Pro Perspectives 1/30/24






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January 30, 2024

We heard from two of the big tech giants today that are working on the frontier of generative AI (MSFT and GOOG).  They reported on earnings after the market close.  And we’ll hear from the two others on Thursday (META and AMZN). 

As we discussed in my last note, more important than the record revenues, and double-digit earnings growth that will come from these tech giants, will be the education gleaned from their work on, and outlook on, AI.

Indeed, the numbers today from Microsoft and Google were big.  And, indeed, we got an education on the evolution of this generative AI-driven technology revolution.     

Microsoft, now the most valuable company in the world, grew revenue by 18% and earnings (EPS) by 26%.  Google, the fourth most valuable company in the world, grew revenues by 14% and grew earnings by 56% (all compared to a year ago).

But both stocks were down after the reports. 

Why?  The financial news will tell you that Google (Alphabet) disappointed on ad revenue growth.  And Microsoft disappointed on cloud revenue growth

This is Wall Street trying to find something to scrutinize. 

Keep in mind, these are high-margin, double-digit growth companies with a competitive moat that has only grown wider with the introduction of generative AI — which happens to be a transformative growth and margin expanding catalyst.

Remember, it was only eight months ago that Nvidia’s CEO shocked the world, declaring “the beginning of the major technology era.”  He told us there was a “rebirth of the computer industry” underway, where “AI has reinvented computing from the ground up.”

With that, this is just the third quarterly earnings report for the big tech giants since that “Nvidia moment.”  And they have all reoriented their businesses around AI — a total transformation.  They are leading what Satya Nadella (Microsoft CEO) has called the “productivity revolution.”

And, as we’ve discussed in my daily notes, this is very fast moving. 

Nadella has said this is the year “generative AI will scale.” 

Indeed, both Microsoft and Google reported rapid adoption of their respective commercialized large language models last quarter.  Nadella said, half of Fortune 500 companies are already using Microsoft’s ChatGPT.