Microsoft benefits from strong cloud sentiment; Meta falls short on growth rate but offering remains strong

31 October 2024

If you are covering Microsoft's or Meta's latest financial results, please find below a comment from Ben Barringer, technology analyst at Quilter Cheviot:

Microsoft:
"Microsoft's FY25 results showcase impressive performance, particularly in the cloud sector, which saw a noteworthy 34% growth, with 12% attributed to generative AI. This mirrors the acceleration seen in Google's cloud business, indicating strong investor confidence in the sector.

"Despite warnings of a slight slowdown in cloud growth to around 31-32% due to data centre and Nvidia chip supply constraints, Microsoft's bookings remain robust, up 23%, reflecting sustained demand. Additionally, Bing's 19% growth outpaced Google's, suggesting a shift in market share.

"The guidance for the first half of the year is a little more conservative, with expectations of acceleration in the second half as more capacity becomes available. Capital expenditure on AI was higher than anticipated, reaching nearly £15 billion, up from £14 billion last quarter. While the bull case is that this investment underscores Microsoft's commitment to AI, the bear case is that it raises questions about the returns on such investments.

"Overall, the results are positive, and we remain optimistic about the business's trajectory."

Meta:

"Meta's Q3 2024 results have sparked mixed reactions, with the stock dipping 3% due to a 20% growth rate that fell slightly short of the 21-22% consensus. Despite this, Meta demonstrated strong profitability, with operating margins increasing by 5% to 43% and EPS surging by 37%.

"Meta's AI infrastructure investment reached £39 billion for the year, slightly exceeding the expected £38 billion. This spend indicates Meta's commitment to AI, with further growth anticipated in 2025. Google, Meta, and Microsoft have all projected increased capital expenditures in 2025, without disclosing specific figures.

"Meta's guidance of 12-20% growth is reassuring, aligning closely with the 15% consensus. The company is seen as an AI leader, leveraging AI to enhance user and advertiser experiences, particularly in predicting user behaviour. Meta continues to invest in its open-source model, Llama, with Llama 4 eagerly awaited.

"The core message is strong, with Meta offering various opportunities, if you consider the use of WhatsApp for small call centres or AI Studio for creating advertising content. In terms of valuation, Meta's stock has outperformed Google by 40% year-to-date, underscoring its robust market position."