October 29, 2025 • 22 mins
Microsoft Corp. reported a steeper climb in spending than Wall Street expected, fueling anxieties about the high costs of providing AI infrastructure. First-quarter capital expenditures including leases, an indication of data center spending, came in at $34.9 billion, up from $24 billion in the preceding quarter, the company said Wednesday. Microsoft continues “to increase our investments in AI across both capital and talent to meet the massive opportunity ahead,” Chief Executive Officer Satya Nadella said in a statement. Total revenue increased 18% to $77.7 billion in the fiscal first quarter, while profit was $3.72 a share. Analysts on average estimated sales of $75.6 billion and per-share earnings of $3.68. The Azure cloud-computing unit posted a 39% revenue gain in the quarter when adjusting for currency fluctuations, beating the Wall Street estimate of 37%. Investor expectations for Microsoft were high heading into earnings, with all but one analyst tracked by Bloomberg rating the stock a buy.
Meta Platforms said it expects total expenses to significantly increase in 2026, and will continue to invest at historic levels in artificial intelligence. The company also reported third-quarter net income of $2.71 billion, which included a one-time, non-cash income tax charge of $15.9 billion due to the implementation of the tax bill signed into law in July, Meta said in the statement. Without the accounting charge, Meta said net income would have increased 19% to $18.6 billion.
Looking beyond the third-quarter, the company said it expects a “significant reduction” in US federal cash tax payments for 2025 and years to come due to the new law. Meta reported third-quarter sales of $51.2 billion, which beat analysts’ average estimate of $49.6 billion.
For analysis of the tech earnings, Bloomberg Businessweek Daily spoke with Bloomberg Intelligence Senior Technology Analyst Anurag Rana and Ivan Feinseth, Research Director and Chief Investment Officer with Tigress Financial Partners.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
This is a breaking news update from Bloomberg.
Speaker 1 (00:12):
Instant reaction and analysis from our three thousand journalists and
analysts around the world.
Speaker 3 (00:19):
Big drop of earnings, as we mentioned, really three of
the mag seven reporting you've got Microsoft down about three
point three and a half percent. Let's just round it
up here. You've got Alphabet it is up about four percent,
So pressure on Microsoft, a rally in Alphabet. And then
you've got Meta right now it is dropping in a
(00:39):
big way. Tim, We've got that what down about six percent?
Speaker 1 (00:42):
Yeah, So long term metas as it expects a significant
reduction in our federal US federal cash tax payments for
remainder of twenty twenty five and future years due to
the implementation of the One Big Beautiful Bill Act. But
they reported a net income of just two point seven
to one billion. That was a huge drop from last year.
The company says that number would have actually been eighteen
point six four billion if not for a one time
(01:04):
non cash income tax charge of fifteen point nine three
billion dollars.
Speaker 2 (01:07):
I want to know, I don't understand it so well.
It's a one time charge.
Speaker 1 (01:11):
I get that they're paying it now, Okay, it reduces
net income to something that looks way below what everybody.
Speaker 2 (01:17):
Thought it would be.
Speaker 1 (01:18):
What is this charge though, that's a question that we're
going to have to ask Ivan Findsath. Why investors, we're
not expecting.
Speaker 2 (01:24):
This because it's not like taxes changed from the year before.
Speaker 1 (01:27):
And why is Meta the company that has that has
this hit and not these other companies.
Speaker 3 (01:31):
That's what I'm saying, Like, I understand the big beautiful
you know bill act is going to change their tax
situation going.
Speaker 1 (01:38):
Forward, but why they one time hit right now?
Speaker 3 (01:40):
But right exactly what changed from the previous year that
we're seeing all of this?
Speaker 1 (01:44):
So they were very clear, it seemed like they want
to be very clear in their communication. There was like
this paragraph devoted to this in the earnings release, just
below Mark Zuckerberg's commentary, Right, the street is not not
buying that right now.
Speaker 3 (01:56):
I will also say that, you know, our Kurt Wagner's
pointing out here we go from the release are current
expectation is that capital expenditures dollar growth will be notably
larger in twenty twenty six and twenty twenty five. I
have to say that that was one of the things
I was looking at in terms of their expenses and
so on, have gone up about thirty two percent.
Speaker 2 (02:14):
Year over year.
Speaker 3 (02:15):
And if they're looking at spending even more, maybe there
are some concerns again about the spend, the AI spend,
which many say you need, you got to get ahead
of all of this to meet the demand.
Speaker 2 (02:27):
But will that ultimately pay off?
Speaker 1 (02:28):
Yeah, let's put some numbers there. Sixty six billion to
seventy two billion as of June. That was the twenty
twenty five capex guidance for the year. Things have tightened
a little bit to seventy billion to seventy two billion.
It's coming in at the high end of the original range.
But if that's what it's going to be for this year,
and then the company says CAPEX dollar growth will be
notably larger in twenty six than in twenty five, how
(02:48):
much bigger than seventy to seventy two billion dollars is
it going to be?
Speaker 2 (02:51):
Exactly place to the spend.
Speaker 3 (02:52):
I will point out the third quarter AD revenue that
was a big fifty billion versus the estimate of forty
eight point fifty nine billion.
Speaker 2 (02:58):
If you recall last quarter, we got to.
Speaker 3 (03:00):
This and we saw how the company was monetizing the
AI spend. So there are still some more questions to
be known. Again, I'm just going to pull up Meta
here in the aftermarket, folks, it's down about six point
six percent. Let's also talk about Microsoft because this one
also under pressure, tim It's down about three and a
half percent.
Speaker 1 (03:16):
Yeah, first quarter revenue did beat estimates. Microsoft reported revenue
for the first quarter or Azure and other cloud services
revenue x FX for the first quarter that beat the
average Chennalist estament. Here's some numbers. Seventy seven point six
seven billion that beat estimates of seventy five point five
to five billion. That was for the first quarter. Earnings
per share came in at three dollars and seventy two cents.
(03:36):
Operating income came in above estimates at thirty seven point
nine to six billion, that beat estimates Carol of thirty
five point one billion dollars.
Speaker 3 (03:44):
All right, let's see if the growth rates though, you know,
is what does seem like the investors are a little disappointed,
as we said, the stock down three and a half
percent here in the after market.
Speaker 1 (03:53):
What the guidance on the call. Guidance on the call.
Speaker 3 (03:55):
Yeah, that's true, right, and we'll find out the outlook.
This stock, keep in mind, is up almost thirty percent
year to date. Here in twenty twenty five. Let's head
out to our Chicago News bureau. That's where we find
Bloomberg Intelligence senior technology analyst Ana Anaag. We want to
give you a little time to stew over this, walk
us through what we've got so far from Microsoft, because
investors seem a little disappointed.
Speaker 4 (04:17):
Yeah, I mean I don't. I don't really find a
whole lot of mistakes. And there's these numbers and you
look at Azure growth of thirty nine percent, I mean,
given that size, that's pretty good. The margins actually stood
out way, you know, way higher than what we were anticipating.
We thought there was going to be pressure on margins
because of all the spending and then the last lea
when you look at the capex number substantially higher than
(04:38):
the thirty billion that they talked about now in you know,
to some people maybe that's a disappointment, but for us,
that's a good thing because I think they have so
much demand coming in. They're going to add more capacity
this this year, and that's something that you know, we
have been saying for a while.
Speaker 1 (04:53):
Well, you know, I'll ask you the same question that
I asked Angelo Zino a little earlier. And maybe it's
too early to tell me if we won't hear anything
about on the call, But the cloud race between the
three biggest providers out there, Aws, Azure, Google Cloud, is
there an opportunity for Azure to get market share from
from companies that might have been affected by last week's
(05:15):
AWS outage? Is that an opportunity?
Speaker 4 (05:18):
Well, I typically I would say no, because they are
facing the same problem today. Frankly, so when you look
at some of these large install bases, it's very difficult
to change your applications. But what is the bigger opportunity,
not just for Amazon or not just for Microsoft, but
for all of them, including Oracle, is most companies eventually
will have a backup cloud provider. They don't have it
(05:40):
right now, but that is going to be one of
the bigger growth drivers down the road after the AI
boom is done, you know. So, I mean, from our side,
the market is big enough for all of them to
prosper very very well in the coming use.
Speaker 3 (05:54):
I mean, honor as you said that the Azure Cloud
Computing Unit posted a thirty nine percent revenue in the
quarter when adjusting for currency fluctuations. That did beat the
street estimate of thirty seven percent. I'm reading some you
know analysis that says, well, that was a disappointed the
expectations were high. What what was there a whisper number
(06:15):
in terms of growth.
Speaker 2 (06:16):
On the street.
Speaker 4 (06:17):
No, the consensus was thirty seven. This is what the
company said. Now there is if you really want to
dissect it, you know badly, then you could say, well,
Google Cloud growth accelerated in the quarter compared to the
previous quarter, but Microsoft it was thirty nine. It's it's
still at thirty nine. But you know, they are different
basis that one's you know, Microsoft is running at about
seventy five percent, you know, eighty billion dollars in annual
(06:40):
run rate. You know, Google Cloud is still at thirty percent,
and yet Azure growth is higher than Google's cloud growth.
So you know, I think people are probably just splitting
hairs at this point.
Speaker 1 (06:52):
Yeah, and you referenced that when you were answering my question.
You reference the outage that Microsoft has having right now,
this global Microsoft outage. So we should note that, yeah,
just cloud cloud companies are cloud companies and sometimes it's
AWS that is the outage. Sometimes it's Microsoft that that
has the that has the outage. Hey, the open AI question,
we talked a lot about this with you yesterday and
(07:13):
I imagine that on the call, investors will have a
lot of questions about, Okay, this close to thirty percent
ownership of open II, the parent company of chat GBT,
what is that going to do for Microsoft?
Speaker 5 (07:27):
See?
Speaker 4 (07:27):
I think from our side, the equity part is not
what you know, for our concern, it's really the technology
that Microsoft is holding on to that's really the critical
piece because you know, one of the ways we think
about is they will sell more products, they will sell
more cloud services using that technology than they would just
on the you know, share side of it. And that's
a bigger thing for us because they have, you know,
(07:49):
a hold of that for the next seven years.
Speaker 3 (07:52):
Hey, one of the things I want to ask you,
and I know this isn't typically your coverage, but you
know you're.
Speaker 2 (07:57):
Smart and you cover all things technology.
Speaker 3 (08:00):
Meta Meta down almost eight percent here in the aftermarket
as you see this, Uh, what's what's the problem. There's
one tax one time tax charge. I guess we're still
trying to figure this out. But is it all about
that or is it just that we were caught off guard.
Speaker 4 (08:16):
See I think that could be a lot of the
noise then the number, and you know, I'm very sure
they're going to give clarity on that. But the big
question of the overheind On and Mega Meta always is,
you know, how are you monetizing a You're spending all
this money, where's the revenue you show for it? I
think that's where management really needs to give and address
that in a much more succinct way than they have.
The other side is they don't have a cloud platform
(08:38):
just like Google does, or Amazon does or Microsoft does.
So meta is the one that needs to explain these
things far better than, frankly the other three.
Speaker 1 (08:48):
I want to bring in Ivan find Seth, research director
and chief investment officer with Tiger's Financial Partners, got over
five hundred million dollars in assets under management, and pose
that same question to him about meta platforms, saying that
the implementation of the One Big Beautiful Bill Act led
to the recognition of evaluation allowance against our US federal
deferred tax assets, reflecting the impact of the US Corporate
(09:11):
Alternative Minimum Tax. The result of one time non cash
income tax charge of fifteen point nine three billion dollars.
Shares carroll down seven point eight percent. Ivan, You've had
some time to dig into this a little bit on
the meta platform side. What's going on here?
Speaker 5 (09:27):
Well? All right, so the Big Beautiful Bill caused the
recognition of a deferred tax asset. It's actually a non
cast charge. And there while it caused a spike in
their tax rates eighty seven percent for the quarter, it
actually goes down significantly going forward. I think this is
really a non event. It's an accounting issue, and I
think any weakness is a buying opportunity in the STOP
because there's so many positive long term trends that will
(09:50):
continue to drive the STOP higher.
Speaker 1 (09:51):
But is that why the stock is down right now
because of this one time charge affecting the bottom line?
Is that is that the concern? Or is it what
Carol brought up the idea of CAPEX going up next
and to spend well?
Speaker 5 (10:05):
Now, we have seen investors make a mistake consistently in
selling MATA meta platforms. On capital investment increases, they continue
to invest in driving their AI capabilities, which drives increased
user engagement. It drives increase return on AdSpend investment. So
I like when they continue to invest. And we've seen
(10:28):
this multiple times. If you listen to what Mark Tuckerberg
does every time he invests, from the beginning from changing
the company from Facebook to Meta, and when he was
investing in Mobile, the stock sold off. Now most of
the people engaging in Facebook and Instagram do it on
their phone, So you have to listen to him, and
he says what he does, and he does what he says,
and he continues to create value. So on any weakness
(10:50):
over the increase in CAPEX. And again this is positive
because there's been a fear that we're going to see
this AI bubble burst, that companies are not going to
continue to invest. I've seen all three companies reporting today, Alphabet,
Microsoft and Meta all increasing capital investment in AI development.
And that's positive for the companies those three companies, and
(11:13):
it's positive for the bullish AI investment theme.
Speaker 3 (11:18):
You know this fifteen percent corporate Alternative minimum tax. Yeah,
I'm googling some stuff here, folks, because I want to
understand stand it. It came out of the Inflyflation Reduction
Act of twenty twenty two, and it generally applies I
think to corporations with the average annual adjusted financial statement
income exceeding a billion dollars every three consecutive years.
Speaker 2 (11:38):
Yeah, we're all going to be learning a little bit
more about this.
Speaker 3 (11:40):
But Tim, you keep bringing up like why why aren't
we seeing this with maybe some of the other ones?
Speaker 1 (11:44):
Yeah, why is metaplat? Why are we only talking about
this with regard to meta platforms?
Speaker 5 (11:49):
They may be one of the ones that has the
largest deferred tax asset and that has really to do
with timing and expensing of things like R and D
as an example.
Speaker 3 (12:01):
So you know, we're talking about a lot of things,
and Ivan, we want to get you know, your view
on some of the other companies that have reported ANAAG.
We do want to ask you, though, what are you
thinking that you want to you're going to be looking
for on a call going back to Microsoft, if you will.
As we continue to see that one trading lower here
in the aftermarket, let me just pull it up on
my Bloomberg because we have seen some pressure here the
(12:23):
stock continuing. It's down still about three point four percent,
is it? What do you want to hear from this company?
Speaker 4 (12:30):
I think I would be let me let me get.
Speaker 2 (12:33):
Ana rog first, forgive me Ivan.
Speaker 4 (12:34):
Okay, all right, So the biggest thing for us, who's
going to be you know, what's the back half of
CAPEIC spending? The CAPEX and the first sporter was very high,
thirty five billion compared to thirty which they guided to.
We want to know what is it going to be
in the back half of the year. Are they going
to slow down dramatically or is it going to keep
pacing where we are right now?
Speaker 3 (12:54):
All right, Anaag, we know you've got research to right
We're going to let you go and look forward to
reading that.
Speaker 2 (12:58):
Ivan, we want to stay with you for a little bit.
Speaker 3 (13:00):
We are talking with Ivan find Seth, research director and
chief investment Officer with Tigris Financial Partners on a rug run.
Of course, our senior tech analyst here at Bloomberg Intelligence.
I've in other companies that reported Meta obviously caught our attention.
We just talked with Microsoft, are talked about Microsoft at
the anarog what's your take on what we got from them?
Because that stucks down about three percent here in the aftermarket.
Speaker 5 (13:23):
Well, right now, we're in an environment of you know,
people who have been buying these stocks ahead of results.
They sell into the results. But I say, I say
that this AI investment theme is powerful and the companies
leading it are Meta, Google and Microsoft, and you got
to buy on any weakness. I want to hear from
Microsoft about increase AI driven application and engagement and subscription increases,
(13:50):
how users are buying and implementing and using copilot. Of course,
you want to see growth in all key categories like
cloud Azure.
Speaker 2 (14:01):
I mean, Azure was up thirty nine percent. That's pretty good, right.
Speaker 5 (14:05):
Phenomenal, and that's their big growth engine and they have
been announcing huge contracts so as Google. Unfortunately, Amazon had
that outage was it was disappointing but didn't really set
back the stock. But these are the growth drivers that
the cloud hosted AI platforms.
Speaker 1 (14:28):
Yeah I was. I was surprised to see Amazon stock
actually higher that day, I know, but I think also
speaks to the power of Amazon and like you got
in a good understanding of how much it has. Remember,
the company is investigating outages. This is Microsoft is investigating
outages of office and game applications today also, so this
kind of goes both ways. I've ben on Microsoft one
(14:50):
more and then we're gonna get back to some more
meta platforms, I think, but a small one point two
percent beat on adjusted diluted EPs on Microsoft for my
You know everybody the company does not give guidance in
the statement and does that on the conference call. It's
doing that on the conference call. Is it like worth
even talking about it without even having it? Oftentimes we
(15:13):
wait for the call to get more information, but in
this case, like forward guidance coming from the call, it's
kind of a moot point.
Speaker 5 (15:21):
Well, the disconnect in the dichotomy that exists between companies
and Wall Street is that companies planned for one, three
and five years and Wall Street wants to measure everything
on a quarterly basis. I mean, the guidance it's somewhat important,
but you wanted to see consistent growth driven by their
investments in technology, the adoption and use of their technology
(15:43):
that creates their competitive advantage, and those are the key
things to look at. And we are in the first
inning of the world series of AI driven economic global
economic growth. And this trend is going to continue, and
it's going to be powerful, and it's going to be
game changing. And I think that AI is going to
(16:05):
enhance and create many more jobs than it will eliminate.
Speaker 3 (16:10):
Going back to the costing though for Meta, you know,
I'm just that operating margin for the third quarter down
from forty three percent last year. Is that worrisome or
you think manageable?
Speaker 5 (16:26):
Not really, Okay, We've looked at companies that have had
huge growth trajectories while their margins we're contracting. In fact,
Amazon doesn't focus on margin. They focus on revenue growth.
They don't focus on return on capital actually, which is
one of the key things we focus on. But they
do drive a huge return. So you know, there are
times where your growth margin can contract, but your economic
(16:49):
margin can increase. And that is the economic margin is
the difference between return on capital and cost of capital.
That is the most powerful driver of shareholder value creation.
So it's not so much important about what happens with
growth margin. It's in fact, I've seen many companies drive
huge growth by lowering their growth margin because you're just
(17:12):
becoming more competitive and they're actually making it up on
return on capital.
Speaker 1 (17:16):
Okay, we're going to talk about Alphabet with you in
just a minute. Carol reminded me that shares are surging
higher in the after hours six percent. Okay, one more
on Meta platforms down eight point four percent in the
after hours. Reality Labs losses for the third quarter four
point four billion dollars. It's about the same as one
year prior. Obviously, it's a huge investment area for meta platforms.
(17:36):
In the press release, Mark Zuckerberg specifically calling out the
success of the eyewear and saying, essentially, I don't have
it in front of you to be essentially said, if
we think the future is going to be what it is,
this is going to be the most exciting moment for
meta platforms. Ahead of us, these will be the most
exciting years for meta platforms. What is the opportunity that
meta platforms has when it comes to eyewear.
Speaker 5 (17:59):
This is going to be a tremendous communication and interactive
platform and it's only going to get better in a
few years. We're going to look back on these original glasses,
the ones that they've launched from ray Band, the recent
ones from Oakley, and the functionality in a few years
from now is just going to be more and more incredible.
(18:19):
But this ability to engage with real time information, to
share pictures and images and videos in real time with
other people that you're talking to and while I'm up.
Mark Zuckerberg believes that the glasses are going to replace
your smartphone. You're just going to keep your smartphone in
your pocket, and you're going to interact with data and
(18:40):
information and people who you're communicating with these glasses. And
eventually we're going to see ones that Meta just launched,
ones with displays. It's going to be all about having
displays embedded in the lens so you don't even have
to touch your phone. So this is going to be
a huge growth opt and this is going to be
what the cell phone was in the mid nineties.
Speaker 3 (19:00):
No rose colored glasses there right now, because Meta shares
now down near their loads in the aftermarket, down about
nine percent.
Speaker 1 (19:07):
I'm going to remember that Ivan said this is going
to be what what cell phones were in the nineties.
And by the way, he's not wearing any metaglasses right now.
Speaker 3 (19:14):
Well, and I will say our markerment really really likes
him as well. Hey, we do have to ask you
about Alphabet because we are seeing this one actually up
about six percent here in the aftermarket.
Speaker 2 (19:25):
What do you like? What's what's of note? Do you
think in their release.
Speaker 5 (19:30):
Cloud growth, Big Cloud contract wins that they've had over
the past few months with UH, with Meta, with Open AI,
with other companies this you know that Meta, Amazon and Microsoft.
I'm sorry, Alphabet, Amazon and Microsoft are building the AI
(19:52):
and cloud infrastructure that everybody is connecting to and going
to continue and increasingly coming are going to be connected
cars as we move through to full autonomy, So we
are going to need high speed, real time, constant connectivity
to the cloud, and those are huge opportunities for the
(20:13):
three major public cloud service providers Alphabet, Google and Microsoft.
Speaker 2 (20:19):
Well, and they're spending big.
Speaker 3 (20:20):
They're now seeing fiscally your capex ninety one to ninety
three billion. They had seen about eighty five billion dollars. So, hey,
you gotta spend.
Speaker 1 (20:27):
Money to make money, Carol, You got to spend money
to make money.
Speaker 3 (20:29):
Everybody says it's wild, right, like the number they also
Gemini their app now has over six hundred and fifty
monthly active users hundred fifty million, six.
Speaker 2 (20:39):
Hundred and fifty million. Yeah, didn't I say that? It's
a lot?
Speaker 3 (20:43):
How do we how do we know that this AI thing,
how do we know that all this spend is going
to pay off?
Speaker 2 (20:51):
Ivan? Are we still a little exuberant?
Speaker 5 (20:56):
Well, because the functionality we see today is going to
be blown away by the functional in the future. More
and more people are going to rely on this technology
for all different aspects. And I do give credit to
Tom Siebel, the founder of Seble Systems and C three AI,
that I believe he said it that every company is
going to be an AI company. Every company is to
(21:19):
use AI on all aspects of their business, whether it's
to manage supply chain, manage pricing, target marketing. That the
functionality is going to increase and people are going to
just like you said when Carol, when you wanted to
understand more about Meta's tax charge, you googled it and
we're going to get more information. I did also, I
(21:42):
like perplexity. I looked up it, looked it up in
Perplexity and kind of and I did understand what they said,
but it gave me a little more detail.
Speaker 1 (21:50):
And uh right, yeah, is it right?
Speaker 5 (21:56):
Do I know what? Yes? Well, because I do understand
that the tax that it's really the timing and charge
and of managing your tax payment and your tax liability
that you tend to offset through capital investment, through R
and D and other types of things that happen. So
it's really timing issues on how you're a crude tax
(22:19):
liability or your a crewed tax asset falls versus the
taxes you will eventually have do or the tax credit
you will eventually aren't.
Speaker 3 (22:27):
I just want to know is this Sora, Is this
really Ivan find Seth. I just want to make sure
it is really me Listen, perfect guest to talk about
all of this so much coming at us, Ivan, Thank
you so much, really appreciate it. I've Ben find Seth,
Research director, chief investment officer of A Tiger's Financial Partners
of a five hundred million in assets under management as
(22:48):
of the middle of this year, joining us right here
in New York City,
Bloomberg Audio Studios, podcasts, radio news.
Speaker 2 (00:09):
This is a breaking news update from Bloomberg.
Speaker 1 (00:12):
Instant reaction and analysis from our three thousand journalists and
analysts around the world.
Speaker 3 (00:19):
Big drop of earnings, as we mentioned, really three of
the mag seven reporting you've got Microsoft down about three
point three and a half percent. Let's just round it
up here. You've got Alphabet it is up about four percent,
So pressure on Microsoft, a rally in Alphabet. And then
you've got Meta right now it is dropping in a
(00:39):
big way. Tim, We've got that what down about six percent?
Speaker 1 (00:42):
Yeah, So long term metas as it expects a significant
reduction in our federal US federal cash tax payments for
remainder of twenty twenty five and future years due to
the implementation of the One Big Beautiful Bill Act. But
they reported a net income of just two point seven
to one billion. That was a huge drop from last year.
The company says that number would have actually been eighteen
point six four billion if not for a one time
(01:04):
non cash income tax charge of fifteen point nine three
billion dollars.
Speaker 2 (01:07):
I want to know, I don't understand it so well.
It's a one time charge.
Speaker 1 (01:11):
I get that they're paying it now, Okay, it reduces
net income to something that looks way below what everybody.
Speaker 2 (01:17):
Thought it would be.
Speaker 1 (01:18):
What is this charge though, that's a question that we're
going to have to ask Ivan Findsath. Why investors, we're
not expecting.
Speaker 2 (01:24):
This because it's not like taxes changed from the year before.
Speaker 1 (01:27):
And why is Meta the company that has that has
this hit and not these other companies.
Speaker 3 (01:31):
That's what I'm saying, Like, I understand the big beautiful
you know bill act is going to change their tax
situation going.
Speaker 1 (01:38):
Forward, but why they one time hit right now?
Speaker 3 (01:40):
But right exactly what changed from the previous year that
we're seeing all of this?
Speaker 1 (01:44):
So they were very clear, it seemed like they want
to be very clear in their communication. There was like
this paragraph devoted to this in the earnings release, just
below Mark Zuckerberg's commentary, Right, the street is not not
buying that right now.
Speaker 3 (01:56):
I will also say that, you know, our Kurt Wagner's
pointing out here we go from the release are current
expectation is that capital expenditures dollar growth will be notably
larger in twenty twenty six and twenty twenty five. I
have to say that that was one of the things
I was looking at in terms of their expenses and
so on, have gone up about thirty two percent.
Speaker 2 (02:14):
Year over year.
Speaker 3 (02:15):
And if they're looking at spending even more, maybe there
are some concerns again about the spend, the AI spend,
which many say you need, you got to get ahead
of all of this to meet the demand.
Speaker 2 (02:27):
But will that ultimately pay off?
Speaker 1 (02:28):
Yeah, let's put some numbers there. Sixty six billion to
seventy two billion as of June. That was the twenty
twenty five capex guidance for the year. Things have tightened
a little bit to seventy billion to seventy two billion.
It's coming in at the high end of the original range.
But if that's what it's going to be for this year,
and then the company says CAPEX dollar growth will be
notably larger in twenty six than in twenty five, how
(02:48):
much bigger than seventy to seventy two billion dollars is
it going to be?
Speaker 2 (02:51):
Exactly place to the spend.
Speaker 3 (02:52):
I will point out the third quarter AD revenue that
was a big fifty billion versus the estimate of forty
eight point fifty nine billion.
Speaker 2 (02:58):
If you recall last quarter, we got to.
Speaker 3 (03:00):
This and we saw how the company was monetizing the
AI spend. So there are still some more questions to
be known. Again, I'm just going to pull up Meta
here in the aftermarket, folks, it's down about six point
six percent. Let's also talk about Microsoft because this one
also under pressure, tim It's down about three and a
half percent.
Speaker 1 (03:16):
Yeah, first quarter revenue did beat estimates. Microsoft reported revenue
for the first quarter or Azure and other cloud services
revenue x FX for the first quarter that beat the
average Chennalist estament. Here's some numbers. Seventy seven point six
seven billion that beat estimates of seventy five point five
to five billion. That was for the first quarter. Earnings
per share came in at three dollars and seventy two cents.
(03:36):
Operating income came in above estimates at thirty seven point
nine to six billion, that beat estimates Carol of thirty
five point one billion dollars.
Speaker 3 (03:44):
All right, let's see if the growth rates though, you know,
is what does seem like the investors are a little disappointed,
as we said, the stock down three and a half
percent here in the after market.
Speaker 1 (03:53):
What the guidance on the call. Guidance on the call.
Speaker 3 (03:55):
Yeah, that's true, right, and we'll find out the outlook.
This stock, keep in mind, is up almost thirty percent
year to date. Here in twenty twenty five. Let's head
out to our Chicago News bureau. That's where we find
Bloomberg Intelligence senior technology analyst Ana Anaag. We want to
give you a little time to stew over this, walk
us through what we've got so far from Microsoft, because
investors seem a little disappointed.
Speaker 4 (04:17):
Yeah, I mean I don't. I don't really find a
whole lot of mistakes. And there's these numbers and you
look at Azure growth of thirty nine percent, I mean,
given that size, that's pretty good. The margins actually stood
out way, you know, way higher than what we were anticipating.
We thought there was going to be pressure on margins
because of all the spending and then the last lea
when you look at the capex number substantially higher than
(04:38):
the thirty billion that they talked about now in you know,
to some people maybe that's a disappointment, but for us,
that's a good thing because I think they have so
much demand coming in. They're going to add more capacity
this this year, and that's something that you know, we
have been saying for a while.
Speaker 1 (04:53):
Well, you know, I'll ask you the same question that
I asked Angelo Zino a little earlier. And maybe it's
too early to tell me if we won't hear anything
about on the call, But the cloud race between the
three biggest providers out there, Aws, Azure, Google Cloud, is
there an opportunity for Azure to get market share from
from companies that might have been affected by last week's
(05:15):
AWS outage? Is that an opportunity?
Speaker 4 (05:18):
Well, I typically I would say no, because they are
facing the same problem today. Frankly, so when you look
at some of these large install bases, it's very difficult
to change your applications. But what is the bigger opportunity,
not just for Amazon or not just for Microsoft, but
for all of them, including Oracle, is most companies eventually
will have a backup cloud provider. They don't have it
(05:40):
right now, but that is going to be one of
the bigger growth drivers down the road after the AI
boom is done, you know. So, I mean, from our side,
the market is big enough for all of them to
prosper very very well in the coming use.
Speaker 3 (05:54):
I mean, honor as you said that the Azure Cloud
Computing Unit posted a thirty nine percent revenue in the
quarter when adjusting for currency fluctuations. That did beat the
street estimate of thirty seven percent. I'm reading some you
know analysis that says, well, that was a disappointed the
expectations were high. What what was there a whisper number
(06:15):
in terms of growth.
Speaker 2 (06:16):
On the street.
Speaker 4 (06:17):
No, the consensus was thirty seven. This is what the
company said. Now there is if you really want to
dissect it, you know badly, then you could say, well,
Google Cloud growth accelerated in the quarter compared to the
previous quarter, but Microsoft it was thirty nine. It's it's
still at thirty nine. But you know, they are different
basis that one's you know, Microsoft is running at about
seventy five percent, you know, eighty billion dollars in annual
(06:40):
run rate. You know, Google Cloud is still at thirty percent,
and yet Azure growth is higher than Google's cloud growth.
So you know, I think people are probably just splitting
hairs at this point.
Speaker 1 (06:52):
Yeah, and you referenced that when you were answering my question.
You reference the outage that Microsoft has having right now,
this global Microsoft outage. So we should note that, yeah,
just cloud cloud companies are cloud companies and sometimes it's
AWS that is the outage. Sometimes it's Microsoft that that
has the that has the outage. Hey, the open AI question,
we talked a lot about this with you yesterday and
(07:13):
I imagine that on the call, investors will have a
lot of questions about, Okay, this close to thirty percent
ownership of open II, the parent company of chat GBT,
what is that going to do for Microsoft?
Speaker 5 (07:27):
See?
Speaker 4 (07:27):
I think from our side, the equity part is not
what you know, for our concern, it's really the technology
that Microsoft is holding on to that's really the critical
piece because you know, one of the ways we think
about is they will sell more products, they will sell
more cloud services using that technology than they would just
on the you know, share side of it. And that's
a bigger thing for us because they have, you know,
(07:49):
a hold of that for the next seven years.
Speaker 3 (07:52):
Hey, one of the things I want to ask you,
and I know this isn't typically your coverage, but you
know you're.
Speaker 2 (07:57):
Smart and you cover all things technology.
Speaker 3 (08:00):
Meta Meta down almost eight percent here in the aftermarket
as you see this, Uh, what's what's the problem. There's
one tax one time tax charge. I guess we're still
trying to figure this out. But is it all about
that or is it just that we were caught off guard.
Speaker 4 (08:16):
See I think that could be a lot of the
noise then the number, and you know, I'm very sure
they're going to give clarity on that. But the big
question of the overheind On and Mega Meta always is,
you know, how are you monetizing a You're spending all
this money, where's the revenue you show for it? I
think that's where management really needs to give and address
that in a much more succinct way than they have.
The other side is they don't have a cloud platform
(08:38):
just like Google does, or Amazon does or Microsoft does.
So meta is the one that needs to explain these
things far better than, frankly the other three.
Speaker 1 (08:48):
I want to bring in Ivan find Seth, research director
and chief investment officer with Tiger's Financial Partners, got over
five hundred million dollars in assets under management, and pose
that same question to him about meta platforms, saying that
the implementation of the One Big Beautiful Bill Act led
to the recognition of evaluation allowance against our US federal
deferred tax assets, reflecting the impact of the US Corporate
(09:11):
Alternative Minimum Tax. The result of one time non cash
income tax charge of fifteen point nine three billion dollars.
Shares carroll down seven point eight percent. Ivan, You've had
some time to dig into this a little bit on
the meta platform side. What's going on here?
Speaker 5 (09:27):
Well? All right, so the Big Beautiful Bill caused the
recognition of a deferred tax asset. It's actually a non
cast charge. And there while it caused a spike in
their tax rates eighty seven percent for the quarter, it
actually goes down significantly going forward. I think this is
really a non event. It's an accounting issue, and I
think any weakness is a buying opportunity in the STOP
because there's so many positive long term trends that will
(09:50):
continue to drive the STOP higher.
Speaker 1 (09:51):
But is that why the stock is down right now
because of this one time charge affecting the bottom line?
Is that is that the concern? Or is it what
Carol brought up the idea of CAPEX going up next
and to spend well?
Speaker 5 (10:05):
Now, we have seen investors make a mistake consistently in
selling MATA meta platforms. On capital investment increases, they continue
to invest in driving their AI capabilities, which drives increased
user engagement. It drives increase return on AdSpend investment. So
I like when they continue to invest. And we've seen
(10:28):
this multiple times. If you listen to what Mark Tuckerberg
does every time he invests, from the beginning from changing
the company from Facebook to Meta, and when he was
investing in Mobile, the stock sold off. Now most of
the people engaging in Facebook and Instagram do it on
their phone, So you have to listen to him, and
he says what he does, and he does what he says,
and he continues to create value. So on any weakness
(10:50):
over the increase in CAPEX. And again this is positive
because there's been a fear that we're going to see
this AI bubble burst, that companies are not going to
continue to invest. I've seen all three companies reporting today, Alphabet,
Microsoft and Meta all increasing capital investment in AI development.
And that's positive for the companies those three companies, and
(11:13):
it's positive for the bullish AI investment theme.
Speaker 3 (11:18):
You know this fifteen percent corporate Alternative minimum tax. Yeah,
I'm googling some stuff here, folks, because I want to
understand stand it. It came out of the Inflyflation Reduction
Act of twenty twenty two, and it generally applies I
think to corporations with the average annual adjusted financial statement
income exceeding a billion dollars every three consecutive years.
Speaker 2 (11:38):
Yeah, we're all going to be learning a little bit
more about this.
Speaker 3 (11:40):
But Tim, you keep bringing up like why why aren't
we seeing this with maybe some of the other ones?
Speaker 1 (11:44):
Yeah, why is metaplat? Why are we only talking about
this with regard to meta platforms?
Speaker 5 (11:49):
They may be one of the ones that has the
largest deferred tax asset and that has really to do
with timing and expensing of things like R and D
as an example.
Speaker 3 (12:01):
So you know, we're talking about a lot of things,
and Ivan, we want to get you know, your view
on some of the other companies that have reported ANAAG.
We do want to ask you, though, what are you
thinking that you want to you're going to be looking
for on a call going back to Microsoft, if you will.
As we continue to see that one trading lower here
in the aftermarket, let me just pull it up on
my Bloomberg because we have seen some pressure here the
(12:23):
stock continuing. It's down still about three point four percent,
is it? What do you want to hear from this company?
Speaker 4 (12:30):
I think I would be let me let me get.
Speaker 2 (12:33):
Ana rog first, forgive me Ivan.
Speaker 4 (12:34):
Okay, all right, So the biggest thing for us, who's
going to be you know, what's the back half of
CAPEIC spending? The CAPEX and the first sporter was very high,
thirty five billion compared to thirty which they guided to.
We want to know what is it going to be
in the back half of the year. Are they going
to slow down dramatically or is it going to keep
pacing where we are right now?
Speaker 3 (12:54):
All right, Anaag, we know you've got research to right
We're going to let you go and look forward to
reading that.
Speaker 2 (12:58):
Ivan, we want to stay with you for a little bit.
Speaker 3 (13:00):
We are talking with Ivan find Seth, research director and
chief investment Officer with Tigris Financial Partners on a rug run.
Of course, our senior tech analyst here at Bloomberg Intelligence.
I've in other companies that reported Meta obviously caught our attention.
We just talked with Microsoft, are talked about Microsoft at
the anarog what's your take on what we got from them?
Because that stucks down about three percent here in the aftermarket.
Speaker 5 (13:23):
Well, right now, we're in an environment of you know,
people who have been buying these stocks ahead of results.
They sell into the results. But I say, I say
that this AI investment theme is powerful and the companies
leading it are Meta, Google and Microsoft, and you got
to buy on any weakness. I want to hear from
Microsoft about increase AI driven application and engagement and subscription increases,
(13:50):
how users are buying and implementing and using copilot. Of course,
you want to see growth in all key categories like
cloud Azure.
Speaker 2 (14:01):
I mean, Azure was up thirty nine percent. That's pretty good, right.
Speaker 5 (14:05):
Phenomenal, and that's their big growth engine and they have
been announcing huge contracts so as Google. Unfortunately, Amazon had
that outage was it was disappointing but didn't really set
back the stock. But these are the growth drivers that
the cloud hosted AI platforms.
Speaker 1 (14:28):
Yeah I was. I was surprised to see Amazon stock
actually higher that day, I know, but I think also
speaks to the power of Amazon and like you got
in a good understanding of how much it has. Remember,
the company is investigating outages. This is Microsoft is investigating
outages of office and game applications today also, so this
kind of goes both ways. I've ben on Microsoft one
(14:50):
more and then we're gonna get back to some more
meta platforms, I think, but a small one point two
percent beat on adjusted diluted EPs on Microsoft for my
You know everybody the company does not give guidance in
the statement and does that on the conference call. It's
doing that on the conference call. Is it like worth
even talking about it without even having it? Oftentimes we
(15:13):
wait for the call to get more information, but in
this case, like forward guidance coming from the call, it's
kind of a moot point.
Speaker 5 (15:21):
Well, the disconnect in the dichotomy that exists between companies
and Wall Street is that companies planned for one, three
and five years and Wall Street wants to measure everything
on a quarterly basis. I mean, the guidance it's somewhat important,
but you wanted to see consistent growth driven by their
investments in technology, the adoption and use of their technology
(15:43):
that creates their competitive advantage, and those are the key
things to look at. And we are in the first
inning of the world series of AI driven economic global
economic growth. And this trend is going to continue, and
it's going to be powerful, and it's going to be
game changing. And I think that AI is going to
(16:05):
enhance and create many more jobs than it will eliminate.
Speaker 3 (16:10):
Going back to the costing though for Meta, you know,
I'm just that operating margin for the third quarter down
from forty three percent last year. Is that worrisome or
you think manageable?
Speaker 5 (16:26):
Not really, Okay, We've looked at companies that have had
huge growth trajectories while their margins we're contracting. In fact,
Amazon doesn't focus on margin. They focus on revenue growth.
They don't focus on return on capital actually, which is
one of the key things we focus on. But they
do drive a huge return. So you know, there are
times where your growth margin can contract, but your economic
(16:49):
margin can increase. And that is the economic margin is
the difference between return on capital and cost of capital.
That is the most powerful driver of shareholder value creation.
So it's not so much important about what happens with
growth margin. It's in fact, I've seen many companies drive
huge growth by lowering their growth margin because you're just
(17:12):
becoming more competitive and they're actually making it up on
return on capital.
Speaker 1 (17:16):
Okay, we're going to talk about Alphabet with you in
just a minute. Carol reminded me that shares are surging
higher in the after hours six percent. Okay, one more
on Meta platforms down eight point four percent in the
after hours. Reality Labs losses for the third quarter four
point four billion dollars. It's about the same as one
year prior. Obviously, it's a huge investment area for meta platforms.
(17:36):
In the press release, Mark Zuckerberg specifically calling out the
success of the eyewear and saying, essentially, I don't have
it in front of you to be essentially said, if
we think the future is going to be what it is,
this is going to be the most exciting moment for
meta platforms. Ahead of us, these will be the most
exciting years for meta platforms. What is the opportunity that
meta platforms has when it comes to eyewear.
Speaker 5 (17:59):
This is going to be a tremendous communication and interactive
platform and it's only going to get better in a
few years. We're going to look back on these original glasses,
the ones that they've launched from ray Band, the recent
ones from Oakley, and the functionality in a few years
from now is just going to be more and more incredible.
(18:19):
But this ability to engage with real time information, to
share pictures and images and videos in real time with
other people that you're talking to and while I'm up.
Mark Zuckerberg believes that the glasses are going to replace
your smartphone. You're just going to keep your smartphone in
your pocket, and you're going to interact with data and
(18:40):
information and people who you're communicating with these glasses. And
eventually we're going to see ones that Meta just launched,
ones with displays. It's going to be all about having
displays embedded in the lens so you don't even have
to touch your phone. So this is going to be
a huge growth opt and this is going to be
what the cell phone was in the mid nineties.
Speaker 3 (19:00):
No rose colored glasses there right now, because Meta shares
now down near their loads in the aftermarket, down about
nine percent.
Speaker 1 (19:07):
I'm going to remember that Ivan said this is going
to be what what cell phones were in the nineties.
And by the way, he's not wearing any metaglasses right now.
Speaker 3 (19:14):
Well, and I will say our markerment really really likes
him as well. Hey, we do have to ask you
about Alphabet because we are seeing this one actually up
about six percent here in the aftermarket.
Speaker 2 (19:25):
What do you like? What's what's of note? Do you
think in their release.
Speaker 5 (19:30):
Cloud growth, Big Cloud contract wins that they've had over
the past few months with UH, with Meta, with Open AI,
with other companies this you know that Meta, Amazon and Microsoft.
I'm sorry, Alphabet, Amazon and Microsoft are building the AI
(19:52):
and cloud infrastructure that everybody is connecting to and going
to continue and increasingly coming are going to be connected
cars as we move through to full autonomy, So we
are going to need high speed, real time, constant connectivity
to the cloud, and those are huge opportunities for the
(20:13):
three major public cloud service providers Alphabet, Google and Microsoft.
Speaker 2 (20:19):
Well, and they're spending big.
Speaker 3 (20:20):
They're now seeing fiscally your capex ninety one to ninety
three billion. They had seen about eighty five billion dollars. So, hey,
you gotta spend.
Speaker 1 (20:27):
Money to make money, Carol, You got to spend money
to make money.
Speaker 3 (20:29):
Everybody says it's wild, right, like the number they also
Gemini their app now has over six hundred and fifty
monthly active users hundred fifty million, six.
Speaker 2 (20:39):
Hundred and fifty million. Yeah, didn't I say that? It's
a lot?
Speaker 3 (20:43):
How do we how do we know that this AI thing,
how do we know that all this spend is going
to pay off?
Speaker 2 (20:51):
Ivan? Are we still a little exuberant?
Speaker 5 (20:56):
Well, because the functionality we see today is going to
be blown away by the functional in the future. More
and more people are going to rely on this technology
for all different aspects. And I do give credit to
Tom Siebel, the founder of Seble Systems and C three AI,
that I believe he said it that every company is
going to be an AI company. Every company is to
(21:19):
use AI on all aspects of their business, whether it's
to manage supply chain, manage pricing, target marketing. That the
functionality is going to increase and people are going to
just like you said when Carol, when you wanted to
understand more about Meta's tax charge, you googled it and
we're going to get more information. I did also, I
(21:42):
like perplexity. I looked up it, looked it up in
Perplexity and kind of and I did understand what they said,
but it gave me a little more detail.
Speaker 1 (21:50):
And uh right, yeah, is it right?
Speaker 5 (21:56):
Do I know what? Yes? Well, because I do understand
that the tax that it's really the timing and charge
and of managing your tax payment and your tax liability
that you tend to offset through capital investment, through R
and D and other types of things that happen. So
it's really timing issues on how you're a crude tax
(22:19):
liability or your a crewed tax asset falls versus the
taxes you will eventually have do or the tax credit
you will eventually aren't.
Speaker 3 (22:27):
I just want to know is this Sora, Is this
really Ivan find Seth. I just want to make sure
it is really me Listen, perfect guest to talk about
all of this so much coming at us, Ivan, Thank
you so much, really appreciate it. I've Ben find Seth,
Research director, chief investment officer of A Tiger's Financial Partners
of a five hundred million in assets under management as
(22:48):
of the middle of this year, joining us right here
in New York City,
Hosts And Creators
Tim Stenovec
Carol Massar
Popular Podcasts
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.