AI Curse and Blessing
All eyes turn to the next $500 target when discussing Microsoft's ability to accelerate its long-term rally on markets. In this context, a moderate price gains were initially detected on Wednesday at the very first moment after announcing another historically record levels at $3.3 of quarterly profit per share on even better than expected 16% annual surplus in sales, also beating all-time highs at $65.6 billion from July to September vs the most encouraging peak at $64.7 billion in the previous quarter. Azure, Microsoft's cloud business, added 33% YoY above consensus estimates of around 32%. However, the company's own guidance for potentially slowing cloud business progress in the current quarter was a key to a nearly 4% drop in market values afterwards, so that immediate price corrections hit $415 per share in the pre-market trading activity on the last day of October, vs $432.50 as the last daily close before the news.
The unfortunate sentence by Microsoft chief financial officer Amy Hood, which a picky crowd didn't like, foresees fiscal second-quarter Azure revenue growth of 31% to 32%, instead of 32.25% expected on average by the Wall Street's pool of analysts, after it’s slowed from its maximum speed of 35% just one quarter before now. She added that the CapEx (capital expenditures), which already came at $20 billion per quarter, is going to expand more due to ongoing investments into building out more powerful data centres based on AI capacities. From our point of view, large cash investments to consolidate the clear success of Azure cloud division's closer partnership with ChatGPT-maker OpenAI seems justified as the entire pattern of previous expenditures of this kind has really paid off. Moreover, Microsoft is happily optimizing costs in other parts of its business, which is justified by an overall increase in marginality.
Therefore, we feel that a shy and jumpy wing of the market, fearing a decrease in Microsoft profits because of somewhat rising costs for artificial intelligence, which is undertaken by the flagship of the industry, is surely not the majority. All temporary price dips, which are still leading to a discounted value of the world's number one company in terms of market caps, will be repurchased very soon, if not during the next couple of weeks. The negative dynamics may be short-lived, even though the technical correction has some chance to retest a one-month low at $408.17 or even dive slightly below a two-month low at $400.80 under certain circumstances, as the move down may coincide with a wave of U.S. election vulnerability. In the same way, a part of investors was focused on elevated AI expenditures at Meta Platforms, when the Facebook father Mark Zuckerberg noted the spending was showing "strong momentum", when highlighting his brainchild's "significant" surge in capital investments in 2025 to run the wider and modernized AI infrastructure. Yet, we continue to believe in the new heights well above $600 for Meta, as well as returning to an uphill climb to the round figure of $500 by Microsoft.
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