And Boeing has been recovering fantastically off the lows. It's up again today on the basis that the second Chinese carrier is restarting 737 MAX operations. Intel, we think forgetting numbers, doesn't matter, right? What matters about Intel is U.S. semiconductor policy. The U.S., as we all know, is in a trade war with China. It started out as a really noisy trade war under the previous administration, and it's developed into a very quiet trade war. There's less treating. But actually, the actions are tough as tough or tougher. And very specifically, in semiconductor, the U. S. is reshoring semiconductor manufacturing. So for a decade, two decades-plus, it’s been a gradual shift semiconductor manufacturing eastwards. Yeah. Taiwan Semiconductor (TSM), is the biggest merchant provider, but SMSC Chinese manufacturing - merchant manufacturing business has grown tremendously. And the strategy was that U.S. fabless semiconductor companies would share design IP and manufacturing IP with Chinese and other Asian manufacturing partners in order to basically get preferred contracts with those partners and the partners got some IP benefit. That's come under policy review. It's been determined that that's capital be bad, national security risk, blah, blah, blah, you can argue about the merits of that, but that's the decision that the administration has come to. And so this reshoring exercise is in full flight now. That means heavy, heavy, heavy semiconductor CapEx and manufacturing plants all across the U.S. You've seen TSM benefit from that. Just another stock that we rate accumulate in a big pharma. I only personally - even Warren Buffett, who hates tech, he's a big owner of TSM, right? Intel, kind of has to succeed if the U.S. reshoring of semiconductor manufacturing is to succeed. Intel kind of has to assist with it. And so I would expect Intel's stock to be the beneficiary of basically federal funds flows, bank guarantees of all kinds, capital funding of all kinds coming from all different quarters. We expect the stock to benefit from that. Not quickly, not in a way that anybody likes, no one is going to get excited about Intel products anytime soon. But if you believe that the chip sector is called the reshoring, it's going to continue that Intel is likely to be a beneficiary. So we rate Intel accumulated for entirely different reasons, so AMD, right? AMD, great product. Financial is great. Growth - everything you want to see in a growth stock, Intel, just a disaster when you look at the numbers. But I think the stock grew up anyway. Daniel Snyder: It's really interesting that you give it an accumulate even though the fundamentals have been deteriorating. And as of today, today is Wednesday, February 1st when we're recording this, we heard the earnings from Lisa Su in AMD. And they're talking about how data centers is really a good growth driver for them. They're seeing the weakness in gaming, in the client side. Kind of just throwing this hypothesis out there, is there any reason to believe that Intel might eventually just become a foundry company with how they're kind of seeming to fall behind on the client side of things as well? Alex King: Logically, every reason. And I think if you were doing this as a business school class, we all sat around and said, well, all the management team at Intel, which is they just walked out the door. We're a business school that just bought Intel. But how are we going to do with it? And I think a good strategy will be exactly like you say, which is just can design sell off older beauty. So we don't forget they've got a big position in Mobileye (MBLY), they just IPOed, which probably should generate some benefits and moved to manufacturing. There's two problems with that. The first, which is they're not very good at manufacturing, right? That's the number one problem. And they've had the big change in Intel's fortunes came a couple of years back when they made a really rocky move to the 10-nanometer process node, which was a really smooth move at TSM and others. And that really set them back. And again, just like Boeing's engine, it's just - I hate the labor analogy. It's a really good analogy. Boeing's problems didn't start because they had accidents with 737 MAXs. They started because they under invested in engineering a long time ago, and that led to upgrading our plane way beyond its capability, trying to use software to compensate for more really hardware problems. And intel, and as a result of basically underinvesting. And financially, the management team for that, enough engineering infom, Intel same thing. So the problem is if you just said today, okay, we're going to be a merchant foundry business. They don't have a good enough foundry business yet. So I think probably what you would be doing if you're on the Board of Intel right now is saying where we need to move to is number one, improve the manufacturing technology. Number two, start to catch up on the design front with AMD and others. And see how that goes. The second point is that corporate DNA and emotional attachments to lines of business really matters. The reason that business school solutions are almost never implemented is emotion. So if you went around the Intel ordering right now and said, I tell you what, in five years, we're not going to make CPUs. We're not going to make GPUs. We're not going to make any - we're not going to design anything. We're just going to make other people stuff. You would find horror on the faces, because that isn't the origin of the business, and it's still not the DNA of the business. In their minds, they're a fantastic integrated device manufacturer that's just hit a couple of snacks. and it's upstart AMD is making a lot of noise, but hey, they're still and also around. ATI, they disappeared a long time ago. This is a temporary blip. in their hearts, that's what they think. There are, of course, but that's what they think. And so I think the idea of moving to purely merchant manufacturing is a really good one, but it's probably not one of the companies emotionally capable of doing even if they were to improve their manufacturing talent. So I agree with you, but I don't think it's going to happen. Daniel Snyder: I just had to ask because I know how much they're putting into CapEx. And as you're talking about with the politics and things that are going on here in the U.S. I want to go ahead and move forward though into another sector kind of get away from, I mean, I'm sure we'll revisit tech here in a second because we want to talk about some cyber security names. But I want to ask you about this defense name. Specifically, L3Harris(LHX), they announced earnings. You put out a really good recap article. You mentioned the backlog is increasing 5% over year. Revenue is up 5.24% year-over-year for this company, beating by $220 million. Defense, the world, the war in the Ukraine, I mean, NATO alliance, they're all pushing more purchasing orders. I mean, is this a strong accumulate for you? Is this an accumulate? Is this a hold? What's going on with this one? Alex King: If anyone's watching this, then you read our stuff. You know, that most of our chart shows so-called Elliot Wave and Fibonacci. And there's any number of technical methods that can work and we just happen to like those. LHX is - has been at what's called a wave for low. So basically, if you think about stocks get happy and 4 waves up, right, 1 up, 2 down, 3 up, 4 down, 5 up. And way four is the last sell off before a final sort of move up before the whole thing resets. And LHX is around a way forward right now. And so what that means is we think it can run up. At some point, it will roll over probably in the next year they seem like something like that, and it will start to move down. And when it starts to move down and probably move down for a while in our opinion. But for now, yeah, we think there's good story of upside. It is a dividend payer. It does share buybacks, it does all of those things. And why we like LHX is because it's not an old line defense contractor where all the revenue is based off of - where you better get the next generation of fighter plane out quickly or the strategic missile review, better go your way or it's a much more diversified business. It's basically a technology business. It was built around the old Harris Radio business, and it's been gone through serial M&A, both acquisitions and disposals. And it's run essentially as a holding company. Financials are a little bit hard to follow from a distance because there's been so many acquisitions and disposals. But if you just take a snapshot, it's nicely cash generative, balance sheet safe, buybacks continue at pace, very financially focused management team, which we've talked about, has its downsides. But for basically an acquisition play, pretty where you want. And they've set themselves at a stall of being what they call the sixth prime, okay? So their goal is we want to get up there with Northrop Grumman(NOC), Lockheed Martin(LMT), Boeing, all these names. And it's getting there. And the smart thing they did is they said, right? Space is going to be our thing. Okay. So if you look at their line of business in space, if you look at their satellite and satellite tracking business, it's doing really well. And they did a smart thing recently, which is they are in the process of acquiring a company called Aerojet Rocketdyne, (AJRD), which we've covered for a long time. So Lockheed tried to buy it a couple of years ago, and it was blocked by the FTC on vertical integration grounds. So the argument goes. There's too much vertical integration, in their case, hypersonic and something. There's not really any regulatory hazard with this deal as far as I can see now. It was mentioned by Senator Warner in D. C. The other day as well as this shouldn't happen. There will be no doubt be a lot of lobbying by various characters that say, this deal shouldn't happen. But on a spreadsheet, the deal should go through. And what that would mean is that they become basically a duopoly provider of solid rocket motors alongside Northrop Grumman. That's a really important sector. If you're going to build hypersonic missiles, which is next generation missile, you have to have solid rocket propulsion systems. The next generation of nuclear missiles, which is currently under development primed by Northrop Grumman, huge $90 billion contract. You need solid rocket motors for those things. And although Northrop owns the other provider, they are contractually obliged to use aerojet motors. And so there's big growth ahead for that sector. And LHX has been smart in basically moving to where the park is going to be. So it's a solid business, good financials. I'm not sure there's life changing returns, I'm not sure if you're going long at this point, but there's good solid returns. Again, it would be paid a modest dividend I think up the yield is, there's nothing dramatically. It does pay dividend. So amongst the defense names, it's probably the best risk reward for us at this point. The others, your lock key is not for growing to the rest of it, look to us to have rolled over already, right? So the backlogs are climbing. If you look at fundamentals, sure, you can get excited. But if you look at what's been priced in already, they look probably to have topped for this cycle. Boeing, different. Boeing's, I think, going to keep going up. But that's primarily because of the civilian aerospace side. The LHX, again, we rate it accumulate. I own it the disclosure. I think it's got a solid future, but we're not talking 2, 3 times you're running the next 12 or 18 months. It's more modest than that. Daniel Snyder: I’m looking here on Seeking Alpha, it says the dividend yield is 2.09% for those that are wondering about that. So I think it's pretty interesting how your - you respond your answer with that one. You started with technicals, and then you kind of wrap up with the story and the fundamentals. So for those people that are listening that might not know about the service that you're running, how much do you put weight onto technicals versus fundamentals when you're deciding what's accumulated with so? Alex King: Case-by-case, I would say. I mean, to stay at the obvious, what you really want to see is fantastic fundamentals that are improving. Last time I was on, we talked about using that sort of little time machine window of remaining performance obligation or backlog in the case of defense companies. And so the perfect by setup for us for going long is fundamentals improving, no one has noticed. That happens more often than you would think because people don't know where to look, right? People aren't trained. Wall Street won't help you because they don't want you to know. CNBC won't help you because they don't know what they're talking about, and or they're giving you disinformation. So - but people don't know where to look. And so if you can find a company that has improving fundamentals that the market hasn't gotten onto yet, and you can find the stock at a major technical low, that's a great setup for us because obviously you can always be wrong with the direction of stock. But if you're a major technical low, then you can place a stop loss, not very far away from where the stock is today, and that should give you a good risk reward. The stop loss is, as everyone knows, is if you place them - if you think, well, I don't want to stop loss to trip, so I'm going to place it a mile away from where the stock is today, that will never trip. Because when it does, it blows a huge hole in your account. But if you can buy these names near a technical low, where hopefully the stock has bumps and starting to move up a little bit, then your stop loss can be 5%, 10% away, 20% at the most for big volatile names, but you've got some good upside. And you've seen that a lot in tech stocks right now, a lot, lot. So we talked about Dynatrace earlier, first, stocking our coverage to see accelerating revenue growth. Cybersecurity, everyone has forgotten about cybersecurity, right? And I think it's because there's an actual war happening, right? So before there were actually bombs and missiles raining down on civilians in Europe, I think people were really worried about all the damage the cybersecurity could do. And it was top of mind in the media. They've gone worried about their own computer, all of that. I know people see what an actual war is like. A little bit less worried about it. Correct me probably. But enterprise is still spending on this stuff. And so companies like Zscaler (ZS), Cloudflare (NET), all these companies have great fundamentals, but they're at major, major technical lows. Cloudflare. If you look at the chart, it's retraced to right around the 78.6% Fibonacci retracement of the whole move up from its post-IPO lows, basically. That's in - translate into English, that is a closely huge massive self-off. But what's important is it's fair and support at that level. That's not an accident. That's just algorithmic trading going well, stop us, double that far, usually find support around this food level, and it started to move up, okay, anything can happen tomorrow. But you have great fundamentals and a stock that's absolutely been dumped thrown in a dumpster and set on fire. And so that's a great setup for us. Zscaler. That's another example. Same thing, great fundamentals, really sold off hard, looks like it started to move up. Everyone's forgotten about Cybersecurity. If GDP is growing at 2.9%, enterprises are going to keep spending on this stuff. So the fundamentals for these businesses are going to hold up and or improve. And there the stocks ought to follow suit in a flat market. So technicals versus fundamentals, you need both. And you need to think about the wider picture. So everyone now is a macro investing expert that all fits into it. Now it's all about macro investing there, right? So we all know now how important monetary policy is, that's a new thing. It wasn't important to anyone apparently, but it is important there. And you also need to know about the policy impact on companies we've been talking about Intel. So technical fundamentals, yeah, all those things. In the short-term, technicals probably always matter more. And over the very long-term, multiple years, fundamentals at least as important. But to be honest, even over months and years, technicals matter as much. And the reason for that is the behavior of large institutional accounts, right? Large institutional accounts manage so much money that they have to be able to create returns from nowhere. And so this accumulate marker distribute markdown cycle that we like to use. That's just trying to spot that pattern at work in large account trading. And then follow a little bit behind. And so, yeah, the reason that sometimes stocks move up and down inexplicably is simply that big money's moving around. Because if you don't move them around, you can't generate returns. Now the tricky course is just follow behind big money a little bit,. You can spot what they're doing if you're cute and you're careful and just follow that. So technical fundamentals, yeah, both in different measures per stock. But - yeah, I'd - you can't - I don't believe you can't successfully invest in public stocks without having a really good understanding of both. Daniel Snyder: So I want to go back a second to you were talking about Cybersecurity, right? Specifically, Zscaler and Cloudflare. Zscaler earnings come up on February 23rd and Cloudflare is on February 9th. But both of these slides I was looking here on the Seeking Alpha symbol pages, they were both down, like, 50% over the last year in share price. So is it just kind of, like, this kind of just yells exhaustion to you and you're expecting earnings be top and bottom line from both of these companies? Alex King: The reason these two names are important is because in cybersecurity, the market's moving ought the end market, the enterprise buyer is moving away from endpoint protection, which is a fancy name for protecting the stuff that’s on computers, be there use - end user devices or data center devices, and towards in network security. Now it's not either all, you need both. But more of the spend we think is going to gravitate towards in network security. And that's because it scales better. That's like why do you do cloud computing at all? Answer because it's cheaper for any given CPU cycle. It's cheaper to do essentially and distribute the outcome and to do it on a distributor basis. Well, security is the same. So if you can basically protect everything, all the resources that are within the network, at network level and then treat any onboarding device computer, phone, whatever it might be as a potential threat and then clarify whether it is or it's not a threat, and then admit it if it's not, that probably what people call a Zero Trust network environment. That's a cheaper way to do it than trying to protect the device itself and stop all bad stuff getting on for the device. The two leading providers of Zero Trust Network, so Zscaler, which is the leader; and Cloudflare, which is a catching up. So Cloudflare didn't come from security, came from Network acceleration, but it's moved towards security quite well. So this is a category that spend is just going to keep coming, and it's going to gain overall security spend from the likes of CrowdStrike, [indiscernible] and so forth. The stocks have beaten up because in both cases, they had exceptionally high valuations. And to be honest, they still do. If you look at any valuation metric on either of those names, it's - on a fundamental basis, it's still a big valuation. And that will put many people off and there's no argument that just did a big valuation. They're also beaten up because they both get treated as unprofitable tech. That's not quite true. If you look to an EPS perspective, yeah, they're both disaster areas. But Zscaler is incredibly cash generative. It's EPS negative because of the heavy stock-based comp. Stock-based comp normally doesn't cause us any sweat. Zscaler is pretty egregious. It's so bad that their executive comp plan almost didn't get passed at the last shareholders meeting. And it was something like, I don't know, exact numbers, but it was less than 60% [indiscernible]. It's pretty remarkable. I'm assuming like it. But it does generate a lot, lot of cash. Cloudflare needs to learn how to generate cash. So far, it's treated cash. It's completely expendable. They have a big heavy CapEx bill. It's around 19% of revenue last quarter, I think, on a trailing 12-month basis. They have not at all learned a trick of generating cash from working capital. So Cloudflare has adopted as a tactic, well, you pass later. And they've done that, yeah, for good reasons, which is it helps them win market share from Cisco and other incumbents because you've got to give a reason why you want to buy the surgeon. But it's kind of time that change because once a company moves their network, the security onto one of those providers, you're really not going to move it off unless something bad happens, you have a series of bad outages or something. We'll support truly awful for two years. You're going to keep it there. And so Cloudflare needs to learn to charge more upfront to get paid more, upfront, less in arrears and turn their cash flow around from heavily negative to initially neutral and positive. So I think as an outside, if you look at these two stocks, there's plenty to put you off, to be honest. What will put you off with Zscaler, as you go, the stock-based comp makes my eyes blink. And again, this stuff doesn't normally bother me, but it is big. And that that's toxic to many people. Cloudflare, a bit ago, how about collecting some cash? It's pretty simple reasons. You're in business to make money, so why don't you try? And those are fundamental problems for the business. I personally have all the view that the stocks more than reflect that. They both have hit technical reversal points and a fan support. Now we'll see what happens with the rates decisions this week. Sure, they could sell off more. Anything can happen. But long-term, I would be surprised if these two names didn't start to move up pretty considerably. And once everyone remembers how important the category of Cybersecurity is, I would expect the revenue growth to accelerate once more and the stocks to do really well. You do kind of have to hold as a bit when you're buying these around now. But if you've been around tech long enough, you know that with these sorts of companies, you always have to partly know it’s when only buying them because it never feels good at the time. But in retrospect, if you don't buy them, you're looking to go, well, it's obvious. Why didn't I? Yeah, look at the show. Of course, it's obvious. I'm an idiot. And if you do buy them and it goes to anything, oh, I'm an idiot. Yeah, how could I pay 15 times revenue in this environment? So how do you solve for that? Well, either though by them, if it's too scary and volatile, it's understandable, or solve for position size, solve for it with stops trading, stops if it moves up risk management. But a house view, Cybersecurity is not at all participated in rally off of the Q4 ‘22 lows and that's over to you, I think, and I would be surprised if it didn't happen in ‘23. Daniel Snyder: Excellent conversation today, Alex. I really appreciate all the insights. I mean, we went through so much in this episode. I want to give you the opportunity. I mean, if people want to follow-up with your research, again, contact with you, where can they reach out to you and follow you? Alex King: Yeah. If you look at those two places, Seeking Alpha profile is the best place to go for Seeking Alpha content. We run super, super, super low cost newsletter. You can sign up for $49 a year just to get a flavor of what we do. It's got timed entries and exits, great places to start with our stuff. We run a premium service, Growth Investor Pro, It's a really bad name for a great service. So it covers growth value, individual stocks, ETFs, investing trend anyway. We've got a half of offer on that right now until middle of the month. So it's 999 a year, rack rates 2,000 a year. So have a look at that. And for our other stuff, check our website, cestriancapitalresearch.com, but go to our Seeking Alpha profile first. That's got all of our Seeking Alpha content to mind. Daniel Snyder: Yeah. And I just got to reiterate. I mean, I was just looking at the Dynatrace, which is why we started off the episode with it. I mean, you are on top of the earning calls, and provide the viewpoint almost immediately afterwards. I think that'll wrap it up for this episode. Anything else you want to say before we get out of here? Alex King: Just a big thank you. Love doing these sessions. Love watching your other episodes. So appreciate it, and happy to come back anytime soon. So great work you guys do. Daniel Snyder: Well, like I said earlier, you are a fan favorite. We've heard so much good feedback about the previous episode we have with you. We'll definitely have you back again. I know everybody loves it. Alex King: Thanks a lot. Daniel Snyder: Just a reminder, everyone, if you enjoyed this episode, leave a rating or a review on your favorite podcasting app, and we'll see you again next week with a new episode and a new guest. We encourage you to listen to the podcast embedded above or on the go via Apple Podcasts or Spotify. Find more of Alex King's research at Growth Investor Pro. This article was written by Comments (3)

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Alphabet: Don't Underestimate The Power Of Ads. Moving To Hold

Alphabet stock is down nearly 28% over the past year, underperforming the SPY Index. Click here to read why we're moving GOOG stock to a hold.

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Alphabet: Don't Underestimate The Power Of Ads. Moving To Hold Summary - We're moving Alphabet to a hold. - We believe the weaker ad spending and soft cloud demand amid current macro headwinds will pressure the company’s main revenue streams in the near term. - Alphabet stock is down nearly 28% over the past year, underperforming the SPY Index. We expect the company to continue underperforming expectations in 1H23. - We recommend investors wait for a better entry point as we expect the stock will drop further before it provides the once-in-a-decade buy opportunity. We're going against the current and moving Alphabet (NASDAQ:GOOG) to hold. Our bearish sentiment on the stock is driven by our belief that Alphabet is not immune to the current economic downturn. We believe Alphabet's main revenue, advertising, and long-term growth driver, Google Cloud, will be under pressure in 1H23 due to macroeconomic headwinds. Alphabet underperformed the S&P 500 Index over the past year, dropping nearly 28%. We expect the stock to continue to dip in the near term as the macro headwinds of 2022 spill into this year. We're bullish on Alphabet in the long run but don't see any clear growth catalyst for the stock's recovery in the near term. We don't believe the once-in-a-decade entry point on Alphabet stock has appeared yet, and hence recommend investors wait on the sidelines for the downside to be factored into the stock. Between a rock and a hard place in advertising Alphabet derives most of its revenues from advertising, accounting for almost 79% of total revenues in 3Q22. Our bearish sentiment on the stock is based on our belief that Alphabet's ad revenue is taking a hit as global companies cut ad budgets due to inflationary pressures and rising interest rates. Alphabet has planted its ad revenue streams in multiple segments: YouTube ads roughly account for 10.2% of revenue, Google Network ads for 11.4%, and ads from Google Search & other properties for 57.2%. Alphabet's 3Q22 earnings report illustrated weaker ad revenue Y/Y in YouTube ads and Google Network ads, with Google Search and other ads growing only slightly by 4% Y/Y. We don't believe the slow growth of ad revenue is due to any shortcomings from Alphabet; instead, we expect the company's ad revenue to be frozen between global ad spending cuts and intensifying competition in the ad space. 1. Harsh macro environment causing weaker ad spending We expect ad spending is declining as companies worldwide cut ad budgets amid the global economic slowdown - we believe this will take a toll on Alphabet's ad revenue in the near term. Alphabet has built a virtual monopoly over the search engine market, with a 90% market share. We believe Alphabet's ad-dependent nature has driven growth in the past, but we're concerned about its growth in the near term. Insider Intelligence slashed global forecasts for ad spending during 2022 from 15.6% Y/Y growth to 8.5%. We believe the slowdown in ad spending is spilling into 2023, with Insider Intelligence forecasting digital ad spending to decelerate to 10.5% Y/Y growth this year. Multinational media and entertainment company, Paramount (PARA) fell short of revenue expectations for their third quarter of 2022 because of weaker ad spending, with the company's ad revenue declining 2% in the quarter. We expect Alphabet to suffer similar impacts from slower ad spending. Advertising agencies lowered 2023 digital media market forecasts in December; Interpublic Group of Companies' (IPG) Magna reported revising growth estimates for the global ad industry to 5% growth in 2023, down from 7.5% in its June report. According to a World Federation of Advertisers' (WFA) survey of 43 multinational companies, 30% of "major advertisers say they're cutting their ad budgets" in 2023. We believe the weaker ad spending will impact Alphabet's ad revenue in the near term. The following graph outlines the worldwide slowdown in digital ad spending projected between 2021-2026. 2. Race for the biggest slice of the $321B digital ad market The global digital advertising and marketing market is estimated to grow at a CAGR of 13.1% between 2023-2028; we believe everyone is trying to get a slice of the profits. Since 2014, the digital ad space has been dominated by Meta Platforms (META), formerly known as Facebook, and Alphabet, which combined made up more than 50% of the market share. Recently, we have seen competition from Amazon (AMZN), TikTok, Microsoft (MSFT), and Apple (AAPL), among others, penetrate the market, visibly shrinking Alphabet and Meta's market share. Alphabet and Meta's U.S. ad revenues are projected to drop to a 43.9% market share in 2024, down from a 54.7% share in 2017. We believe Amazon is among the best positioned to grow its digital ad market share meaningfully, with ad revenues soaring from $1B in 2015 to nearly $38B last year. The following graph outlines Meta and Alphabet's shrinking market share in the U.S. digital ad market. Alphabet's ad business also faces pressure from a legal standpoint, with the U.S. Justice Department filing its second anti-trust lawsuit in two years against the company. The lawsuit accuses Alphabet's advertising business of playing on all sides of the market- "buying, selling and an ad exchange." The Justice Department argues that Alphabet is becoming "the be-all and end-all location for all ad serving," insinuating that the company is forming a monopoly over the ad space through its broad ownership. This isn't the only antitrust lawsuit facing Alphabet; the company also faces three other lawsuits. We believe this only thickens the company's near-term grunt. Google Cloud for the long-run According to Gartner, Alphabet's Google Cloud is catching up to the top players in the cloud-computing space. Google Cloud is ranked the third-largest player in the global public cloud market after Amazon's AWS and Microsoft's Azure. We believe Google Cloud will serve as a long-term growth driver, despite only accounting for roughly 10% of total revenues in the third quarter of 2022. Google Cloud revenue grew significantly compared to Alphabet's ad revenue, increasing 38% Y/Y, which is more than Microsoft Azure's 24% growth. We believe Google Cloud still has to expand its base to become a more meaningful global player but believe it's headed in the right direction for long-term growth. Still, we expect Google Cloud to be pressured by the weaker spending environment. Canalys, a tech market analyst firm, reported that inflation and rising interest rates are causing companies to reduce spending on cloud infrastructure. We believe this will harm cloud providers as companies are more hesitant about their IT spending amid market uncertainty; the annual growth rate for cloud infrastructure services fell below 30% for the first time, according to Canalys. We believe Alphabet is facing the grunt of the harsh macro environment on multiple fronts, and Google Cloud is no exception. Valuation Alphabet stock is relatively cheap, trading at 16.1x C2024 EPS $6.09 on a P/E basis compared to the peer group average of 19.5x. The stock is trading at 3.4x EV/C2024 sales versus the peer group average of 4.4x. We believe the stock will face more downside in 1H23 on account of the weaker spending environment; hence, we recommend investors wait for a better entry point on the stock. The following table outlines Alphabet's valuation compared to the peer group. Word on Wall Street Wall Street is overwhelmingly bullish on the stock. Of the 48 analysts covering the stock, 44 are buy-rated, and four are hold-rated. We attribute Wall Street's bullish sentiment on the stock to the widespread belief that Alphabet is the last FANG standing after the peer group took a beating last year. At the time this report was constructed, GOOG stock was trading at $97. The median and mean sell-side price targets are $124, for a potential upside of 28%. The following tables outline Alphabet's sell-side ratings and price targets. What to do with the stock We're bearish on Alphabet as we believe its ad business will be pressured in the near term due to ad budget cuts and intensifying competition. We also believe Google Cloud will feel softer demand in the near term due to macroeconomic headwinds. Alphabet's 3Q22 report missed expectations for top and bottom-line growth, with revenues growing a modest 6% short of the expectation of 8.5%. To top it off, Alphabet announced it'll cut 6% of its workforce, amounting to 12,000 employees. We expect Alphabet to continue missing expectations in 1H23 amid the weak spending market. We recommend investors wait on the sidelines of Alphabet stock as we see more downside ahead. This article was written by Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (10) Lisa Su- CEO. AMD - “Over the next several years, one of our largest growth opportunities is in AI, which is in the early stages of transforming virtually every industry service and product. We expect AI adoption will accelerate significantly over the coming years”Mark Zuckerberg - CEO. Meta "Our priorities haven’t changed since last year. The two major technological waves driving our roadmap are AI today and over the longer term, the metaverse. So first, let’s talk about our AI discovery engine. Facebook and Instagram are shifting from being organized solely around people and accounts you follow to increasingly showing more relevant content recommended by our AI systems. And this covers every content format"So Mark has now put AI ahead of his metaverse developments.Microsoft is investing another 10 billion in OpenAI and we can assume they will seek to enhance their search offering.The NASDAQ is up 3% at the moment.C3.AI is currently up 50% in 5 daysEvery company is now asking the question: "Where is this AI stuff gonna go and what do we need to do about it and how can we use it?"So then.. do you think Google won't respond? Do you think they have nothing to offer here? Do you think they will just sit back and let others in digital advertising apply the new tech to their advertising offerings without a challenge? Who has more data than to AI on than Google? Who has the data histories that defined human behavior better than Google? Who is better positioned to collect data intelligence for AI in real time as the world moves forward than Google?Do you think that advertisers will sit on their budgets while Google (and others) bring out new exciting granular AI based media buying and AD strategies?I don't think so... but that's me.So.. if you should think like I do.. do you really want to wait until after Google makes their AI announcement to buy the stock, or do you want to get in before the pop?

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Ponce: A Free Safe With $1 Million

The ECIP is a corrupt $9 billion transfer of taxpayer money. Click here to see how to exploit it for profit.

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Ponce: A Free Safe With $1 Million Summary - The ECIP is a corrupt $9 billion transfer of taxpayer money. - Here’s how to exploit it for profit. - Marketed to help the poor and minorities, it goes straight to investors. - Looking for a helping hand in the market? Members of Sifting the World get exclusive ideas and guidance to navigate any climate. Learn More » The Emergency Capital Investment Program is a government program funneling capital directly to a small group of banks. The second round of applications was due this week with more capital getting distributed shortly. It was validly signed into law; any responsibility lies with the politicians that voted for and signed this (and, in turn, the electorate that voted for them). My job is to understand it and exploit it for profit. According to the US Treasury, Established by the Consolidated Appropriations Act, 2021, the Emergency Capital Investment Program (ECIP) was created to encourage low- and moderate-income community financial institutions to augment their efforts to support small businesses and consumers in their communities. Under the program, Treasury will provide up to $9 billion in capital directly to depository institutions that are certified Community Development Financial Institutions (CDFIs) or minority depository institutions “MDIs” to, among other things, provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, especially in low-income and underserved communities, that may be disproportionately impacted by the economic effects of the COVID-19 pandemic. Treasury will set aside $2 billion for CDFIs and MDIs with less than $500 million in assets and an additional $2 billion for CDFIs and MDIs with less than $2 billion in assets. On October 6, 2022, a Twitter friend posted one of my favorite things I read all last year on the ECIP. He got my attention with his description, Imagine this. You buy a house for $500,000. You close, you get the keys and from this day forward everything in that house is yours. You walk into the basement and find an unlocked safe with $1,000,000 inside. This is the closest metaphor I can think of to describe what is happening to certain banks across the United States. He identified ten public ECIP recipients: They have since performed extraordinarily well with only one down since early October. That one, Ponce (NASDAQ:PDLB), remains the equivalent of an unlocked safe with a million dollars in it. In fact, $225 million from the US Treasury. It is designated both a certified Community Development Financial Institution and a minority depository institution, opening up two spigots of endless taxpayer money in the form of non-cumulative perpetual preferred stock with below market dividend rates. This is free money with only a thin veneer of complexity to obfuscate the reality that it is a gift. Ponce gets their $225 million with a zero rate for the first two years then it could adjust to 1-2% depending on meeting certain requirements, but it is likely to remain at 0%. The government could buyback the prefs at 10% of face but they also could ultimately end up simply cancelling them. In any M&A transaction, they will have to be fair valued, which would mark them down by 90%. Despite recent missteps, Ponce management is well aligned with shareholders, trades for less than its tangible book value which was last reported as $10.77 per share, and is over a year past demutualization which allows them to buyback shares. Their past as a mutual holding company offers glimmers of hope that they will maximize value. For example, they harvested hidden real estate value that didn’t make sense to hang onto. The ECIP program will help significantly grow book value in the coming quarters. As it stands today, the Russell cutoff this year is estimated to be around $185 million so Ponce’s current $230-240 million market cap should be enough to meet that hurdle. That will mean that over two million shares will have to be bought by indexers. In the days ahead, they should announce a big buyback plan. To execute, they need to get a regulatory non-objection which will dictate timing. They aggressively bought back shares before the second step conversion and will again be able to do so this month. They could benefit from ESG investors as well as taxpayer money. They plan on becoming a big beneficiary of the government focus on incentivizing companies including Microsoft (MSFT), Google (GOOG) (GOOGL), and Netflix (NFLX) to put their corporate deposits in minority depository institutions at very low rates. There is some throat clearing and complexity but this will essentially be a gift. Microsoft et al will get a tax credit and ESG/DEI/BLM etc. street cred. The FDIC has posted about some of the companies that they have leaned on to support depository institutions based on race. This kind of positive attention from regulators offers some innuendo that there will be favorable treatment for companies that play ball. They will be one of the 75% of demutualized banks to sell in their fourth or fifth year (2025-2026). By the time they are allowed to sell, the Chairman and the CEO will be 74 and 73 respectively. The average board member will be 73. It will be time to hit the bid on the best strategic M&A deal they can negotiate. Caveat One of the reasons you can buy this under $10 is that they just released a lousy quarter. It is not the best deposit base. Their funding cost is too high, and margins are too low. They wrote off the rest of an ill-advised micro-loan program called Grain. The idea was to offer credit lines of up to $1,000 to people who were obviously uncreditworthy and unlikely to repay the loans. The plan was to give money to people who would 1) take the money and 2) run. They… did. More than half of their microloans were such frauds. Or as described by Ponce’s lawyers, Grain, has been victimized by cyber fraud using synthetic and other forms of fraudulent identifications, a phenomenon that has become prevalent with FinTechs. So far, PDLB has been a disappointment – it didn’t get much of a demutualization pop, it failed to get into the R2K index, and it underperformed other ECIP recipients. But that underperformance left the stock massively undervalued today. It is a bargain for anyone who can set it up under $10 and hang onto it for the coming years. Conclusion If you like free money, there’s nothing like the federal government for arbitrarily handing it out. Get some. Ponce should grow its $10.77 tangible book value to $12-13 over the next few years then sell for at least 125% of that TBV or $15-17 per share. TL; DR After others have raced so far, today my favorite ECIP boondoggle recipient is Ponce (PDLB). If you’re a US taxpayer, you’re the one giving away free money… so you might as well get some of it back. Want To Get Ideas Earlier? Then join us. This article was written by #1 ranked arbitrage service #1 ranked event driven service #1 ranked M&A service Analyst’s Disclosure: I/we have a beneficial long position in the shares of PDLB either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. https://seekingalpha.com/instablog/957061-chris-demuth-jr/5549358-legal-disclosure Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (27) Net loss: US$30.0m (down by 218% from US$25.4m profit in FY 2021) US$1.32 loss per share (down from US$1.09 profit in FY 2021)Doesn't look good. Why such a drop in revenues with interest rates going up?Non-performing loans were 0.90% almost the same as 0.87% in 2021. The cost-to-income ratio deteriorated from 61.1% in FY 2021 to 117.5%. "there aren’t specific requirements for how participants must use the funds" "[the funds] will enable Ponce Bank to further invest in automation and digitalization" "Ponce Bank has started making loans directly to other CDFIs for specific activities and has created an advisory board of CDFI executives to help guide its efforts."

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Microsoft rolls out ChatGPT-powered Teams Premium

Microsoft Corp on Wednesday rolled out a premium Teams messaging offering powered by ChatGPT to simplify meetings using the AI chatbot that has taken Silicon Valley by a storm.

Reuters

Microsoft rolls out ChatGPT-powered Teams Premium Feb 1 (Reuters) - Microsoft Corp (MSFT.O) on Wednesday rolled out a premium Teams messaging offering powered by ChatGPT to simplify meetings using the AI chatbot that has taken Silicon Valley by a storm. The premium service will cost $7 per month in June before increasing to $10 in July, Microsoft said. OpenAI-owned ChatGPT will generate automatic meeting notes, recommend tasks and help create meeting templates for Teams users. Microsoft, which announced a multi-billion dollar investment in OpenAI earlier this month, has said it aims to add ChatGPT's technology into all its products, setting the stage for more competition with rival Alphabet Inc's (GOOGL.O) Google. The chatbot, which can produce prose or poetry on command, is at the forefront of generative AI, a space where more and more big tech companies are funneling their resources in. ChatGPT on Wednesday announced a $20 per-month subscription plan, which will let subscribers receive access to faster responses and priority access to new features and improvements. Our Standards: The Thomson Reuters Trust Principles.

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Meta Platforms Q4 2022 Quick Take: Bringing It Home

Meta Platforms posted an impressive revenue beat in the fourth quarter and a current quarter guide that was better than feared.

SeekingAlpha

Meta Platforms Q4 2022 Quick Take: Bringing It Home Summary - Meta Platforms posted an impressive revenue beat in the fourth quarter and a current quarter guide that was better than feared. - A reduction in current year opex and capex were largely expected and favored by investors in the profit-preferred climate, while the incremental $40 billion buyback program authorization also bolstered confidence. - Despite ongoing macroeconomic uncertainties, the company's consistent post-IDFA progress continues to underscore its technological advantage as well as the benefit of dominant social media user reach, assuaging future FCF concerns. - Looking for more investing ideas like this one? Get them exclusively at Livy Investment Research. Learn More » Meta (NASDAQ:META) has been one of the biggest gainers in the recent market rally, initially fuelled by investor optimism over job cuts announced in the prior quarter to protect margins, and subsequently by signs of potentially easing financial conditions. The stock has gained more than 65% from its November bottom, and continues to climb in post-market trading (as much as +18% at the time of writing) thanks to an impressive revenue beat and an incremental $40 billion buyback program authorization surprise. Markets also reacted favorably to Meta’s guidance and commentary for the current quarter, which remains in line with our expectations that much of the negatives facing the underlying business’ fundamentals have already been reflected in the stock’s current value. While Meta continues to face challenges that are idiosyncratic of ongoing macroeconomic uncertainties – spanning struggles in recapturing ad market share post-IDFA and the metaverse spending overhang – we're maintaining the view that much of the said negatives have already been priced into the stock’s lows previously contested in November. Going forward, investors will likely continue to focus on Meta’s execution, which appears to be progressing favorably, albeit at a slow pace, from here on out. This is further corroborated by improvements in its ad take-rates and impressions following the implementation and continued ramp-up of post-IDFA initiatives discussed in previous coverages (e.g. Advantage+, APIs, Meta Pixel, Reels, etc.), and the largely expected continuation of losses in Reality Labs, which the latest opex and capex cuts will make a welcomed partial offset for. Admittedly, the stock is not fully out of the woods yet, given idiosyncratic risks that would up Meta’s vulnerability to ongoing market volatility. But consistent, though gradual, improvements to its core advertising business and fundamentals continue to be supportive that it will be unlikely for the stock to breach the $110-level again, which we view as the steady-state firm valuation for Meta. We continue to expect a modest, but consistent, recovery trajectory for Meta, supported by durable secular growth trends in digital advertising that is still on the table for the company given its ongoing progress in overcoming post-IDFA challenges, which will continue to be the key driving force for unlocking further upside potential. A Slow, But Steady, Turnaround in Ads An improvement to fourth quarter advertising revenues, marked by a relatively modest decline (or modest increase on a constant currency basis), continues to support our views that Meta is making stable progress on its upstream battle against challenges from the Apple (AAPL) signal loss, as well as broader macro-driven industry headwinds. With its core sales generating ad segment progressing favorably, total revenue in the fourth quarter topped $32 billion (-4/5% y/y or +2% y/y cc), and exceeded consensus estimates by $480 million. Specifically, Meta’s post-IDFA initiatives implemented over the past year have been met with improving feedback from advertisers so far. Many have cited improving cost-per-action (“CPA”), which will continue to bolster incremental ad dollars flowing back to Meta’s ad distribution channels over time, especially as the company presses forward with ramping up the various post-IDFA initiatives implemented – spanning Advantage+, Conversions API / Conversions API Gateway, Aggregated Event Measurement, and Meta Pixel (previously discussed in detail here and here). Continued DAU / MAU growth (+4% y/y; + 2% y/y) observed in the fourth quarter also reinforces Meta’s leading reach in social media ads as well, supporting the narrative that it would remain at the forefront in recapturing returning ad-dollars in social media formats when compared to peers like Snap (SNAP) and Pinterest (PINS). Meta’s robust fourth quarter advertising sales performance also supports ongoing progress in ramping up Reels monetization. Specifically, Reels was called out as a “major driver” of Meta’s latest outperformance, supported but complementing AI developments aimed at overcoming the IDFA signal loss challenges, and accommodating the shift in user preference to short-form video discovery. The company’s efforts in bolstering its competitiveness in short-form video monetization is also corroborated by an improving share of user screen time over the past quarter. A recent survey conducted by RBC Capital Markets indicates that more than 53% of Facebook / Instagram users have spent more time on the apps compared to levels between six and 12 months ago, with 36% indicating they have spent less time on the apps over the same comparative period, implying a net positive in share of user screen time. Meanwhile, key competitor TikTok saw a 25% increase in users who have spent more time on the platform over the past six to 12 months, while 24% have spent less, representing a net neutral showing. While Meta is likely to be progressing favorably capturing share in the short-form video advertising market by steadily improving the feature’s reach, the transition remains a drag on overall margins in the advertising business. Specifically, Meta had previously indicated that Reels remains a $500 million headwind on the segment’s sales, and continue ramp-up and adjustments to the relatively new feature’s roll-out and monetization efforts will remain a cost-driver that will take time to neutralize over the next 12 to 18 months: Moving to monetization, I’ve discussed in the past how the growth of short-form video creates near-term challenges since Reels doesn’t monetize at the rate of Feed or Stories yet. That means that as Reels grows, we are displacing revenue from higher monetizing surfaces…Even with the progress we have made, we are still choosing to take a more than $500 million quarterly revenue headwind with this shift, but we expect to get to a more neutral place over the next 10 – sort of 12 to 18 months. With Reels sort of playing a “cannibalizing” role in ad revenues in the near-term, given the feature’s “monetization gap” from legacy distribution formats like Stories and News Feed, execution risks remain high for Meta to address the urgency to bolster free cash flow generation required to support its longer-term growth investments (e.g. metaverse). Specifically, Reels margins are likely to weaken further before they get better, given increasing trends of revenue-sharing across competing short-form video platforms like YouTube Shorts that could weigh on Meta’s existing offerings to content creators. For now, Meta has been incentivizing content creators to expand the Reels catalogue across its main social media apps through revenue sharing strategies such as “Rights Manager.” Rights Manager pays creators 20% of revenue on eligible Reels, with a “separate share going to music rights holders and to Meta.” Meta also has an invite-only “Reels Plays Bonus” for content creators that meet certain view thresholds. This rivals YouTube’s upcoming offering, which expands its existing “YouTube Partner Program” (“YPP”) to include “revenue sharing on ads” distributed through YouTube Shorts, as well as revenue sharing on music rights starting February 1. While Meta has made meaningful progress in catching up to TikTok’s lead in short-form videos, YouTube’s leading share in the global video-sharing market, paired with the upcoming revenue sharing program for Shorts, could potentially be a challenge for Reels. Specifically, YouTube already garners over 2.6 billion visits per day, with “over one billion hours of videos” watched by users on a daily basis, which paired with the upcoming revenue sharing program for Shorts could entice content creators away from creating Reels. Content creators have also recently taken to their respective Facebook / Instagram platforms to express how those apps currently offer the least revenue sharing incentives when compared to TikTok and YouTube (which will be greater with added revenue sharing programs specific to Shorts). [In] 2023, I want to shift my focus from Instagram over to YouTube and TikTok…So in case you guys didn’t know I am in a bonus program on all three platforms…That is how I make some of my money…Instagram has been my main platform for the last several years. But it pays the worst…Instagram doesn’t pay as well as [the] other two that’s why I want to be more active on those platforms… Source: @gaming_foodie, Instagram Stories (January 31, 2023) To improve its stance within the increasingly saturated short-form video landscape, Meta may have to further improve its revenue sharing program, among other incentives, for content creators to ensure its Reels catalogue continues to grow steadily, which would be required to ensure engagement on its platform needed to attract ad dollars. But while we view this as a potential risk that could derail Reels’ monetization strategy over the next 12 to 18 months, durable DAU / MAU growth observed across Meta’s family of apps observed in the fourth quarter – DAU reached the 2 billion milestone – and large share of user screen time remains a competitive advantage to support the new feature’s competitiveness, while also complementing the ongoing improvements observed in ramping up the post-IDFA ad formats. Looking ahead, we view management’s conservatism over Meta’s advertising demand environment in the current quarter to be in line with the seasonal start-of-year slowdown following a strong holiday quarter. The modestly positive guide is also consistent with continued low visibility on the near-term macroeconomic backdrop as well. As mentioned in our previous coverage on the stock, the combination of declining household savings and increasing consumer debt, as well as pulled forward ad demand during the pandemic continues to add complexity in the industry’s recovery prospects. Specifically, the U.S. economy is expected to contract in the second and third quarter, despite better-than-expected growth last quarter, as consumption continues to deteriorate. American household savings have continued on a decline below pre-pandemic levels in the low 2% range, while accumulated revolving credit outstanding, which includes consumer credit card debt, is slowing inching towards the $1.2 trillion level. The consumer slowdown can be directly observed through cooling e-commerce spending and prices – the Adobe Digital Price Index (ADBE), which measures online prices, dropped almost 2% y/y (-3.2% m/m) in December, marking the “largest decline in 31 months." And the slowdown in e-commerce spending makes stiffening headwinds to the digital advertising industry still – especially social media ad formats like those offered by Meta, which targets SMBs offering goods and services looking for customer acquisition growth. Meanwhile, the pandemic-era boom in digital ads, which was likely years of pulled forward demand, remains on a trajectory of normalization that could further stall Meta’s near-term recovery outlook. Meta also faces a tougher PY comp backdrop, given the aforementioned macroeconomic headwinds did not become as prevalent until the second half of 2022. As macroeconomic uncertainties continue over the coming months, the anticipation for ensuing weakness in ad demand, paired with the stronger PY comp landscape makes management’s cautious optimism for the current quarter almost prudent to temper investors’ expectations, and mitigate risks of over promising and under delivering. But the second half of the year could offer a sliver of hope for Meta. Based on the consideration that Meta would continue to make favorable progress in ramping up its post-IDFA ad formats and Reels monetization, and a potential improvement in visibility over the macroeconomic backdrop, the company’s core advertising business could potentially benefit from re-acceleration. Specifically, current market forecasts predict social media advertising demand to increase by 7% in 2023, re-accelerating from 4.4% in 2022, with much of the growth expected to materialize in the second half of the year, and through 2024. Taken together with the easier PY comp set up from 2H22 when cyclical headwinds facing the ad industry were comparatively more prevalent, as well as Meta’s recent cost reduction efforts that will likely have a more evident impact on margins through the year (discussed further in later sections), the company could be well-positioned for further improvements in the second half of 2023. The Metaverse Stays Aside from its core advertising business, Meta’s bet on the metaverse is likely not going away – nor anywhere – anytime soon. In line with investors’ expectations, the company remains committed to significant investment outlays over the coming years in building out its vision of next-generation social in the virtual world, with no immediate signs of potential return in sight: We believe investors have zero faith in seeing a return on the company’s metaverse investments anytime soon, and this quarter may be a good opportunity to communicate a more balanced approach where management reiterates its commitment to the LT [longer-term] goals even as it finds ways to more judiciously invest in metaverse initiatives. Source: RBC Capital Markets Ad-Tech Report Yet, Reality Labs revenue continued to reverse some of the declines in previously quarters, totaling $727 million (-17% y/y; +155% q/q) likely helped by holiday shopping seasonality strength during the final three months of 2022. But operating margins remain pressured at -590%, underscoring Meta’s continued allocation of significant R&D and other opex, as well as capital spending to bolster its anticipated longer-term growth initiative. Meta’s commitment to building out the metaverse, paired with the lack of structural evidence over the near- to medium-term for mainstream adoption (aside from potential enterprise / industrial use, such as digital twins and virtual assistants / avatars) and monetization will likely continue to be an overhang on the stock’s outlook. The significant outlay (projected at about 20% of planned capex) also comes at an inopportune time, given the elevated cost of capital resulting from surging interest rates and a slowing market that has investors worried about margins. Meanwhile, competition also is gaining momentum, with Apple soon entering the arena with its own mixed reality headsets later this year. While Meta’s Oculus goggles have long been dominant in the nascent VR industry, with competing products like Microsoft’s (MSFT) HoloLens and Valve’s Index trailing by wide margins, traction so far remains mediocre. Demand has largely been more present in consumer end-markets (e.g. gaming), with the Quest Pro’s – Meta’s latest foray in enterprise-focused mixed reality applications – take-rates off to a slow start. Although Meta benefits from a first mover advantage of sorts in the industry for now, slow mainstream adoption of the device category has not allowed the competitive lead to materialize into pricing power that can bolster the segment’s margins. Paired with ongoing macroeconomic headwinds spanning rising costs of capital as discussed earlier, and rapid deterioration in the segment’s current core consumer end-market, the backdrop does not bode well with investors’ confidence in the company’s metaverse ambitions. Continued investment outlays poured toward building out the metaverse also will place incremental pressure and urgency on Meta’s currently slow-recovering core advertising business to perform in order to assuage investors’ concerns, given the segment is the key and sole meaningful source of cash flows to support the company’s ongoing ambitions. Pulling the Cost Lever For now, management’s guide for opex and capex reductions, which were in line with our previous expectations, to optimize efficiency across the business could make a potential partial offset to the metaverse overhang. Specifically, the recent reduction in force (“RIF”) actions undertaken, alongside with continued workspace consolidation efforts drove one-time restructuring charges of $3.76 billion in the Family of Apps segment and $440 million in the Reality Labs segment, representing a 13 percentage point headwind on consolidate operating margins, and partially explaining the quarter’s slight earnings miss (EPS $1.76 vs. consensus $2.24); office consolidation drove $1 billion of full year 2023 restructuring charges. The company has now guided full year 2023 expenses in the $89 billion to $95 billion range, down from the previous $94 billion to $100 billion range as a result of the “slower anticipated growth in payroll expenses and cost of revenue." Meanwhile, capex for the current year has also been guided down from the previously $34 billion to $37 billion range to the $30 billion to $33 billion range as a result of “low data center construction spend," playing to its 2023 theme “Year of Efficiency”: Beyond this, our management theme for 2023 is the 'Year of Efficiency' and we're focused on becoming a stronger and more nimble organization…The reduced (capex) outlook reflects our updated plans for lower data center construction spend in 2023 as we shift to a new data center architecture that is more cost efficient and can support both AI and non-AI workloads. Source: Meta Platforms 4Q22 Earnings The development falls in line with recent speculation that Meta may be pulling back toward a more cautious stance on both capital and operational spending, marked by cancellation of its data center expansion efforts in Denmark late last year, and headcount reductions: Specifically, there is a "growing view that Meta could cut capex in particular by as much as 30% to 50% relative to the initial guide", which focuses primarily on "increasing AI capacity" partially attributable to its metaverse ambitions. It's also a welcomed sight, as investors hope for more conservative spending habits that could help the company preserve its margins through the near-term industry-specific and macro-driven challenges. We also view Meta’s doubling down on efforts pertaining to AI capabilities a plus to supporting its ongoing initiatives in overcoming IDFA headwinds – and other privacy policy updates across the Android operating system and elimination of Chrome browser cookies by 2024 – and onboarding a more structural competitive advantage in targeted social media advertising space. The cost optimization efforts undertaken, without compromising on ongoing ad share recovery efforts, will likely address investors’ growing demand for healthy free cash flow generation to offset the anticipated yearslong metaverse overhang. And the expected benefits of recent cost reduction efforts will likely place a more evident impact on Meta’s fundamentals in the second half of the year, coinciding with an easier PY comp set up as discussed in earlier sections that could potentially bolster the recovery narrative for the stock. The Bottom Line The positive progress delivered by Meta in its core advertising business over the fourth quarter is largely welcomed, and the conservative guide for the current quarter can be viewed as reasonable given market awareness of the current macro backdrop and cyclical headwinds facing the company, aside from idiosyncratic challenges in the transition post-IDFA. But 2023 remains a year ladened with executions risks for Meta, nonetheless. This is consistent with expectations that post-IDFA recovery will be a multi-year endeavor for Meta, considering the need to adjust AI-enabled solutions for targeted ad delivery over time, acquaint advertisers / vendors with the appropriate tools to take full advantage of the post-IDFA offerings, and ramp up the new initiatives to improve CPA, conversion, measurement, and other ad performance metrics demanded by the industry. There's also growing urgency for the core advertising business to show a structural turnaround in order to compensate for metaverse outlays and ensure the durability of recently improving investors’ confidence stays. But improving overall efficiency at the company, paired with the incremental $40 billion buyback program recently approved remain supportive of Meta's confidence in turning the company around, and will likely help assuage investors' concerns over the stock's prospects. Considering the execution risks in Meta’s transition within its core advertising business post-IDFA, and beyond in terms of its metaverse ambitions, the stock will likely remain vulnerable to ongoing market volatility in response to evolving macroeconomic factors, spanning inflation, rate hikes, and a likely recession. But given most negatives have likely been already priced into the Meta stock, which still trades at a significant discount to its broader internet peer group despite the recent rebound, we remain confident in bear case support levels in the $110-range. Considering there is still meaningful headroom for improvement in Meta’s underlying fundamentals as it forges its way through post-IDFA social media advertising with consistent progress in building a “structural advantage around ad targeting,” the stock remains well positioned for further upside potential from current levels, making any near-term pullback in tandem with market weakness an reasonable buy-in opportunity. Thank you for reading my analysis. If you are interested in interacting with me directly in chat, more research content and tools designed for growth investing, and joining a community of like-minded investors, please take a moment to review my Marketplace service Livy Investment Research. Our service's key offerings include: - A subscription to our weekly tech and market news recap - Full access to our portfolio of research coverage and complementary editing-enabled financial models - A compilation of growth-focused industry primers and peer comps Feel free to check it out risk-free through the two-week free trial. I hope to see you there! This article was written by Boutique investment research shop providing professional coverage on disruptive thematic equities. Our analysis provides a deep dive on growth drivers present in the secular market to identify outperforming investments. Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (5)

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Apple Earnings Preview: Best House, Bad Neighborhood

Confidence in Apple's ability to deliver another trademark solid quarter has been waning in the past several weeks. Click here for my preview of AAPL earnings.

SeekingAlpha

Apple Earnings Preview: Best House, Bad Neighborhood Summary - Confidence in Apple Inc.'s ability to deliver another of its trademark solid quarters has been waning in the past several weeks. - Global smartphone, PC, and tablet sales look soft. The better news is that Apple is likely outperforming its peers. - Disproportionate weakness in share price around earnings could represent an opportunity to buy Apple Inc. stock at a discount. - Looking for a helping hand in the market? Members of EPB Macro Research get exclusive ideas and guidance to navigate any climate. Learn More » Apple Inc. (NASDAQ:AAPL) is scheduled to deliver fiscal Q1 results this Thursday, February 2 post-market. Confidence in Apple's ability to deliver another of its trademark solid quarters has been waning in the past several weeks, as the current-year sales and EPS estimate revision chart below suggests. The Cupertino-based company is expected to have faced a laundry list of challenges in the 2022 holiday period. Due to all the uncertainty, I find it speculative to have strong convictions about the performance of the company or its stock this earnings season. Still, I try my best at projecting the good and the bad of Apple's quarter in the sections below. At a high level, I believe the results and outlook delivered this week will be consistent with the idea that Apple remains one of the best houses in this otherwise dilapidated neighborhood that the tech space has become lately. The good: iPad and FX There is little question that the iPad will be the best-performing segment this quarter. The key driver of upside to previous-year sales should be the timing of the launch of the new iPad devices. In October 2022, the new iPad Pro equipped with Apple's new M2 chip saw the light of day. The YOY comparison against a fiscal Q1 of 2022 that was devoid of a similar product introduction should propel iPad sales growth much higher, following four consecutive quarters of contraction. This is the first instance in which the "best house in a bad neighborhood" dynamic should be evident. For example, Microsoft Corporation (MSFT) has recently reported an astonishing 39% drop in GAAP-basis device sales in the holiday season, with the company's Surface underperforming the expectations of CEO Satya Nadella and his team. With an arguably better product portfolio and an extra week of sales in the calendar, I doubt that Apple will perform poorly. The other potential source of good news is foreign exchange. Last quarter, Apple's CFO Luca Maestri warned of rarely-before-seen FX headwinds that could shave off nearly 10 percentage points in revenue growth. But as the chart below depicts, the U.S. dollar began to depreciate sharply almost immediately after Apple's most recent earnings call, in late October 2022. Back to Microsoft, the Redmond-based company booked five percentage points in revenue growth tailwinds driven by the exchange rate, and Apple might do something similar. To be clear, FX movements should not matter much, if at all, to any investment thesis on Apple. The better news is that at least the headline numbers might look much better than once feared. Expect, however, the earnings call debate to focus on how to parse out FX-neutral performance vs. pure exchange rate benefits to the P&L. The bad: supply chain and services Having said the above, I expect most of Apple's earnings report to look ugly to most investors. The finger can be pointed east towards China: supply chain disruptions that some believe to have been largely resolved during the quarter are likely to wreak havoc, particularly within Apple's iPhone segment. And the supply issue may be just the tip of the iceberg, as signs of economic fatigue and a slowdown in consumer spending could also have an impact on demand. A few third-party research companies have at least reported that the iPhone is likely to have performed better than most peers. While Canalys believes that global smartphone shipments dropped by a sizable 17% last quarter, it also sees Apple gaining two percentage points in market share, for an implied YOY decline of 9% in shipments. Factor in some FX tailwinds and the extra week in the quarter (but also consider that the revenue mix away from iPhone Pro and Pro Max should represent a drag to average selling price), and maybe investors can justify hopes for better-than-expected segment revenues. Lastly, Apple's services segment could be another source concern. In my view, this high-margin and once-high-growth business (along with the company's aggressive share buyback program) is largely responsible for Apple's P/E having skyrocketed from the low double-digits in 2012 to around 23x today. But now, the segment is facing challenges. In great part due to: (1) slower advertising spending impacting Apple's ad business; and (2) soft consumer spending dragging App Store (particularly game-related) sales down, investors could witness the lowest service revenue growth rate posted in years, if not ever. Near-zero growth could be highly disruptive to investor sentiment, considering the rich 65% segment margins and YOY growth that reached above 25% as recently as fiscal 2021. Don't trade earnings, own the stock All things considered, I would not hold Apple Inc. to high standards regarding fiscal Q1 performance. Still, I would be very skeptical of trading earnings, even from the bearish perspective, given all the unknowns surrounding the extent of Apple's supply chain issues, the spending appetite of consumers, the impact of FX and the extended quarter on holiday period results, etc. I maintain my position on Apple Inc. stock, one that is based on long-term convictions. I still believe that Apple is one of the best-managed companies in the world and one of the most appreciated by its customers. I think Apple Inc. is a stock to own for the long haul, and disproportionate weakness in share price around earnings could represent an opportunity to buy the stock at a discount. Join EPB Macro Research EPB Macro Research is a thriving community of investors seeking better risk-adjusted returns, while optimizing their portfolios to benefit from the next economic cycle. I invite you to join EPB, where you can read more about multi-asset diversification and participate in the discussions about the markets, the economy and investment strategies. This article was written by Daniel Martins is a Napa, California-based analyst and founder of independent research firm DM Martins Research. The firm's work is centered around building more efficient, easily replicable portfolios that are properly risk-balanced for growth with less downside risk. - - - Daniel is the founder and portfolio manager at DM Martins Capital Management LLC. He is a former equity research professional at FBR Capital Markets and Telsey Advisory in New York City and finance analyst at macro hedge fund Bridgewater Associates, where he developed most of his investment management skills earlier in his career. Daniel is also an equity research instructor for Wall Street Prep. He holds an MBA in Financial Instruments and Markets from New York University's Stern School of Business. - - - On Seeking Alpha, DM Martins Research partners with EPB Macro Research, and has collaborated with Risk Research, Inc. DM Martins Research also manages a small team of writers and editors who publish content on several TheStreet.com channels, including Apple Maven (thestreet.com/apple) and Wall Street Memes (thestreet.com/memestocks). Analyst’s Disclosure: I/we have a beneficial long position in the shares of AAPL, MSFT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (7) -- "I think Apple Inc. is a stock to own for the long haul, and disproportionate weakness in share price around earnings could represent an opportunity to buy the stock at a discount." -- **This...and perfectly stated.

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Is Microsoft Stock A Sell After Earnings? The Key Lies In Azure

Is Microsoft stock a sell after earnings? We believe the key lies in Azure. Click to read our analysis of Azure’s revenue growth and MSFT’s one-year target price.

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Is Microsoft Stock A Sell After Earnings? The Key Lies In Azure Summary - Azure's deceleration in revenue growth was the main disappointment for the market as management guided a further deceleration of 4 to 5 percentage points. - As a result of a weaker macro backdrop, Microsoft's FY2023 revenue growth target of 10% is not achievable, which removes another overhang for the stock. - Management has showed strong operating expense and margin control to limit the downside in EPS. - OpenAI is not expected to have a material impact on Microsoft on the revenue and capital expenditures front. - My one-year target price for Microsoft is $305, implying 23% upside from current levels. - This idea was discussed in more depth with members of my private investing community, Outperforming the Market. Learn More » Microsoft (NASDAQ:MSFT) recently reported its results and the market went from "It's over" to a "Conservative Guidance" thesis. This article goes deeper into the recent earnings to determine if there is an opportunity at hand for investors. Investment thesis Microsoft has sold off almost 30% from its highs. This sell off was inevitably due to weakness in the overall business, but more so due to weakness in its most exciting Azure segment. However, I still see Microsoft as a solid investment for the long-term. This is due to their strong competitive advantage with its full, comprehensive suite of products and offerings, as well as its durable growth profile. In their recent earnings, we also see that the company is able to leverage on costs as a tool to manage earnings per share growth. While Azure may undoubtedly remain under pressure in the near-term, the long-term potential for Azure remains strong. Furthermore, the company's forward guidance is de-risked, in my view, as management has communicated, and the market has incorporated most of the negative views for the company. I have written earlier articles on Microsoft. A disappointment from Azure For the second quarter, Microsoft reported that Azure grew 38% on a constant currency basis. This was a positive surprise for the market as investors were estimating Azure growth to come in around 35%. In addition, there was positive commentary from Microsoft as management mentioned a number of large multi-year Azure deal commitments. That positive sentiment was short-lived as management then commented that Azure exited the second quarter at 35% growth rate, which is implied from its mid-30s comment. Furthermore, they expect that the growth rate for Azure will decelerate further by 4 to 5 percentage points. This would imply a further weakening of Azure's growth between 30% to 31% for the third quarter ending March. This was likely the most material statement in the earnings call that resulted in further bearish sentiment in the near-term. The reason for the deceleration? Management commented it was due to an accelerated trend of optimization of cloud spend as well as a slowdown in new workload migration activity. Weaker FY2023 revenue growth to be expected The initial guidance that Microsoft gave for the FY2023 revenue growth target was 10%+. This was a debate amongst investors in the bull and bear camp as the market was undecided whether this revenue target was achievable or not. In the second quarter call, I think that we can safely say that Microsoft is unlikely to achieve this initial 10% target as a result of uncertainty from the weak PC market. With the weakness in demand from Azure as cited earlier, as well as management's comment on persistent weakness in the PC market, weak advertising demand and an overall tough demand backdrop for stand-alone sales. As a result, commercial bookings growth came in at 4% and is expected to be flat for next quarter. Furthermore, there was a weaker macro commentary from Microsoft, which should support the more cautious view that broader IT spending trends have not stabilized and in fact got worse through the close of 4Q. To be conservative, I expect FY2023 constant currency revenue growth to come in at 9%, 1% lower than initial guidance from management. Good operating expense and margin control Adjusted operating margins for the second quarter came in at 40.9%, which was above my expectations for the quarter. In addition, overall operating expenses were about $500 million below guidance, showing continued good operating expense discipline. In the last earnings quarter, Microsoft lowered expectations for operating margins, reducing the FY2023 target from roughly flat to down 100 basis points year on year. In this earnings call, they lowered the FY2023 margin guidance target again, to down 200 basis points year on year, although they expect a $300 million improvement in the energy cost headwind. The fact that margins are only down 200 basis points is a good outcome, in my view, as the company is facing a massive $2 billion incremental headwind from the weakness in Windows. With weakening of Azure, the Windows PC segment and slowdown in new businesses, it is crucial that Microsoft shows tight operating expense control to protect EPS. With the reduction in headcount and tight operating expense control, Microsoft managed to beat its EPS guidance for the second quarter and operating expense growth is projected to slow to low single digits by the fourth quarter. Impact of OpenAI on Azure As Microsoft stated that they are not commenting on the revenue recognition associated with OpenAI’s consumption of Azure. They also stated that they would have called it out if this was a material driver of Azure growth. In other words, this implies that OpenAI's consumption of Azure is not a material driver for Azure's growth. In terms of the costs of building out GPU capacity for OpenAI, Microsoft is more transparent on this. It stated that these costs have already been included in the reported capital expenditures. That means that there is no evidence of an AI-related capital expenditures bump, with Microsoft saying that they’ve been investing “for years” to build out AI-based Azure capacity. Microsoft Stock Valuation To value Microsoft, I used both the P/E multiple method and the DCF method. I assumed a forward P/E of 25x for Microsoft. This implies a 25% premium to its peer group due to Microsoft's strong competitive positioning and resilient growth profile. For my DCF assumptions, I used a cost of equity of 9% to discount Microsoft's free cash flow to equity. Furthermore, I used a terminal multiple of 16x. On a relative valuation perspective, Microsoft is currently trading at a P/E of 26x for FY2023 and 23x FY2024. I think that despite the near-term headwinds we see Microsoft facing today as well as the negative sentiment around the stock, I remain positive on Microsoft and I think that it is time to buy, and not sell Microsoft after its recent earnings report. Investors buying at current levels have the opportunity to accumulate a company with strong structural tailwinds and an attractive risk/reward perspective. My one-year target price for Microsoft is $305, implying 23% upside from current levels. Risks Weakening macro backdrop As the macro backdrop worsens, this will likely mean a more difficult operating environment for Microsoft. As business and consumer sentiment worsens, this could stall growth in its newer businesses, and see worsening deceleration of growth for Azure. As Microsoft depends on companies and their willingness to spend on IT. As IT budgets get reduced, the growth profile for Microsoft will also be affected negatively. Slowdown in cloud migration The current deceleration of Azure's revenue has resulted in downward pressure for Microsoft's stock. There is a risk that companies may delay or put a stop to their cloud migration process. As a result, Azure may see decelerating growth and weaker growth for longer if this persists. Competition in the cloud If competition in the hyperscale cloud market intensifies, this may require Microsoft to aggressively invest in Azure. Amazon's (AMZN) AWS and Alphabet's (GOOGL) Google Cloud are the main competitors in the market with strong financial resources and a solid commitment to the business. Conclusion After its recent earnings results, I think that investors should be buying and not selling MSFT stock The current valuation and risk reward skew is positive for the company as its FY2023 forward guidance has been de-risked. Put simply, this means that Microsoft is able to more easily beat its expectations. As elaborated earlier, the company has shown strict cost control which will help limit downside on the earnings front, while its guidance for Azure has been de-risked. This is because the company has communicated the reasons for the deceleration of growth, as a result of a slowdown in migration activity and optimization of cloud spend, which is a cloud industry wide issue. Investors buying at current levels have the opportunity to accumulate a company with strong structural tailwinds and an attractive risk/reward perspective. My one-year target price for Microsoft is $305, implying 23% upside from current levels. Outperforming the Market Outperforming the Market is focused on helping you outperform the market while having downside protection during volatile markets by providing you with comprehensive deep dive analysis articles, as well as access to The Barbell Portfolio. The Barbell Portfolio has outperformed the S&P 500 by 41% in the past year through owning high conviction growth, value and contrarian stocks. Apart from focusing on bottom-up fundamental research, we also provide you with intrinsic value, 1-year and 3-year price targets in The Price Target report. Join us for the 2-week free trial to get access to The Barbell Portfolio today! This article was written by I am a portfolio manager with experience working for a hedge fund and a long-only equity fund with more than $1 billion in assets under management and I have a track record for outperformance in my portfolio. I have been writing consistently, with an article published each day on Seeking Alpha and on my Marketplace service. Focused on long term investing, I believe in a barbell strategy in a portfolio, where there are both growth and value elements, which will be reflected in my articles. I will be running a Marketplace service, Outperforming the Market, where I will share with you The Barbell Portfolio, which consists of high conviction growth and value stocks to help you outperform in the long-term, as well as The Price Target Report, which tells subscribers how much discount the stock is trading to intrinsic value and the upside potential. Lastly, subscribers will be able to get direct access to me and can ask me anything about the investment process or stock picks. CFA charter holder and graduated with degrees in Finance and Accounting. Analyst’s Disclosure: I/we have a beneficial long position in the shares of MSFT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (5)

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ROBT: Managing The Downside Risk In AI Related Stocks

First Trust Nasdaq AI and Robotics ETF offers lowest expense ratio and is the most diversified versus peers. See why ROBT ETF is worth buying.

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ROBT: Managing The Downside Risk In AI Related Stocks Summary - Investors' interest in AI stocks is rising and there will be many winners and losers once this cycle of excitement is over. - Going with a thematic ETF versus trying to pick individual winners is generally a safer bet when dealing with trendy investments like AI. - History is replete with examples of trendy investments that have turned into expensive mistakes, with recent examples being electric vehicles, cloud computing, SaaS companies, crypto and NFTs. - ROBT is an ETF that offers exposure to AI, robotics and automation is already delivering more than double the S&P 500's return YTD. - It has lower expenses than larger peers ROBO and BOTZ and is the most diversified of the three, offering downside protection which is key with trendy investments. As far as investing in tech stocks is concerned, Artificial Intelligence (AI) is arguably the hottest buzzword and one of the key catalysts to watch in 2023 following the phenomenal success of ChatGPT, the AI driven search tool developed by OpenAI. ChatGPT has taken the internet by storm despite being only a few months old. One recent report states that it topped 10 million daily active users within 40 days of launch, outstripping Meta (META) owned Instagram's initial rapid growth. ChatGPT has also caught the attention of Wall Street following Microsoft's (MSFT) recent move to invest $10 billion in OpenAI. MSFT in 2019 made its maiden $1 billion investment in OpenAI so this new $10 billion investment, which is a 10x increase in terms of ticket size, is seen as a compelling sign of the heightened expectations that MSFT has of the AI space. MSFT's big bet on AI appears to have emboldened investors who are interested in profiting from this trend, with MSFT CEO Satya Nadella noting at the recent World Economic Forum that the "golden age" of AI is here. The growing excitement around AI has spurred a flurry of new investments and products in the space. Dozens of ChatGPT-like apps are coming to market every day promising to transform productivity and targeting a wide range of users, including consumers, enterprises and government agencies. Investors are bidding up the stocks of AI related companies on the slightest positive news, with a recent example being C3.ai (AI) jumping more than 20% in early trading on Tuesday after it announced it was launching a new product suite that would integrate with ChatGPT. C3.ai is an enterprise artificial intelligence software company. While the investment opportunities in AI abound, the risks emanating from its potential to turn into a fad cannot be ignored. Fads can be hazardous for investors, even though the underlying technology driving the fad is beneficial and transformational in the long run. History is replete with examples of trendy investments that have turned into expensive mistakes, with recent examples being electric vehicles, cloud computing, SaaS companies, crypto and NFTs. Manage the downside risk with an ETF Going with an ETF versus trying to pick individual winners is generally a safer bet when dealing with trendy investments like AI. First Trust Nasdaq Artificial Intelligence and Robotics ETF (NASDAQ:ROBT) offers investors a smart way to capitalize on the positive investor sentiment towards AI related stocks. With $193 million in Assets Under Management (AUM), ROBT tracks a modified equal-weighted index of all-cap, global companies involved in artificial intelligence or robotics. The index is rebalanced quarterly and reconstituted semi-annually and as at Jan 30 the ETF had 119 holdings. ROBT was launched in 2018 and therefore has a relatively short trading history. However, it has established an early lead over the S&P 500 in 2023. It is now up 13.41% YTD vs the S&P 500's 5.89% gain over this time. I believe it could extend this lead as investor interest in AI intensifies in coming months. Importantly, I believe it offers significant safety due to diversification. Some investors who can pick the right AI stocks are likely to get higher returns than those who choose ROBT. However, those who pick the wrong AI stocks will suffer far greater losses than ROBT holders once the excitement in AI subsides. Downside protection is an important factor to consider when investing in trendy technologies. Most affordable and diversified Another reason why ROBT is appealing is that it has the lowest expenses despite having low Assets Under Management ($193 million) compared with peers Global X Robotics & Artificial Intelligence ETF (BOTZ), which has $1.50 billion in AUM, and ROBO Global Robotics and Automation Index ETF (ROBO), which has $1.3 billion in AUM. ROBT has an expense ratio of 0.65% vs BOTZ's 0.68% and ROBO's 0.95%. The performance of these ETFs has been uniform YTD as the chart below illustrates. All of the three are good investments amid the increased investor interest in AI but going with ROBT which has the lowest expenses could help maximize returns, particularly if you are investing at scale. ROBT is also the most diversified by number of holdings. It has 119 stocks vs ROBO's 91 and BOTZ's 49. Diversification helps reduce downside risks. ROBT an ETF worth buying to gain exposure to the AI trend while hedging against the risk of choosing speculative individual stocks. This article was written by Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (2)

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Amazon: It Could Get Ugly

Amazon will be reporting its Q4 results after market close on Feb 2. AMZN is poised to post a net loss around $200M on revenue of $143.3B. Click here for my earnings preview.

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Amazon: It Could Get Ugly Summary - Amazon.com, Inc. will be reporting its Q4 results after market close on February 2. - Amazon is poised to post a net loss of around $200 million on revenue of $143.3 billion during the quarter. - This is likely to cause short-term pain for Amazon shareholders. All eyes will be on Amazon.com, Inc. (NASDAQ:AMZN) when it reports fiscal fourth quarter results after market close tomorrow, February 2. The currently-prevalent recessionary environment has weighed down on the results of e-commerce companies across the globe, and investors would be anxiously waiting to see how Amazon's revenue gets impacted as well. But in addition to tracking the e-commerce giant's headline sales figure, investors may also want to monitor its segment revenue, Amazon Web Services ("AWS") growth rate, profitability profile, and its management's outlook for the year ahead. These items will better highlight Amazon's near-term prospects and are likely to dictate where its shares will head next. Growth Fluctuations Let me start by saying that Amazon's top brass has done a terrific job at growing their business so far. Their revenue is up nearly 700% in the last decade and it continues to grow with each passing year. This is truly a commendable feat and an enviable position to be in. But with credit given where it was due, there's a good chance that Amazon's growth will stall in the near-future, given the ongoing recessionary environment and spending cuts happening across the globe. For the record, Amazon classifies its revenue in three reportable segments, namely North America, International and AWS. The former two segments comprise of revenue generated through e-commerce activities and subscriptions of earned in domestic and foreign markets, and they tend to do well during the holiday season that falls in Q4. But since interest rates have been on a meteoric rise across the globe and consumer budgets have been strained lately, the seasonal uptick that we usually see in Q4, may be limited. So, I estimate Amazon's North America and International segments to post a sequential revenue growth of 15% each, during Q4. The third segment, that is Amazon Web Services, has been the shining star in the company's growth story but it's likely to register a sales deceleration this time around. Its closest comparable, Microsoft (MSFT) Azure, posted a significant slowdown in its pace of revenue growth during the quarter as enterprises across the globe have begun slashing their discretionary spending in a bid to be financially frugal. Since this is an industry dynamic, I believe Amazon's AWS will experience similar headwinds and its revenue growth will decelerate to 1% sequentially and 16.7% year-over-year. These projections bring us to an Amazon-wide revenue estimate of $143.3 billion for Q4. This figure is coincidentally within the Street's range of estimates, that are currently spanning from $140.14 billion to $148.25 billion for the quarter. But having said that, also pay close attention to Amazon management's outlook for the year ahead. Everyone, from IMF, analysts to the big banks, has a different view about the macroeconomic environment in CY23. So, look for clues on what's Amazon's take on the same and when do they expect revenue growth to pick pace going forward. I believe this will be another key item that will influence investors' sentiment in the coming weeks. Impact on Profitability Moving on, although Amazon has been an immensely profitable company over the years, I contend that its profitability will take a drastic hit during Q4. Note in the chart below that two of the three reporting segments have already been posting operating losses. The company is expanding operations internationally and is yet to unlock the economies of scale, which is one of the major reasons why its International segment has recorded staggering operating losses and will likely come in flat sequentially in Q4. The North America segment might post sequentially flat operating losses as well, due to the absence of any major catalysts that would change the status quo. However, the drop in AWS' revenue growth momentum while its investments remain high, is likely to drag the segment's, and the overall company's, operating profits lower in Q4. Secondly, the company held roughly 158 million Class A shares of electric vehicle manufacturer Rivian Automotive, Inc. (RIVN) as of September 30, 2022. This was a really smart investment at the time, considering Amazon can strategically replace and expand its fleet of delivery vehicles with these electric vehicles to cut down on fuel expenses. But the problem is that Rivian's stock price has been falling like a rock, which will inevitably drag Amazon's profitability lower. See, Amazon has an item called "Other Income" on its income statement which includes the gains or losses from marketable securities. On June 30, 2022, when Rivian's stock price was $25.4 apiece, Amazon's equity investment in the company had a fair value of $4.1 billion. But by September 30, 2022, Rivian's stock price rose to $32.9 apiece and Amazon's equity investment value in the company rose to $5.2 billion. As a result of these paper gains, Amazon recorded a $1.1 billion worth of increase within "Other income," which lifted the ecommerce giant's overall net income. From its last 10-Q filing: Included in other income (expense), net is a marketable equity securities valuation gain (loss) of $1.1 billion in Q3 2022… from our equity investment in Rivian Automotive, Inc. ("Rivian") In other words, Amazon's net income would have been approximately $1.1 billion lower (pretax) in Q3 if it had not registered these paper gains. But the issue now is that Rivian's stock had a closing price of $18.43 as of December 31, 2022 - the day when Amazon's Q4 most likely came to a close. So, per my guesstimates, the ecommerce giant's investment in Rivian had a fair value of $2.87 billion as on December 31, 2022, and it'll drag its other income, as well as net income, lower by $2.33 billion during Q4. This figure may not mean much in isolation but it's actually comparable to Amazon's entire net income of $2.87 billion last quarter. Therefore, due to the above-mentioned factors, I estimate that Amazon's net income will take an ugly hit in Q4 and the e-commerce giant will post a net loss of roughly $200 million in the said quarter. But having said that, it's surprising that rarely anyone's talking about the Rivian-effect when assessing Amazon's Q4 results. Final Thoughts As far as Q4 is concerned, Amazon is likely to post revenue and net loss in the vicinity of $143.3 billion and $200 million, respectively. Investors who aren't aware of Rivian, and how it stands to impact Amazon's financials, might be in for a rude awakening when they see the e-commerce giant's net income plummet during Q4. So, investors with a short-term time horizon may want to brace for an ugly quarter. Having said that, Amazon's shares are trading at 2-times the company's trailing-twelve-month sales. This is quite low when seen in tandem with industry comparables. Many of the other e-commerce platforms are either trading at vastly higher multiples or having much inferior levels of revenue growth. This leads me to believe that Amazon's shares are already pricing in a lot of the risks and offer an attractive price point for investors with a multi-year time horizon. Hence, I believe that Amazon's shares are a good buy for the long-term, in spite of the short-term risks ahead of it. Good Luck! This article was written by Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (59) It used to always be cheaper, no longer. Schiller P/E 29.90 $SPX P/E 22.03 Both indicating significant overvaluation AMZN is a trade here; not to initiate long term position Tomorrow will be interesting

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Why This Cloud Slowdown Is Temporary And Why This Presents An Opportunity

Cloud infrastructure stocks have been among the worst performers this year. Here, we look at the drivers of the current underperformance and highlight the medium-term upside potential.

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Why This Cloud Slowdown Is Temporary And Why This Presents An Opportunity Summary - Fortune 500 decision makers expect a dramatic slowdown in IT spend. - Interestingly, cloud spending is expected to fare worse than the average IT spending. - In this post, we dive deeper into the drivers of the current underperformance and highlight the medium-term upside potential. Cloud spend optimization There are two effects that are driving a temporary slowdown in enterprise spending (1) fear of recession is forcing companies to cut spending (2) after two years of robust growth, companies are optimizing their cloud spend. Fortune 500 decision makers expect a dramatic slowdown in IT spend. Per a recent ETR survey, respondents expect 2023 IT spend to grow only 1.4% vs. expectations for 4.4% yoy only 2-3 months ago (based on data surveying over half of the Fortune 500). Interestingly, cloud spending is expected to fare worse than the average IT spending. In addition to broader slowdown in IT spend, companies are optimizing their cloud usage and delaying new projects. Per Microsoft's F2Q23 earnings call, the company expects the optimization to last several quarters (but not years). Microsoft noted that in addition to the delays, "when the new projects start, they don't start at peak usage... They start and they scale. So the two cycles are creating an air-pocket in demand". Not all cloud companies are the same According to Gartner, the global spending on public cloud services totaled $490.3bn and is expected to grow to $590bn. The three large areas for cloud spending are Infrastructure (PaaS and IaaS) and Applications (SaaS) - Cloud infrastructure (PaaS) and (IaaS) represented ~50% of the total ($227bn). The hyperscalers (AWS (AMZN), Azure (MSFT), GCP (GOOG, GOOGL)) represented 70% of that. - SaaS applications represented ~35% ($167bn). The use cases for SaaS are very broad (from CRM systems to design software). Within SaaS, there are several new entrants that sit on top of the cloud infrastructure platforms and provide ways of using the platforms more efficiently and securely, e.g., separating storage from compute, sharing data without having to store it twice, etc. There are several different types of business models within cloud. In general, the infrastructure services are project-/decision-based and many of the application that sit on top of the infrastructure platforms are consumption-based. Consumption-based businesses models were the first ones to go into the downturn, and the companies noted deteriorating demand since 1H22 (e.g., Snowflake (SNOW) pointed to optimization efforts, Datadog (DDOG) noted weakness in their logs business). As we went through the year, the consumption side stabilized at lower levels, but the headwinds broadened to the project side, where recession fears started influencing investment decisions (e.g., hyperscalers just started experiencing demand softening in the second half of 2022). We believe that while the hyperscalers may be facing 1-2 more quarters of weaker demand, the consumption-based models will start facing easier comps. Interestingly, this cyclical downturn in IT spend is coming at a time when Artificial Intelligence (AI) adoption is reaching an inflection point, creating a meaningful medium-/long-term tailwind for many of these companies. Strong medium-term outlook driven by AI inflection AI is undergoing a significant breakthrough driven by several successful applications of a new foundational model (Transformer) in large language model training. The Transformer model is a neural network that learns context and can therefore be used for "generative" rather than "predictive" applications. We believe that this will be transformational for many industries and has already generated a fair amount of hype. But investors are not appreciating the amount of data and compute power that these applications will require, which will likely provide a meaningful tailwind for cloud spending. According to an ETR report surveying companies and their budgets, the cloud spending CAGR (for PaaS and IaaS) may be as high as 67%. Among all respondents, the median annual spend on IaaS/PaaS is currently $375,000 and is expected to increase to $1,750,000 in 3 years. Looking at large organizations, spend is currently $750,000 today but is expected to increase to $3,750,000 over that same time period. These spend projections tie to commentary that we are hearing from companies, such as Snowflake. Once their costumers see what they can do with their data, the spend grows exponentially. While we are using a more conservative ~40% growth estimate, we believe that there is room for upside. Another interesting observation from the same survey is that respondents expect that while AWS and Azure will remain the top platforms, there will be an opportunity for new entrants and smaller players to gain market share. In summary, while recession expectations are impacting cloud spending, several quarters of below-trend spend could create pent-up demand as we go into what we expect to be a meaningful AI-driven investment cycle. Disclosures Views expressed here are for informational purposes only and are not investment recommendations. SPEAR may, but does not necessarily have investments in the companies mentioned. For a list of holdings click here. All content is original and has been researched and produced by SPEAR unless otherwise stated. No part of SPEAR’s original content may be reproduced in any form, without the permission and attribution to SPEAR. The content is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation in respect to any products or services for any persons who are prohibited from receiving such information under the laws applicable to their place of citizenship, domicile or residence. Certain of the statements contained on this website may be statements of future expectations and other forward-looking statements that are based on SPEAR's current views and assumptions, and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. All content is subject to change without notice. All statements made regarding companies or securities or other financial information on this site or any sites relating to SPEAR are strictly beliefs and points of view held by SPEAR or the third party making such statement and are not endorsements by SPEAR of any company or security or recommendations by SPEAR to buy, sell or hold any security. The content presented does not constitute investment advice, should not be used as the basis for any investment decision, and does not purport to provide any legal, tax or accounting advice. Please remember that there are inherent risks involved with investing in the markets, and your investments may be worth more or less than your initial investment upon redemption. There is no guarantee that SPEAR's objectives will be achieved. Further, there is no assurance that any strategies, methods, sectors, or any investment programs herein were or will prove to be profitable, or that any investment recommendations or decisions we make in the future will be profitable for any investor or client. Professional money management is not suitable for all investors. Click here for our Privacy Policy. Original Source: Author Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors. This article was written by Comments (6) As use of AI accelerates, which cloud / IT SW provider is / are likely to win big beyond the large cap names (beyond Google, MSFT, AWS, NVDA etc.)To my understanding, Databricks benefits more from AI than Snowflake but it is not publicly traded yet. Any insight on this will be appreciated. Thanks for follow up. Yes I saw the ETF and I really liked it. What a time to launch such an ETF. You must be tough personality. Hopefully you gain some meaningful asset size this year to make it worth your time and efforts.Couple of thoughts to share: I am not sure why cyber security will gain due to AI. Ofcourse they use AI today but the size of the pie has natural (!) growth curve that may be mildly influenced by AI. Specifically on ZS - it has some federal spending tailwinds.. but it has benefited a lot from pandemic and WFH.. so its tough comp.. Its worse for CRWD..NET's edge computing will benefit but it will add meaningful revenue only in 2024.. right now, its main success comes from securityI am wondering if CFLT and GTLB has AI tailwinds.. I have just started to look into these two recently.FWIW - Couple of small / microcaps in pure play AI arena I have seen are: DUOT, ICAD and OSSIF.. probably too small but interesting to keep an eye on as they grow, specially DUOT has caught a decent bit this year.

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Microsoft: Investors Need To Separate Reality From Hype

Microsoft's post-earnings selloff reversed as dip buyers charged back with unwavering determination. Read why we reiterate our buy rating on MSFT stock.

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Microsoft: Investors Need To Separate Reality From Hype Summary - MSFT's post-earnings selloff reversed as dip buyers charged back with unwavering determination. - Microsoft's alliance with OpenAI shines with immense potential, yet investors must beware of the ChatGPT buzz as its monetization remains in its infancy. - MSFT's premium valuation persists compared to the broader market, yet it's no longer as steeply-priced. - I do much more than just articles at Ultimate Growth Investing: Members get access to model portfolios, regular updates, a chat room, and more. Learn More » Last week, Microsoft Corporation's (NASDAQ:MSFT) FQ2'23 earnings release didn't cause the stock to fall below its early January lows. Hence, despite a tepid release demonstrating a persistent cloud spending slowdown, bulls could argue that MSFT has likely bottomed. But does that mean MSFT could revisit its November 2021 highs in 2023? Unlikely. Why? CEO Satya Nadella was clear in Microsoft's earnings commentary, highlighting that the pandemic pulled forward significant spending, including in consumer electronics. With the PC headwinds expected to continue through H1'23 and with little growth momentum potentially till 2024, MSFT's premium valuation could come under further pressure. As a leading SaaS player that boasts an adjusted EBITDA margin of 47.8% in FQ2, some investors could argue that MSFT deserves a premium relative to the broad market. However, it also requires Microsoft to return quickly to growth mode before more buyers consider returning, bringing MSFT back toward newer highs. However, based on Microsoft's FQ3 guidance, the company is expected to post revenue growth of just 3.3%, in line with the revised consensus estimates of 3.5%. However, its adjusted EBITDA is projected to decline by 0.2% after FQ2's 2% downtick. Hence, it's imperative for Microsoft to follow through on its commitment to "[align] the company's cost structure with revenue growth," as MSFT faces a more demanding macro environment. With companies looking to optimize their IT spending further, Microsoft's aggressive push to integrate OpenAI's advanced AI models could be instrumental. Furthermore, Azure AI services experienced significant growth as management highlighted that "Azure ML revenue increased more than 100% for 5 consecutive quarters." However, as companies optimize their spending, Azure's revenue deceleration is expected to continue in FQ3. As such, while Microsoft's OpenAI services could drive some hype in the near term, commercialization across its product suites to drive revenue growth remains uncertain for now. Notwithstanding, Microsoft is confident that it's leading in advanced AI model development, drawing on its tight-knit partnership with OpenAI. With Azure operating as OpenAI's exclusive cloud provider, could it drive other companies to look to integrate its models into Azure adoption? We think it's critical to note that OpenAI follows the product path in its Large Language Model (LLM) development. As such, it offers "LLM-powered applications through an API. Smaller startups also leverage the power of supercomputer-scale models to fine-tune for specific tasks." Hence, there's potential for more AI-focused companies to incorporate ChatGPT into their product development. For instance, C3.ai (AI) is reportedly integrating ChatGPT into its "C3 Generative AI Product Suite." But, it's also important to note that OpenAI's monetization is in the early stages while consuming significant compute capacity at Azure, courtesy of Microsoft's cloud credits. As such, the focus on driving OpenAI's model is likely laden with significant costs, behooving Microsoft to be able to lift its Azure AI adoption in the near term. Hence, we think that's a critical area for investors to closely watch, given the significant deceleration in MSFT's growth momentum. MSFT is still consolidating below its recent December highs. However, its price action seems constructive, as it robustly held its October lows and recent January lows. The initial post-earnings selloff has also been rejected by dip buyers, suggesting investors are willing to reverse the steep slide from November 2021. With an NTM EBITDA multiple of 16.8x, it's still above its 10Y average of 14.1x. Hence, Microsoft needs to deliver the promise from its OpenAI partnership, which could power Azure into the next growth phase ahead of its hyperscaler peers. Investors with significant exposure in MSFT can consider waiting for a deeper pullback before pulling the buy trigger. Otherwise, we think the opportunity for better performance in H2'23 should improve if the macro headwinds are less feared, ameliorating the outlook for enterprise spending moving ahead. As such, picking MSFT at the current levels is still a viable investment. Rating: Buy (Reiterated). Are you looking to strategically enter the market and optimize gains? Unlock the key to successful growth stock investments with our expert guidance on identifying lower-risk entry points and capitalizing on them for long-term profits. As a member, you'll also gain access to exclusive resources including: 24/7 access to our model portfolios Daily Tactical Market Analysis to sharpen your market awareness and avoid the emotional rollercoaster Access to all our top stocks and earnings ideas Access to all our charts with specific entry points Real-time chatroom support Real-time buy/sell/hedge alerts Sign up now for a Risk-Free 14-Day free trial! This article was written by Ultimate Growth Investing, led by founder JR Research, helps investors better understand a range of investment sectors with a focus on technology. JR specializes in growth investments, utilizing a price action-based approach backed by actionable fundamental analysis. With a powerful toolkit, JR also provides insights into market sentiments, generating actionable market-leading indicators. In addition to tech and growth, JR also offers general stock analysis across a wide range of sectors and industries, with short- to medium-term stock analysis that includes a combination of long and short setups. Join the community today to improve your investment strategy and start experiencing the quality of our service. Seeking Alpha features JR Research as one of its Top Analysts to Follow for the Technology, Software, and the Internet category, as well as for the Growth and GARP categories. JR Research was featured as one of Seeking Alpha's leading contributors in 2022. About JR: He was previously an Executive Director with a global financial services corporation and led company-wide, award-winning wealth management teams consistently ranked among the best in the company. He graduated with an Economics Degree from Asia's top-ranked National University of Singapore (NUS). NUS is also ranked among the top ten universities globally. I currently hold the rank of Major as a Commissioned Officer (Reservist) with the Singapore Armed Forces. Analyst’s Disclosure: I/we have a beneficial long position in the shares of MSFT either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (1)

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Google: Change In Valuation By A Strong Tailwind

Alphabet has been making a massive investment in buybacks for the last few quarters. See what makes GOOG stock a good long-term buy and hold option.

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Google: Change In Valuation By A Strong Tailwind Summary - Alphabet has been making a massive investment in buybacks for the last few quarters. - In the trailing twelve months, Alphabet has spent close to $60 billion on buybacks which is the second-highest amount after Apple. - If Alphabet’s free cash flow continues to grow at a steady pace, we could see total buybacks of close to a trillion dollars in this decade. - Apple has been able to expunge 40% of its outstanding stock since starting the buybacks, allowing the EPS to grow by 66% on a standalone basis. - It would be important to note the buyback pace of Alphabet in this quarter to gauge the future scale of this program and its impact on Alphabet’s EPS. Alphabet (NASDAQ:GOOG) has made a bit bet in increasing the buyback program. The company has already spent close to $60 billion on buybacks in the trailing twelve months. Apple (AAPL) is in first place in terms of buybacks with $85 billion allotted to it over the last four quarters. It is likely that Alphabet’s management wants to replicate Apple’s strategy by having a steady increase in buybacks as the free cash flow increases over time. Since the start of its buyback program, Apple has expunged 40% of its outstanding stock which has helped to increase the EPS by 66% on a standalone basis. The recent dip in Alphabet’s price in the last quarter might have caused the management to modify the buyback pace. If Alphabet continues at the current buyback scale, it would be in a position to expunge 5% of its outstanding stock in 2023 at the current price. While buybacks alone do not guarantee that a company will be able to outperform the broader market, the strong fundamentals of Alphabet along with the tailwinds of buyback can certainly improve the long-term growth trajectory of the stock. Taking a stand Some of the major tech companies have employed a buyback program as an option to return massive cash reserves to their shareholders. Apple, Microsoft (MSFT), Meta (META), and Alphabet have the highest buyback programs. However, Meta and Microsoft have reined in the buyback program in the last few quarters as they try to conserve cash amid broader tech downturn. Figure 1: Decline in buyback pace in Meta and Microsoft while Alphabet and Apple continue to ramp up buybacks. Alphabet has seen a sharp stock price correction in the last quarter. This would be a test for the management whether they choose to slow down the buybacks or retain the current level. Alphabet’s unique position Alphabet is in a unique position because it has healthy free cash flows and there are few business verticals that require massive investment. Meta is trying to invest heavily in virtual reality which requires the company to conserve cash. Microsoft is also investing massively to close the market share gap with Amazon’s cloud operations. Amazon is investing in its logistics and video streaming services. On the other hand, Alphabet is producing significant free cash flows which do not require a similar scale of investment. Alphabet might increase investment in Other Bets like Waymo but there are limits to prudently investing in these projects. Figure 2: The company already reported $1.6 billion loss in Other Bets out of a total operating income of $17 billion in the last quarter. Figure 3: Alphabet has a relatively stable free cash flow which meets the requirement for buyback program. A trillion-dollar question It is difficult to gauge the future scope of the buyback program. The management has not given a clear answer and it might also depend on the trajectory of the stock price and free cash flow of the company. A steady growth in free cash flow might give the management greater room for a hike in buybacks. It is certainly possible that Alphabet might end up investing close to a trillion dollars in buybacks in this decade. This can expunge 40% to 50% of the outstanding stock and lead to 70% growth in EPS on a standalone basis over the entire decade. On an annualized basis, the buyback program alone could give a tailwind of 6% to 7% for the EPS. This should be taken into consideration while looking at the long-term potential of Alphabet stock. Impact on stock trajectory Buybacks alone have not been sufficient to deliver returns that beat the broader market. There are several stocks that relied heavily on buybacks like Exxon (XOM). However, long-term returns for them have not outpaced S&P 500. Hence, it is important to look at the fundamentals of the company. Alphabet has successfully weathered the dip caused by Great Recession and the pandemic. It is likely that the decline in ad spending due to recent inflationary pressures will be transitionary and Alphabet will regain the YoY growth trajectory once it faces easier comps from the previous year. The Google Cloud revenue has also reached $7 billion in the last quarter or $28 billion on an annualized basis. The operating margin in this segment is negative 10% compared to the average 30% operating margin of Amazon's (AMZN) AWS. It is highly likely that Google will be able to close this massive margin gap as it achieves better economies of scale. Figure 4: Future revenue growth estimates and forward PE ratio. Despite the tech slowdown, the future revenue growth estimates of Alphabet are quite strong. The stock is trading at a modest forward PE ratio of 18.7 compared to close to 30 a year back. The long-term fundamentals and the strong tailwind from buybacks can help the stock deliver above-average returns over the next few years. Investor Takeaway Alphabet has been investing heavily in its buyback program. One of the key reasons behind it is that it has a massive cash pile which does not require investment in new initiatives launched by the company. It is possible that Alphabet will invest close to a trillion dollars in buybacks over this decade which can give an EPS tailwind of 6% to 7% annually. The fundamentals of the company are also quite strong with Google Cloud showing strong growth and an annualized revenue rate of $28 billion. As the margin gap with Amazon and Microsoft is reduced, Google Cloud could be another cash cow for the company. The headwinds faced by advertising business are likely to be transitionary and the company should start showing good double-digit growth as demand returns within the market. The stock is trading at a modest price point which makes it a good long-term buy and hold option. This article was written by Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (13)

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My Dividend Growth Portfolio January Update: I'm Not Buying The Market Rally

There were three dividend increases last month, and six are expected in February. Click here to read why total income is projected to be up 8% over last year.

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My Dividend Growth Portfolio January Update: I'm Not Buying The Market Rally Summary - Nexstar's 50% dividend increase is interesting, but the company does have risks. - Intel's incredibly poor results have put the company up for sale in the portfolio. - There were three dividend increases last month, and six expected in February. Total income is projected to be up 8% over last year. - There are not a lot of bargains in the market right now. Lowe's remains the best available dividend growth bargain. It almost feels like it's 2021 again. No matter what news comes out, the market wants to go up. Despite layoffs spreading from tech to manufacturing and the warnings from nearly every company, including Microsoft (MSFT), the market just wants to go up. The recession indicators are loud and clear; however, it's important to remember that the market isn't the economy. We don't have to have a bear market to have a recession. Still, it does seem odd to have treasuries and CDs above 4% while yields are so low on stocks. Two Things of Interest All in all, the month was rather dull as far as looking for bargains in the dividend growth investing world went. One of the most exciting things that happened with the companies I follow was Nexstar Media Group (NXST) announcing a 50% dividend increase. While the stock price has shot up this year along with everything else communications related, the company remains chronically undervalued. This is shown in the Fastgraph below. Anyone considering the company should be aware of a few facts. The company is S&P BB rated, two notches below investment grade. Additionally, NXST has relatively high debt, primarily from the acquisition of Tribune Media in 2019, although they are chipping away at it. The company generates a lot of cash and rewards dividend investors with healthy dividend increases. Before the new 50% increase, the company had a 5-year dividend growth rate of nearly 25% annually. Another noteworthy item worth mentioning is the massive disappointment of Intel (INTC). I won't rehash the details, as many articles are available, but any dividend growth investor should be concerned. Just take a look at the Fastgraph below, which does an excellent job of highlighting earnings collapse. In the near term, things aren't quite as dire as some believe. The company has a lot of cash and relatively low debt. However, the questions revolve around where the company is going. I'd like to say that maybe it is looking like IBM (IBM), which spun its wheels for nearly a decade. But, this would be doing a disservice to IBM as their earnings only collapsed by 50% over eight years or so. I used to believe that Intel would pull through. Companies with piles of cash and generating lots more have many options. Now, I'm not so sure. At the end of 2018, I sold a portion of my INTC to start a position in Texas Instruments (TXN). At the time, I found Intel uninspiring and the dividend growth lackluster at best. The recent dividend freeze makes this even more true today. I will look for better dividend growth opportunities to swap Intel for, but I am still long for now. Portfolio Goals This portfolio's goals are simple: Grow the income at 10% annually with dividends reinvested or 7% without reinvestment. In practice, this means that new purchases need to average a 3% initial yield with a 7% dividend growth rate. In 2016, I closed this portfolio to new capital to better track its performance. Therefore, all income growth has been due to dividend increases and reinvestments, not by adding more funds. My full methodology and holdings are described in my 2022 recap and 2023 look ahead articles. How is 2023 starting off? Entering the year, I was projecting an income growth of 7.9%. This is below the 10% goal. However, it uses conservative dividend growth estimates and doesn't include reinvestment of dividends. Throughout the year, the projection typically increases each month. For example, last year started with a 6.5% projection and finished at over 13%. At the end of January, I am projecting an 8% increase in dividends and a total income of $16,711. The table below shows how the income has grown over the years. The big joker in the deck this year is Blackstone (BX). In the last couple of years, BX has increased the dividend massively. However, analysts are projecting a 20 and 30 percent decrease in the total distribution this year. Blackstone's dividend is notoriously difficult to project. However, this would result in a reduction of $250 to $350 in income. While overall return isn't a portfolio goal, many readers are interested. After absolutely crushing the return of the S&P last year, this year is starting much more muted. Through the end of January, the portfolio is up 4.8 percent, significantly trailing the S&P 500. January's dividend increases The first month of the year is relatively slow for increases compared to the flurry in the fourth quarter, with only four companies announcing raises. Intel usually increases the dividend in January but failed to do so. It will remain to be seen if they raise it later in the year, keep it frozen, or cut it. Enterprise Products Partners (EPD) On January 5th, EPD raised its distribution by 3.2%. This was on the heels of two increases last year. Could investors be in for a second increase again this year? The faster and higher dividend increases are much welcomed. The company only has a 5-year dividend growth rate of 2.4% to go along with its 25 years of dividend growth. BlackRock (BLK) Given the down year in the market, there was no doubt that BlackRock's earnings would be down. This, in turn, was expected to lead to a slower dividend increase. I suspected it would be even worse than expected when they delayed the announcement by a couple of weeks. Finally, they announced a 2.4% increase. While not entirely unexpected, it is a disappointment after last year's 18% increase and a far cry from the 5-year average of over 14%. Cincinnati Financial (CINF) Towards the end of the month, Cincinnati Financial blew away my expectations with a 9% increase. This is much better than the 5-year growth rate of 6.4% and similar to last year's increase. As a Dividend King, with 62 years of dividend increases, smaller increases are usually the norm. With this increase, CINF will battle Medtronic (MDT) for a spot as a top ten income producer in this portfolio. February's expected increases Unlike January, this month should bring several increases. The two I will be watching most are Best Buy (BBY) and Home Depot (HD), as it will be interesting to see what these retailers do with a recession looming. PepsiCo (PEP) PepsiCo is a slightly undersized position in the portfolio at about 2% and accounts for about 1.8% of the income. It is a company that only requires a little work, as it is solid as a rock with 50 years of dividend growth. The company consistently grows the dividend in the 6-7% range, which will be no different this year. Home Depot (HD) Last year's increase of 15% was in line with the 5-year dividend growth rate. However, investors should expect a much smaller raise this year. With the economic uncertainties and the slowing housing market, I expect Home Depot to play it more conservatively. I am expecting around a 6-7% increase. Home Depot is a micro-position in the portfolio at about 1%. It was established at the lows last year, but prices shot up before it could be fully built out. I am still looking to grow this position when the price is right. Best Buy (BBY) Best Buy is another newer position in the portfolio and is also a micro-position. The company has a 19-year dividend growth history, so it survived the Great Recession with its streak intact. Will it survive the coming one? Investors have gotten used to Best Buy's massive dividend increases. Last year's 25% increase matched the previous year's, and the company has a 10-year growth rate of nearly 18%. This year, I expect the company to scale back the increase as earnings plunge massively. I am looking for sub-5% increases for at least the next two years, with 2-3% more likely. Prudential (PRU) Yet another small position in the portfolio, Prudential, produces an outsized amount of income for the position size. This is due to its larger yield, although the tradeoff is slower dividend growth. Prudential was initially added with the expectation of consistent 5% dividend growth. The raise should be in the 3-5% range this year. Prudential has a 14-year dividend growth streak, with the last two raises just over 4%. The company cut the dividend in 2008 but has managed to grow it steadily ever since. Intercontinental Exchange (ICE) ICE, along with CME Group (CME), were two companies that replaced the shares of Apple (AAPL) lost to calls last August. Both remain at about 1% of the portfolio in size. Not only has ICE been growing the dividend rapidly, but the last two increases have been over 15%, topping the 5-year growth rate of 13.7%. The company does a reasonable job of matching increases to income, which would indicate a much lower dividend increase this year. I expect a mid-to-high single-digit raise in the 6-7% range. CME Group On the surface, CME Group has a slower dividend growth rate than ICE. However, CME pays an annual special dividend that has been growing as well and often isn't included in the numbers. CME has been increasing its regular dividend for 12 years and has a 10-year growth rate above 8%. This year, I expect CME to match the last couple of increases in the regular dividend with another 10% increase. Sales in January Every position added to this portfolio is bought with the intention of holding forever. However, in recent years, I have begun opening covered calls against positions that I consider significantly overvalued. The last such was Apple in August 2022. I ended up being called out of these shares, representing about 40% of my position. There were no sales in January. I did feel Lockheed Martin (LMT) was at a nosebleed valuation relative to the rest of the market as it approached $500. I don't own enough shares to open a covered call, but I did place a limit order to trim a small portion of the position. The company failed to hit this target and has since fallen back considerably. While I still consider it overvalued today, the relative bargains have evaporated as the rest of the market has gotten more expensive. Purchases in January I make two types of purchases: Regular purchases, which are reinvested dividends, and purchases to replace sold shares. I emphasize bargains with reinvested dividends, whereas replacement purchases are more about replacing the income with higher quality and better dividend growth. The portfolio remains at historically high cash levels as I am finding few exciting buys currently. As no stocks have been sold recently, there are no replacement purchases to report. Regular purchases As the market marches ever higher, I am mostly content to wait patiently for the valuations I want. I did feel the need to add something during the month and purchased a single share of A.O. Smith (AOS) at $60.34. Not exactly a bargain, but I consider it fairly priced. The Fastgraph below shows the historical valuation of this dividend champion. What else am I watching? Since this is a closed portfolio, I can only buy some of the companies that look interesting. I use this section to cover what I purchase and consider in my other portfolios. My other portfolios have different goals and rules but are also dividend growth portfolios. It's hard to get too excited about anything right now. The market feels a lot like last August, where enthusiasm rules in a backdrop of a slowing economy. Even the few pockets I find interesting are concerning with a recession looming. Lowe's (LOW), at a 2% dividend yield, is still the best all-around dividend growth bargain at this time. However, the stock tends to take a beating in a recession. I have cautiously added a few shares at $200. Home Depot is significantly overvalued relative to Lowe's right now. Medtronic (MDT) may have done a valuation reset, and a 3% yield may be the new normal. Historically, this is an excellent place to add the stock for long-term investors. Of course, it is yielding so high because of some current challenges. There isn't any rush, as it appears locked into a plus 3% yield for the time being. For anyone who is okay with the low yield, Visa (V) is rarely found above a 0.8% yield. It is one of the safest, fast-growing dividends. Two of my favorites, Texas Instruments and Broadcom (AVGO), are still at good prices. Although, in the last couple of weeks, Broadcom has shot up in value, and TXN looks like the better bargain now. I can't help but believe the market is way ahead of itself, given that there is no positive news from any chip stocks. Even though it is up nearly 40% from its lows, Comcast (CMCSA), offering almost a 3% yield, is extremely rare. However, it's hard to be excited about a company that has run up in price so quickly. Finally, I am still making small daily purchases of Schwab U.S. Dividend Equity ETF (SCHD), buying a little less on up days and a little more on down days. However, we seem to be having a lot more up days lately! Final Thoughts As I reviewed the companies with upcoming increase announcements, I realized how much I expect dividend growth to slow this year from many of them. At the same time, I am not overly excited by the recent run-up in the market. Perhaps I am being too pessimistic about the economy? I remember feeling the same way in the years following the Great Recession; it just felt like everything went too high too fast. But the fact is that the early 2010s were fantastic times to acquire dividend growth stocks. I believe we are at the front end of a recessionary period rather than the tail end. The question is: Do the markets care? Thanks for reading! I'd love to hear what value others are finding in the market now and how you are playing the run-up in the market. This article was written by Analyst’s Disclosure: I/we have a beneficial long position in the shares of AOS, APPL, AVGO, BBY, BLK, BX, CINF, CMCSA, CME, EPD, HD, IBM, ICE, INTC, LMT, LOW, MDT, MSFT, PEP, PRU, SCHD, TXN, V either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body. Comments (36) (I think you may dismiss the latter 2 of these because you prefer US companies, but most of their earnings are in the US, and you mentioned Medtronic, which, a bit like CRH, is technically Irish.5 that are my current watch-list, temptations, Citi, Corning, Watsco, Prologis, and THOW. Just waiting for an advantageous entry price. Would be interested to hear your thoughts.

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Alphabet Q4 Preview: What's on the Horizon?

Alphabet has struggled to exceed quarterly expectations as of late, falling short of earnings and revenue estimates in three consecutive quarters. Is this time different?

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Alphabet Q4 Preview: What's on the Horizon? It’s the most critical time for stocks – earnings season. Investors have been receiving a surplus of quarterly results daily for some time now, with companies finally providing much-needed updates. And, of course, this could easily be the most consequential week of the season, with many mega-cap tech titans slated to report. One such titan, Alphabet GOOGL, is on deck to reveal its quarterly results on February 2nd, after the market close. It raises a valid question: how does the company stack up? Let’s take a closer look. Cloud Computing Cloud computing has gained rapid traction among businesses, allowing many to achieve digital feats that otherwise felt impossible. Of course, Alphabet has that covered with its Google Cloud, a key line of business that’s been a solid growth driver for the company and will be monitored closely. For the quarter, our consensus estimate for Google Cloud revenue stands firm at $7.3 billion, suggesting an improvement of more than 32% year-over-year. In addition, it’s worth noting that Alphabet has exceeded our consensus Google Cloud revenue estimate in four of its last six quarters, posting a 2.8% beat in its latest release. The chart below illustrates this. Image Source: Zacks Investment Research Another player in the cloud computing industry, Microsoft MSFT, has already reported its quarterly results. Microsoft’s Intelligent Cloud raked in $21.5 billion, exceeding our consensus estimate marginally and growing 18% year-over-year. Advertising It’s no secret that the digital advertising market has been weak, as this is typically one of the first expenses companies cut when faced with a challenging macroeconomic backdrop. This was further confirmed in Alphabet’s latest release; GOOGL fell short of our consensus advertising revenue estimate by more than 7%. For the upcoming quarterly release, the Zacks Consensus Estimate resides at $59.9 billion, indicating a pullback of roughly 2% year-over-year. Further, GOOGL has fallen short of advertising revenue expectations in back-to-back releases. Image Source: Zacks Investment Research Quarterly Estimates Analysts have been bearish in their earnings outlook, with three negative earnings estimate revisions hitting the tape over the last several months. The Zacks Consensus EPS Estimate of $1.17 suggests a pullback of roughly 23.5% year-over-year. Image Source: Zacks Investment Research Still, the top line is in better shape; the Zacks Consensus Sales Estimate of $63.2 billion indicates a 2% climb from year-ago quarterly sales of $61.9 billion. Quarterly Performance Alphabet has struggled to exceed quarterly estimates as of late, falling short of earnings and revenue estimates in three consecutive quarters. In the company’s latest release, GOOGL fell short of earnings expectations by nearly 15% and reported sales 2% below expectations. Below is a chart illustrating the company’s revenue on a quarterly basis. Image Source: Zacks Investment Research Valuation Following rough price action in 2022, Alphabet’s valuation multiples have returned to earth; currently, GOOGL shares trade at a 19.2X forward earnings multiple, well beneath the 26.2X five-year median. Image Source: Zacks Investment Research Further, the company’s forward price-to-sales works out to be 5.1X, again beneath the 6.9X five-year median by a notable margin. Image Source: Zacks Investment Research Putting Everything Together A crucially important week of earnings season is led by big tech, with Alphabet on deck to reveal its quarterly results on February 2nd, after the market close. Investors will closely monitor the company’s cloud revenue, as it’s been a solid top line contributor as of recently. Microsoft MSFT, another player in the cloud computing space, posted results that exceeded our expectations marginally. In addition, Alphabet’s advertising revenue will also be closely monitored, as it’s well known that the digital advertising market has cooled off. Analysts have taken a bearish stance for the quarter to be reported, with estimates indicating a pullback in earnings and a slight uptick in revenue, a reflection of margin compression. Further, valuation multiples have pulled back extensively, with the company’s forward price-to-sales and forward earnings multiple residing below their respective five-year medians. Heading into the release, Alphabet GOOGL is a Zacks Rank #3 (Hold) with an Earnings ESP Score of -0.7%. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Microsoft Corporation (MSFT) : Free Stock Analysis Report Alphabet Inc. (GOOGL) : Free Stock Analysis Report To read this article on Zacks.com click here.

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