26 April 2023
If you are covering Microsoft and Alphabet/Google’s latest results, please see the following comments from Ben Barringer, equity research analyst at Quilter Cheviot:
Microsoft:
“Microsoft reported 10% revenue growth, slightly beating expectations, and all three of its divisions had another impressive quarter. Particular highlights include Microsoft Azure growth of 31%, which was far better than originally feared, and management has guided 2% ahead of consensus for 27% growth next quarter.
“The PC market did far better than first predicted, down just 7%, and Microsoft’s capital expenditure was much higher than had been expected which represents confidence in their cloud rollout in particular.
“AI continues to be a real strength for Microsoft, and it is being infused into all products including its Search offering Bing, its Software with Copilot being incorporated into Office, Github, Dynamics and security, as well as Infrastructure with Chat GPT running on Azure. This gives Microsoft a long runway of value and therefore pricing growth.
“Given the significant growth of AI and the subsequent increase in computing and data storage requirements, Microsoft is already one of the top beneficiaries of this development – particularly due to Microsoft Azure – and this is set to continue.”
Google:
“Google’s revenues were up 6%, with Search up 2% and YouTube down 3% - all of which were slight beats in comparison to expectations. Google’s Cloud business was inline up 28%, slightly behind MSFT.
“Google currently faces a risk of disruption from Chat GPT, and is working hard to make sure that this disruption does not materialise. Search is a $200bn a year market, of which Google has > 85% market share. Given its natural monopoly, search is also a very profitable business, so any loss of share would be hard felt.
“Google has incredibly strong AI capabilities, and benefits from having optionality within all its business units to be able to adapt quickly as well as having a lot of cost capability. While there are some better companies in tech at the moment than Google, the current valuation is not particularly expensive.”
