This isn’t exactly unexpected. Microsoft (MSFT) today unveiled new versions of its Bing search engine and Edge browser powered by the newest artificial intelligence technology from ChatGPT maker OpenAI. Microsoft recently invested $10 billion in OpenAI.
With the Federal Reserve seemingly winding down its cycle of interest rate increases, a stronger dollar is no longer the big currency market story. Gold is. Gold is back. And for at least the next 3 to 6 months.
Today I posted my two-hundred-and-twenty-ninth YouTube video: Quick Pick Microsoft . This week’s Quick Pick: Microsoft (NASDAQ: MSFT). Microsoft came out with earnings on Tuesday (shortly after filming this video). The earnings were expected to be disappointing as their revenue from their cloud service, Azure has slowed and the growth rate has been declining since September 2021. Microsoft’s earnings report initially surprised investors and the stock rose more than 4% in after-hours trading. But the next day, investors focused on the declining growth in Azure revenue and negative guidance for the future. The stock fell 0.59% at the end of the day. I’m suggesting buying Microsoft on the dip. Microsoft has invested $10B in OpenAI, the company that created ChatGPT. OpenAI’s software can, among other things, create entire, fully-sourced essays, and research answers to questions using a simple search. This AI software is a new technology that has been looking for a way to be monetized, and Microsoft has an easy answer. Bringing ChatGPT to their already established suite of word processing tools, spreadsheets, and (let’s not forget) Microsfot’s search engine Bing. Microsoft opens up an immediate use for AI that will enhance the company’s legacy revenue stream. I’m buying on this dip with an eye to a future that features OpenAI.
Yesterday, shares of Microsoft (MSFT) rose by more than 4.6% on an earnings report for the December quarter that showed the company slightly beating analyst estimates on earnings and training only slightly on revenue. Today, investors and traders had second thoughts. The stock was down as much as 4.6% in morning trading (That’s down from the close yesterday and not from the after-hours price.) The stock ended the day down just 059% but that was enough to erase all the after-hours gains from the previous day. So what caused the second thoughts?
After the market close today, Microsoft (MSFT) announced earnings of $2.32 a share, just beating Wall Street forecasts of $2.30 a share. That was a 6.5% drop from the December 2021 quarter, however. Revenue missed expectations at $52.7 billion versus a forecasted $52.9 billion. But the big news was that revenues for Azure, the company’s key cloud computing software unit, rose just 31% year over year in the quarter. That badly trailed Wall Street forecasts that called for 36.8% year-over-year growth in the December quarter.
Google’s parent Alphabet (GOOG) will cut 12,000 jobs, or 6% of its workforce, the company said today, Friday, January 20. This comes after Microsoft (MSFT), announced earlier this week that it would cut 10,000 jobs or 5% of its workforce. The two companies are gearing up to go head to head in a battle to see if artificial intelligence chatbots can disrupt Google’s stranglehold on Internet search.
Today I posted my two-hundred-and-twenty-fifth YouTube video: Get Ready for the Tech Earnings Flood. This week is a bit of a breather. Last week ended with bank earnings and next week begins the flood of tech stock earnings. This week we’ve got Alcoa, which used to be a market indicator but that is no longer the case (thankfully, since Wall Street estimates have them at a loss of $.75 for this quarter.) Netflix is up next on Thursday, January 19. Netflix (NASDAQ: NFLX) will show +$.44 this quarter versus +$1.33 last year at this time. I think this will likely be the trend with tech stocks. Lower earnings and slower revenue growth year-over-year. 2022 has been tough for technology companies and earnings will likely be lower for the fourth quarter than in 2021. Look closely at future estimates and guidance. Where are they going from here? (the bad news for the fourth quarter is widely expected.) Microsoft will report earnings on January 24, shortly after announcing it will be laying off 10,000 employees. After that, we’ll get Apple (NASDAQ: AAPL), on January 26, and then the floodgates open with more and more technology companies announcing earnings and setting the tone for the stock market at the start of 2023.
Today I posted my two-hundred-and-twenty-second YouTube video: Caution! Technology Margin Shake-Up Ahead!
This starts off as an Apple (NASDAQ: AAPL) story. Apple recently announced that it would be moving away from using Broadcom (AVGO) chips for Wifi and Bluetooth in its iPhones, and begin using its own chips in 2023. This will of course make for better margins for Apple and speed up the company’s ability to implement new technology. This is a big blow for Broadcom which relies on Apple for 20% of its revenue. Apple also announced it’ll be moving away from QUALCOMM as they project it will have Apple chips to replace the QUALCOMM modem chips by late 2024-2025. (We’ve heard this before. And Apple had to call off the switch because of technology glitches.) You can expect more technology (and other) companies to shake up their own product designs and supply chains as they look at inflation and costs. Corporate profits have been at historic highs protecting profit margins at current levels won’t be easy.
Today I posted my two-hundred-and-twenty-first YouTube video: Quick Pick Watch Tesla This week’s Quick Pick isn’t a “buy,” it’s a “watch.” Tesla (NASDAQ: TSLA) saw its stock down 37% in December–not for the year, but in ONE MONTH. The stock is down 65% for the year. If you want to look for some support for the current low of 107, you’d have to look years back. Throughout the year there has been steady support and resistance at 206-217 but around November, the stock took a major dive and doesn’t look to be recovering any time soon. Monday, Tesla announced its delivery news for the fourth quarter of 2022. While it delivered a record 405,278 cars that was below the consensus. One of Elon Musk’s problems is he continues to over-promise and under-deliver. So while Musk promised a delivery growth of 50%, the actual 40% growth-although extremely impressive-is diminished since it missed company-generated expectations. On top of this, Tesla has announced it’s coming out with a $7500 discount in China, where sales are slumping, and the company also said it would reduce production in China. Tesla also has to figure out how to handle the lower-priced end bottom of the market where companies like GM have moved in. The Inflation Reduction Act offered subsidies, credits, and incentives to buy electric cars, but only one Tesla model made the list due to their high prices and battery packs that didn’t meet made-in-American standards. I’m not shorting Tesla after this tumble. It’s a good car company with impressive technology. But the valuation problem remains. I’ll be keeping my eye on Tesla’s share price, and you should too.
Tesla (TSLA) can’t win for winning. On Monday, while U.S. markets were, fortunately, closed, the company reported record quarterly deliveries for the fourth quarter of 2022 of 405,278 cars. Unfortunately, Tesla had convinced Wall Street to look for delivery of 420,7690 cars. So even record deliveries amount to a miss. For a third straight quarter, Tesla’s deliveries missed company and Wall Street projections. The company saw deliveries rise 40% in 2022, but that too was short of the 50% growth targeted by the company. As of the close today, January 3, Tesla shares were down 12.24%
Apple (AAPL) shares were down another 1.21% as of 3:30 p.m. New York time today, December 27. That took the stock down to its lowest price since June 2021. The worry, of course, is China where, first, shutdowns under the country’s 0-Covid policy closed factories and kept consumers out o stores, and then, second, where an abrupt reversal of that policy has accelerated a new wave of outbreaks.
The timing of these developments, though, has some advantages for Apple.
On Friday I posted my two-hundred-and-twentieth YouTube video: Quick Pick Sell MGM. This week’s Quick Pick is a little different. Normally my Quick Picks are long (buys) but this one is short (sell). This is a reaction to the terrible Covid outbreak in China right now. China went from a strict, 0-covid policy to hardly any policy at all. While their vaccine rate sounds good at 90%, a lot of that is Chinese-produced, non-RNA vaccines, which have proven to be fairly ineffective against the new Covid variants. As a result, viral projection models expect 1.1 to 1.3 million deaths over the next wave (or waves) of Covid in China. So how does that affect MGM International? Their resort in Macau, China, while recently receiving their gambling license renewal, will get hit hard by the largely self-directed reduction in travel. And the “official” policy, which is to encourage travel and work-as-usual, seems to be having the opposite effect by creating fear among Chinese citizens. Macao, following the lead of the new policies from the central government, has just about dropped its requirements for testing and quarantine. The new rules essentially say, “We just want you to come.” Instead, many people are locking themselves down in an effort to stay healthy as China’s covid problem runs rampant and the Chinese government refuses to share accurate data. I don’t want to watch this Covid disaster further hammer my position in the stock. I’ll be selling it at a loss in my Jubak Picks Portfolio (hey, harvest those tax losses for 2022), but I will look to get back in April or May if I start to see optimistic traders betting on an end to this wave of the Covid Pandemic in China.
