Shares of Microsoft gained Wednesday after a strong earnings report. The stock was a rare gainer on an otherwise bad day for tech.
David Ryder/Bloomberg
This article is from the free weekly Barron’s Tech email newsletter. Sign up here to get it delivered directly to your inbox.
Early Warning. Hi everyone. Tech earnings season is in full swing, offering some much anticipated updates about the progress in artificial intelligence, cloud computing growth, and the state of the economy.
Last night, three of the industry’s biggest names—
Microsoft
(ticker: MSFT), Google-parent
Alphabet
(GOOGL) and
Texas Instruments
(TXN)—reported their September quarter numbers. While the headline numbers were generally strong, there was important nuance in the results. And, given the tech selloff on Wednesday, the details seemed to be weighing on the market. Here are three early takeaways from the results.
The Cloud Surprise:
Microsoft
is the clear winner, so far, this week. The software giant offered clear evidence that it’s benefiting from a shift in enterprise spending toward AI. The company reported earnings well ahead of expectations and posted Azure cloud growth above the analyst consensus. On Wednesday afternoon, the company’s shares were up about 2%, despite the weak day for tech stocks.
Analysts seemed especially impressed by the rising enterprise adoption of Microsoft’s AI products. The company said its GitHub Copilot now had over one million paid users with 37,000 organizations also subscribing to GitHub CoPilot for Business—up 40% from the prior quarter. Programmers have raved about the company’s OpenAI-powered service, which improves productivity by generating lower-level code that developers find tedious to write.
The Disappointment: Expectations were high going into
Alphabet
‘s earnings report, since the Google parent has boasted about its cloud unit’s prowess in AI tools and AI frameworks. But Google’s cloud revenue came in below Wall Street estimates, sending the stock more than 9% lower by Wednesday afternoon. The selloff came despite otherwise solid results from the company.
Thus far—and it’s still early—it looks like Microsoft is winning the battle over Google for cloud computing AI revenue.
Amazon.com
(AMZN) will have more to say on this topic Thursday, when it reports its own earnings, including results for its AWS cloud segment.
Under the Radar: While much of attention today is on Microsoft and Alphabet, investors shouldn’t overlook
Texas Instruments.
The chip maker’s results carry implications for other companies, since Texas Instruments sells the basic building-block chips that go into products in nearly every sector of the economy. The company has more than 100,000 customers. Many analysts consider it to be a bellwether for the tech industry and global economy.
If so, that’s bad news, because Texas Instruments’ latest outlook was bleak. While its third quarter result was roughly in line with the Wall Street consensus, the company forecast a revenue range for the current quarter of $3.93 billion to $4.27 billion, significantly below the consensus of $4.5 billion.
As bad as the guidance was, the commentary was just as dark. Management said it saw no recovery in China and was seeing soft demand in every end market outside of autos. The firm called out the industrials sector as looking particularly weak.
Trillion-dollar tech giants are noteworthy, but sometimes chips can be more important for the overall market. Investors seem to be taking Texas Instruments’ cautious remarks to heart with the tech-heavy Nasdaq Composite down 2.3% in midday trading Wednesday.
The rest of this week will bring more key earnings reports, from
Meta Platforms
and
IBM
(Wednesday after the close), along with Amazon and Intel (on Thursday).
This Week in Barron’s Tech
Write to Tae Kim at [email protected] or follow him on X at @firstadopter.
Read the full article here