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Equity futures are being influenced by the investor reaction to quarterly results and guidance last night from Alphabet (GOOGL), AMD (AMD), and Microsoft (MSFT) which has those heavily weighted shares trading down in pre-market. Moves in those share prices as well as those for other Big Tech stocks since late October put a high market expectations bar in place for those companies to clear.
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December quarter results from Microsoft (MSFT) topped consensus revenue and EPS forecasts led by faster-than-expected growth for the company’s Azure and other cloud services. Microsoft’s guidance calls for its March quarter revenue to be in the $60-$61 billion range compared to the $60.97 billion consensus and the $62 billion delivered in the December quarter. Underlying that revenue guidance, continued growth in cloud is expected to be offset by a 10%-13% sequential decline in the company’s More Personal Computing segment.
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Alphabet (GOOGL) reported earnings of $1.64 per share, beating estimates by $0.05 while revenues rose 13.5% YoY to $86.31 billion versus the $85.28 billion consensus. Cloud was the standout in terms of growth as Google Cloud saw a 26% increase YoY to $9.2 billion, putting the segment on par with YouTube Ads which saw 16.5% growth to hit that same number. On its earnings call, the company noted the step-up in capital spending during the quarter reflected its “outlook for the extraordinary applications of AI to deliver for users, advertisers, developers, cloud enterprise customers and governments globally and the long-term growth opportunities that offers. In 2024, we expect investment in CapEx will be notably larger than in 2023.”
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Shares of AMD (AMD) are trading off in pre-market trading after the company’s largely in-line December quarter earnings report contained downside revenue guidance for the current quarter. For the current quarter, AMD sees revenue of ~$5.4 billion, plus or minus $300 million, compared to the consensus forecast of $5.75 billion. Inside that outlook, management sees a sequential decline in revenue for its client, embedded, and gaming segments with Data Center revenue expected to be flat sequentially.
As the market contemplates those reports and their implications, we have another barrage of quarterly results this morning and ADP’s January Employment Report at 8:15 AM ET. ADP’s findings are expected to show 145,000 jobs added during January, a slower pace than December’s 164,000 but a far faster one compared to the 98,700 average number of jobs added during September-November.
Following a wave of earnings conference calls throughout the morning, we could see investors become more cautious ahead of the Fed announcing its latest monetary policy decision at 2 PM ET. The market will be looking for the Fed’s policy statement and Fed Chair Powell’s presser comments to support its view the central bank will begin cutting rates in the next few months.
Developments in the Red Sea, the rebound in oil prices, the December core CPI report, and easing in credit conditions are some reasons the Fed could disappoint stock market doves. The likely message to be delivered by the Fed acknowledges the continued progress on inflation but notes that risks remain especially given the above trend growth in the economy. Should the Fed telegraph the start of rate cuts isn’t likely until late 3Q 2024 or early 3Q 2024, the market will need to adjust its rate cut expectations. If history holds, such a reset would bring a bout of volatility back into the market as the rest of Big Tech reports its earnings this week.
Related: The Earnings Scorecard Ahead of Big Tech Results, Model Musings