Earnings Roundup: Meta, Microsoft & Qualcomm

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Big Tech earnings, Microsoft rallying three and a half percent
in the aftermarket.
You've got Meta under pressure.
Ed Ludlow is host of Bloomberg Tech on Bloomberg Television
eleven am, Wall Street Time Monday through Friday.
Ed, pick where you want to start.
True Start on Microsoft. I feel like it's probably the
most tangible, right, So everything is in the cloud growth
better than expectations. And you know, the math was really
simple going into this. They've just closed the book on
their fiscal financial year, and the question still remains when
we get to the call, what does Microsoft tell us
about the capital expenditure growth into next year? Because the
street sees CAPEX growing beyond fifty percent. Top line growth
on Azure is forty three percent, give or take XTAC.
All the street really wants to see is that pace
of growth being near to CAPEX growth. Right, It's a
really simple equation. But going back to alphabet, which is
highly analogous, there's so much commentary here from Microsoft about
traction with copilot, like more data points that are just easy,
tangible to understand about how Microsoft's AI efforts are going, right,
And then it's that's the stock reflecting that and after ours.
Is the thirty million paid seats a big deal for
three sixty five copilot for Microsoft?
Yes, because it's versus twenty million at the end of March.
Exactly what I'm pointing to the other one is, I
think you guys mentioned this, but like Nadella was talking
about Azure generating more than one hundred billion dollars in
annualized revenue. You know, remember Amazon went to that figure
very early, you know, in its in its kind of
like growth of AWS. Then what Amazon did they report
to but it was to say this is the AI
specific annualized revenues. So Microsoft's just saying more, you know,
giving newer data points which take us beyond the simple
are the top line numbers growing beyond the capex growth.
Which you kind of want to get right when a
company is spending and building and doing all of this.
That the more information, the more transparency, that's helpful big time.
Yeah.
I mean again, from the press release alone, Microsoft's not
saying anything about fiscal year twenty seven capex. Yeah, so
that there's this period of time where everyone's like, okay, reading,
digesting the statement and the release, and then on the
call everything could change. That is the jeopardy of big
tech earnings. And that's what's fun.
Well, let's do a little bit with meta platforms and
then we'll get back to some of these other names.
Here's a Meta shares a Meta down about six point
three percent. Let's go ahead and say six percent. Some
numbers here. Third quarter revenue sixty one to sixty four billion,
the estimus for sixty three point one seven billion. Second
quarter revenue came in above estimate. Second quarter EPs came
in ever so shy of estimates. What is the thing
that is moving the stock with Meta today?
It's so hard? I mean, revenues up twenty eight percent
ahead of expectations, right, ad impressions have improved, Pricing has improved.
Meta's core business. It's bread and butter is still advertising.
The story was how has AI made that better? More monetizable?
So revenue should be higher than estimates?
Right, it is?
It is ahead of vespers.
I think it's twenty right.
Sorry for the third the outlook, I'm sorry.
Yeah, for the outlook, right, Yeah, the one thing that
my brain is going to is that the operating margins
didn't just come in significantly below a consensus by about
four percentage points, but costs are up fifty five percent,
So the operating margin has fallen from forty three to
thirty one. Costs are higher, and free cash flow has
basically disappeared. Just im reading the statements.
And is that because they're investing so much in talent?
Is it because the tokens cost so much? Like this,
these companies are spending a ton of money. We looked
at last week what Alphabet said about going you know,
cash flow negative. Meta Platforms is feeling it. Meta is
feeling it when it comes to its earnings because it's
spending more money.
Maybe they're disclosing that there was a one time legal
charge of two point four billion dollars and then severance
costs super interesting one point two billion dollar charges. We
knew about the story right about the waves of Meta layoffs,
so that could excluding those, the underlying operating performance was
kind of much nearest expectations. Maybe they're a big factor,
but also goes the idea that the free cash flow
is basically gone which is such a common story across
the mag seven.
Right right, And I want to just throw one other
headline across the Bloomberg Meta saying some youth related trials
may result in material loss like we have done here
are Olivia Carvel, and I believe others on the team
have done a lot about social media and the impact
on youth, and we know Meta has certainly been one
of the targets, so just interesting to get some of
that clarity again. Just a quick headline Meta boosting the
low end of its annual capital spending outlook. And I'm
looking at the live blog too, and I think at
this is something that you were.
Going to and this is our Lindawan, our tech editor.
One thing traders might be reacting to second quarter operating
margin thirty one percent versus forty three percent a year earlier.
The companies expecting that total expenses of one hundred and
sixty five billion one hundred and sixty nine billion, raising
the low end from one hundred and sixty two billion previously.
I want to bring into the conversation to our man
deep seeing Bloomberg Intelligence Global ahead of Technology Research making
his way from TV into our radio studio we're talking
about Meta, what investors don't like it.
I mean, look, there wasn't much of an upside when
it comes to the top line both this quarter and
the guide, and when it comes to Capex, even though
they didn't raise capex. The one line that caught my
attention was that first line from Mark Zuckerberg that he
expects things to improve across enterprises. And that's new because
all of Meta's generated revenue is generated from the consumer side.
So the fact that he has that in the first
line shows that they are leaning towards.
Enterprise usage, the cloud builder, cloud.
Built API usage by enterprises, and that's what they are
betting on when it comes to this kind.
I mean silly question, but does Meta actually have an
LM that can be licensed by some of these enterprises
in a way that would be different than an enterprise
using a platform from Microsoft or from open Ai or
from Anthropic.
So it's getting more competitive when it comes to royal
LM usage. And the reason I say that is because
of Kimmy K three and all these open source models
that have really taken off and are being used for
use cases besides the frontier where Anthropic is being used.
So I think if Meta has to compete with open source,
it's going to be interesting how they position themselves, whether
it's in terms of lower token pricing, or they have
another strategy because they're building a business from scratch and
it's not easy. They're late to that cloud game. They
are late to that API game. So how they go
about it. Who those anchor customers are going to be
that's a million dollar question. Who are they going to
partner with in terms of that enterprise usage. Is it
going to be Microsoft or Anthropic? We don't know that,
well Ed, Come on back in here. What do you
think you're going through all of these releases right now?
You point out that Mark Zuckerberg what mandep was referring
to Mark Zuckerberg writing quote, AI is accelerating our core
business today, powering our next generation of products, and opening
the door to entirely new enterprise opportunities.
What are those opportunities?
Yeah?
So Bloomberg's reported that Meta has explored a literal cloud
computing business. Charlie called Meta a hyperscaler. It operates data
centers at Hyperscale for its own business, for its internal workloads.
That's very different to renting out compute capacity to third parties,
but Bloomberg's reported metas looking at that more recently. Kurt
Wagner got on the phone with Mark Zuckerberg, right and
he said, yeah, you know, that is something an idea
of something we might do. That quote around enterprise opportunities
is pretty much the sort of clearest example we've had,
and I think going into this, i'd wager that for
the call, that is something that analysts will focus questions on.
It's not about it's not about ROI on the AI investment.
It's about ROI on the infrastructure they're building. How can
you basically make new revenue streams and more money on
all the infrastructure you've built? And so interesting. I think
Mandib's very smart to get to that so quick. And interesting,
by the way, because how many quarters on the show
do we say, well, here's the quote from the CEO
at the top of the reason, and we kind of
move on, and how much work is this one doing?
I find that fascinating.
I want to ask both of you because here we
have Meta under pressure. You've got Microsoft, though rallying in
the aftermarket, not up as much as it was earlier,
but still up about one point four percent.
Mindev let me bring you back in here.
What does a better tell on the AI spend the
AI narrative, like, is it Microsoft in terms of the
enthusiasm and the expected momentum to continue?
I mean, just look at the margin degradation for Meta
here they went from forty three percent to thirty one
percent operating margin.
Massive drop.
It is a massive and that's where a Microsoft with
its cloud business is able to cushion, you know, some
of the headwinds it is facing from all these l
lamps and still do very well in terms of the
holding up the margin side of the equation.
Far from capex, where's that money going? Why are margins
under pressure?
I mean in the case so with all these companies, now,
once you raise your capex, you have to show the
capex in the depreciation line, so your cost.
Of revenue will keep going up.
So in the case of Meta, it's not as if
they're hiring a lot more people. They did hire a
lot of people and paid millions of dollars, But I
don't think that.
You don't think that's what it is.
No, it's that cost of revenue line going up because
now those depreciation expenses wouldkick.
In, so it's just capex.
You think it will be capeck.
But can't they make up for that with the investments
that they've made in making advertising more targeted and getting
us to click or at least getting marketers in front
of eyeballs and even more efficient.
What the ad pricing growth was it was around fourteen percent,
and you.
Know that's pretty solid.
That's been the case for the last few quarters. So
the problem now they have is all those levers, which
once there to protect the margins, are not good enough
when your capex is growing up like this and you
know your cost of revenue will keep growing. So that's
that's a hard part in managing margins here for Meta.
So Microsoft's like, sorry, Mata, but we're having a pretty
good day. Microsoft share is still up in the aftermarket. So,
Ed Ludlow, you've been going through and reading more from
the company.
What's jumping out at you?
Well, going into this, I think we knew that it
was the case. Maybe man Deep can clear it up.
I think there is some kind of accounting or disclosure
change for Microsoft where the CAPEX number and they're accounting
for leases specifically makes the CAPEX number look smaller. But
again like We're in this period now where the call
comes very important because we know what the Azure growth
number is for the quarter gone and the period this
closed the door on the financial year twenty six, financial
year twenty seven starts. And you know, the very simple
math is, in an environment where everyone thinks CAPEX goes up,
what is the percentage growth in CAPEX that is foreseen
relative to the growth in Azure. And that's why they're
putting so much emphasis on all these other metrics, the
like maybe non financial nature to get some evidence that
their AI investments are getting traction.
What I don't know.
I mean, I think, go go ahead.
I mean, the one thing I had in mind before
coming into earnings is if a company doesn't raise their
capex in an environment where memory prices are up twenty
thirty percent, to me, they are cutting back somewhere else.
And that would be my interpretation for META is because
they didn't raise capex, they certainly are offsetting it with
something else. We just don't know what.
So where are they doing that?
I mean, they don't want to raise capex because the
stock would have been down even more. Yeah, they raised
the capex, so they didn't have a choice. I mean
they're being forced to be disciplined here in terms of
CAPEX because the market doesn't have a tolerance for higher
metas capex for this year and possibly for twenty twenty seven.
Some context to the word discipline now, Carol, discipline for
Meta platforms means one hundredion to one hundred and forty
five billion dollars in CAPEX this year.
Well Ed, come on back in here though, for Meta
moving into cloud though this business and maybe we'll get
more on the call about their intentions and their plans.
I mean, is it still the right move for Meta?
I mean, I feel like, just going off past action
and precedent that we're going to get to the call.
And you know, like the way I think about it is,
if you're listening or watching BusinessWeek right now, you're asking
yourself what's still to come. We've gone through the numbers,
we've gone through the headlines. Everyone with Meta knows about
Mark Zuckerberg, Susan Lee. The CFO is very important and
often does the heavy lifting of communicating the financial strategy.
And I'll just see a world in which we get
to the call and she's like, yeah, here's our commentary
on CAPEX I've Mandya's point is so important because it's
not new, and I mean that with massive respect. The
capex doesn't just go up because you need to spend
more to build more to meet demand. Capex can also
go up because the cost of building those things is higher.
You know, you have labor and construction inflation, materials inflation.
Memory is a massive macro factor. You know. IBM basically
tried to blame ten days ago the lack of spending
on their technology mainframes, in particular because their customers faced
higher capex largely relating to higher memory prices. So you know,
all of these factors are common to all of these
capital expenditure deployers who want to build AI infrastructure.
All right, So we're tracking Meta and Microsoft here in
the after hours. Microsoft up about two percent, a little
bit more.
So just following earnings.
If I go on over to Meta, it is still
down about five point six percent. Let's just also throw
into the mix. We've got Qualcom. That one also came
out with its results, and the stock right now in
the aftermark as they bring it up on my Bloomberg
it is down about three point five percent.
And then we have Armholding.
We have arm Holding says, well, I want to go
to Qualcom real quick to Ed because Ed is interviewing
Christiano Amman tomorrow on Bloomberg Tech. Be sure to tune
in for that. The CEO of Qualcom ed the company
give a week forecast for the current quarter. It's cited
component shortages and rising costs. That's not a new story,
but by any means, I mean, you've known this about.
So it's not new. I would say. In the smartphone market,
it seems worse for Qualcomm than we thought. You know,
they are the main processor makeup for smartphones. They are
getting hit on all sides because of m market demand,
being hit by memory for example. They've tried to diversify
the business away from that reliance on smartphone, but within
smartphone they're also kind of it seems like losing business
from Apple faster than was modeled for. And then like
they are super super entrenched or exposed to Android in China, right,
and so like in aggregate all of the forecasts for
that that handset market, they aren't. They want Rosie to
begin with the thing that I will ask Christiano is
for him to give me his latest assessment of the
smartphone market. For this year and whether it is better
or worse than he had told me last quarter. So simple,
but it is possible that the things deteriorate, you know,
quarters a quarter, and reading in King's report on the
earnings that that seems to be the case.
Hey, So Quaal come down about four point three percent
here in the aftermarket, ARM holdings just down by eight
tents of a person. ARM delivering a sales forecast of
about one point thirty eight billion in the fiscal second quarter,
and we did see the stock under some pressure here,
Mandy've come on back in anything in terms of ARM
or Qualcom, that's that's a note for you.
I mean just exposures. I think Armed, because of the
data center exposure, continues to do better, even though ARM
does have smartphone exposure. But because their data center exposure
has been much higher in the past few quarters, they
seem to be beating numbers, whereas in the case of Qualcomm,
I mean they are talking about a twenty twenty nine
guide and how the business would be more diversified by then.
But in the near term this business is declining. The
handset business is still under pressure. Yeah, because of the
consumer smartphone and the memory pricing.
Impact all right through on ARM noting royalties from those
products data centers specifically more than doubling from a year earlier,
and the appetite our new chip lineup is greater than anticipated.
This is coming from the company's CEO Armholdings