Wall Street Lunch: A Deluge Of Earnings (undefined:MSFT)

Macro data shows persistent inflation and mixed signals, raising questions about FOMC's rate hike timing and potential for a larger move in December. Download this episode on Apple Podcasts, Spotify or listen below: Amazon earnings preview (0:25) Google concerns, Microsoft's good cash flow (1:40) Inflation data, FOMC surprise (3:30) Transcript Rena Sherbill: Welcome back to our wonderful tech editor from our wonderful news team, Mr. Chris Ciaccia. Let's get into it. A lot of earnings on the table. I imagine that's top of mind for you this morning. Chris Ciaccia: Yeah, absolutely. We had a rush of earnings last night, with Microsoft (MSFT) and Google (GOOG) (GOOGL) or Alphabet being the two big names there, and then we've got Amazon (AMZN) tonight, and it's just a deluge of earnings, and so it's head down for me and my team, and I would imagine most reporters as well, this earnings season. For Amazon, I mean the big focus is always gonna be AWS, right? Their retail business is strong. It's bigger than Walmart's (WMT) now. So we should see some growth there given that we've had some successful prime days in the past, and I'm sure we'll hear more about what they have planned for Black Friday in the coming weeks. but the stock generally moves on AWS. And given that we've saw strong growth in Azure and Google's cloud unit, I would expect the same for Amazon given that it's the leader in the industry. But as far as the stock is concerned, it all comes down to cash flow. Microsoft's shares were up because their cash flow numbers were good. Google's shares were down sharply because cash flow is is dropping. and there's some other issues related to Google, but for Amazon it's all about cash flow. Rena Sherbill: What would you say about Google? We saw that stocks were deeply in the red after Google and other tech stocks declined sharply after some earnings disappointments. What would you add for Google? What would you add for Microsoft? Chris Ciaccia: For Google, I think this is a quarter that gives a lot of credence to the bear thesis. Now I'm not sure whether that's actually gonna wind up playing out in the long term or not, but I mean there's a lot of concerns right now. We saw search revenues decelerate even though they said queries are at their highest levels in five years, it's not translating to revenue so there's concerns that AI is hitting the lunchbox for Google when it comes to search, which has been their bread and butter. Consumers like you and me and others are going to Chat GPT and Gemini and other chatbots for their search queries and they're not using the ten blue links. Now Gemini is this massive win for Google, but it hasn't translated to revenue just yet. So that's an execution issue that Google is going to need to solve. For Microsoft it's a completely different situation. Their Azure unit grew sharply. That's been super surprising and super impressive to watch. The stock was up sharply and it's given a little bit some of back some of those gains this morning. I think maybe on Google probably weighing on the market, plus Microsoft also disclosed this morning that they are going to do a bond offering, and that could have some issues. But their cash flows are good. They are well positioned, when it comes to AI, they're generating even more revenue from the revenue share from OpenAI (OPENAI) and people are surprised and impressed about how resilient its software business is. And I think once the dust settles, you'll see the long term uptrend resume in Microsoft. Rena Sherbill: We also saw the core PCE price index increase point three percent month over month in September. Just wanted to highlight this line from Heather Long, who is the chief economist at Navy Federal Credit Union. Bottom line inflation is back near a three year high. It's largely due to war in Iran, but there's legitimate concern that inflation is spreading beyond energy. We also saw initial jobless claims unexpectedly slip in the past week. US GDP grew more than what was estimated in Q3. Of course, everybody knows that the FOMC held its benchmark interest rate yesterday as widely expected. Anything else to add to the macro or the micro today, Chris? Chris Ciaccia: I was a little bit surprised yesterday watching the FOMC meeting, that Kevin Warsh does not seem too hard pressed to to bring down inflation. I mean, they've mentioned that they're gonna they want to do it and they're gonna bring back s price stability, but it's still kind of question as to why not raise in October. We saw the CME Fed watch. Going into the meeting, pricing odds that they weren't going to raise, that they needed more time to bring down, they need more data and more time. But I'm not sure exactly what they're waiting for. The data has not been great, at least from my perspective. And this morning's data kind of hits that too. So I would not be surprised if we get more data that is trending in the wrong direction if the Fed feels that maybe a fifty point basis rate hike in sept in December is the way to go as opposed to just twenty-five. The other issue that I would call out is that he was adamant that politics do not play a role in their thinking and I tend to believe that, but I also think that given the fact that we are so close to the midterm elections, it just doesn't pass the smell test when it comes to whether there was political motivations there. Like I said, I don't think there were, but the optics there are not great. AMZN's stock is highly sensitive to AWS performance and cash flow; strong AWS growth is expected, but cash flow will be the key driver for the shares. GOOG's search revenue decelerated despite record query levels, raising concerns that AI-driven competition is eroding its core business and challenging long-term growth. MSFT's strong Azure growth and resilient software revenues support a positive long-term trend, with robust cash flows offsetting any near-term concerns from the bond offering.

Wall Street Lunch: A Deluge Of Earnings (undefined:MSFT)

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