Microsoft Drops Most Since 2020 Amid Slowing Cloud Growth

Summary

Bloomberg Intelligence Podcast: Episode Summary

Episode Title: Microsoft Drops Most Since 2020 Amid Slowing Cloud Growth
Air Date: January 29, 2026
Hosts: Paul Sweeney, Scarlet Fu
Featured Analysts: Anurag Rana (Tech), Mandeep Singh (Tech/Meta), Steve Mann (Autos), Chris Giano (Machinery/Caterpillar)

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Episode Overview

This episode delivers a deep-dive into major market news, focusing on Microsoft’s surprising stock drop despite strong cloud growth alongside fresh earnings from Meta, Tesla, and Caterpillar. Through in-depth conversations with Bloomberg Intelligence analysts, the hosts break down investor expectations for tech giants, CapEx strategies, artificial intelligence developments, and sectoral performance across tech and legacy industries.

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Key Discussion Points & Segments

1. Microsoft’s Cloud Growth and Market Reaction

Guest: Anurag Rana, Bloomberg Intelligence Tech Analyst
[00:40 – 04:58]

• Headline: Microsoft’s cloud revenue grew by 38%, but shares tumbled 12%.
• Investor Sentiment: Despite standout growth, even slight deceleration (from 39% to 38%) and guidance for 37–38% growth spooked investors.
• Capacity Allocation: Microsoft’s AI-powered products (GitHub Copilot, M365 Copilot) and internal R&D compete for cloud capacity.
• CapEx Scrutiny: Microsoft’s CapEx grew 66%, raising concerns as cloud revenue grows in the 30% range. Rana dismisses worries, trusting Microsoft’s strategic investments in R&D for long-term gains.

Notable Quotes:

• "If they allocated all the GPUs to Azure, they would have grown north of 40%." — Anurag Rana [01:28]
• "I think it’s a bit silly, to be very honest with you… 38% growth is not a bad number." — Anurag Rana [01:58]
• "They’re doing whatever is right for the Microsoft product families… By 2032, they will lose the IP they get from OpenAI—they need their own models by then." — Anurag Rana [02:48]
• "I feel very comfortable with the capex that’s driven by the three large hyperscale cloud providers." — Anurag Rana [04:01]

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2. Meta’s Earnings and AI Ambitions

Guest: Mandeep Singh, Global Tech Research Head, Bloomberg Intelligence
[06:21 – 10:48]

• Revenue Growth: Meta reported >30% top-line growth, outpacing smaller peers.
• AI in Advertising: Meta’s core advertising business is leveraging AI, yielding stronger ad conversions even without launching new AI consumer products.
• CapEx and Product Hints: Investors rewarded Meta’s CapEx hike due to robust core business performance and anticipation of AI-integrated features.
• Future AI Roadmap: Details remain scarce, but ambitions for AI assistants embedded in core apps (Facebook, Instagram) are teased, requiring a leap of faith from investors.
• Comparison with Peers: Meta’s success highlights underperformance and lack of AI application by smaller ad platforms (Pinterest, Snapchat, Reddit).

Notable Quotes:

• "It’s hard to find a business in the Mag 7 that’s growing 30% top line at the revenue base that Meta is at." — Mandeep Singh [06:51]
• "All the AI ad conversions that they are seeing… they’re applying AI and GPU clusters to the existing ad stack." — Mandeep Singh [08:08]
• "Their standalone app, Meta AI, doesn’t have any usage right now... but we’ll have something different in terms of content." — Mandeep Singh [08:56]

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3. Tesla’s Expansion, Robotics, and XAI Investment

Guest: Steve Mann, Global Autos Analyst, Bloomberg Intelligence
[11:09 – 15:09]

• CapEx Commitment: Tesla to spend $20B revamping production lines for cars, batteries, and robots.
• AI Returns: Past AI spend is translating into clearer business returns, notably in Robotaxi plans, with a rollout mapped out for nine cities.
• Chip Manufacturing: Tesla eyes vertical integration with an in-house semiconductor factory, aiming to control costs and secure supply amid geopolitical risk and rising chip demand.
• Optimus Humanoid: Tesla is prioritizing robotics, converting Model S/X lines for robot production. Commercial viability is still years away, though internal usage is imminent.
• XAI Investment: $2B committed to XAI. GROK, their AI assistant, is functional within Tesla vehicles and expected to personalize RoboTaxis, justifying the investment.

Notable Quotes:

• "The AI investments that they have made… it’s actually being converted into returns." — Steve Mann [11:42]
• "They want to ensure there’s a source [for chips] and make sure that the technology stays in house." — Steve Mann [12:44]
• "Grok, which is part of XAI, is already in their vehicles… as RoboTaxi rolls out, they want to personalize those RoboTaxis and GROK through XAI is the perfect tool." — Steve Mann [14:29]

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4. Caterpillar: AI’s Unexpected Winner

Guest: Chris Giano, Senior Machinery Analyst, Bloomberg Intelligence
[15:30 – 21:16]

• Unexpected Tech Play: Caterpillar’s Q4 boost attributed to power generation equipment for AI data centers.
• Order Uptick: Q4 saw a record order backlog with >70% rise in orders, reflecting both a cyclical recovery and secular data center demand.
• Global Reach and Cyclical Recovery: Broad-based momentum in power, construction, mining. Production capacity for large engines is doubling through the end of the decade due to AI/data center demand.
• Tariff Headwinds: Tariffs weighed on margins, costing $1.67B in 2025 and expected to rise to $2.6B in 2026. Company is holding off on price hikes to gain share.
• Growth Outlook: Caterpillar forecasting 5–7% annual revenue growth; analyst suggests this may be conservative due to a strong backlog and end-market recovery.

Notable Quotes:

• "The real standout… was really the unprecedented order and backlog growth that we saw." — Chris Giano [16:01]
• "They’re going to be more than doubling their large engine capacity through the end of the decade." — Chris Giano [17:24]
• "Tariffs… were roughly $1.67 billion headwind in 2025, and that’s going to step up in 2026 to about $2.6 billion." — Chris Giano [19:08]
• "At their Analyst Day… a 5–7% revenue CAGR target through the end of the decade… we actually think that might end up being a little conservative." — Chris Giano [20:38]

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Highlighted Timestamps

| Segment | Guests/Hosts | Timestamps | |:-------------------------------------- |:--------------------- |:------------ | | Microsoft’s Cloud Growth & Meta Preview| Paul, Anurag Rana | 00:40–04:58 | | Meta’s AI Strategy & Peer Comparison | Paul, Mandeep Singh | 06:21–10:48 | | Tesla’s CapEx, AI, XAI & Robots | Paul, Steve Mann | 11:09–15:09 | | Caterpillar as an AI Data Center Play | Paul, Chris Giano | 15:30–21:16 |

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Memorable Moments

• Microsoft’s Azure growth vs. investor expectations: Anurag Rana dismisses market panic over “merely” 38% growth as “a bit silly” [01:58].
• Meta’s quietly powerful AI advertising execution: “They’re able to do it when Pinterest, Snapchat, Reddit are not even able to grow 20%.” — Mandeep Singh [08:32]
• Tesla’s vertical integration drive: “They want to ensure there’s a source and they want to make sure that the technology stays in house.” — Steve Mann [12:44]
• Caterpillar’s unlikely AI data center surge: “I bet you didn’t think early in your career that Caterpillar would be a tech play.” — Paul Sweeney [15:33]

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Takeaways for Listeners

• Tech Giants and Expectations: Even stellar numbers (like Microsoft’s 38% Azure growth) can be punished if they don’t surprise or accelerate.
• CapEx Focus: Investors are hawkish, scrutinizing big spending by Microsoft, Meta, Tesla—looking for clear visibility to future returns.
• AI Thread Across Sectors: Both tech firms (Meta, Tesla) and industrial stalwarts (Caterpillar) ride the wave of AI-driven demand in complementary ways.
• Execution Matters: Meta’s use of AI in core advertising delivers outperformance, even as it teases—but doesn’t detail—future consumer AI products.

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This summary distills the core content of the episode with timestamped highlights, analyst insights, and contextual takeaways. Perfect for catching up on the market’s shifting expectations towards tech, AI, and industrials—even if you missed the original broadcast.

Transcript

[Paul Sweeney]

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[Podcast Host / Bloomberg Announcer]

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[Paul Sweeney]

Tech stocks are really in focus. The NASDAQ Composite index, Paul, is down two and a quarter percent. The max seven names began reporting yesterday and it's really a split view here when it comes to those big, big tech names. And another one is on the docket tonight. You've got Apple reporting this evening at 4:30pm Wall street time. And of course we know that the latest Apple iph. So this is a huge quarter for the company. Anuragrana is our technology analyst and he covers all things big tech.

[Paul]

Anurag, Microsoft here. I mean it's north of a $3 billion $3 trillion market cap company puts up 38% cloud revenue growth stock down 12%. What's going on?

[Anurag Rana]

Yeah, I think that's really what you're saying is, you know, last quarter the, the growth rate of Azure was 38 or 39. This quarter was 38. They've guided to 37 to 38 and that's not good enough for investors. So I think that's really what it is. And they said it on the call that if they allocated all the GPUs to Azure, they would have grown north of 40%. What's happening right now within Microsoft is the cloud capacity that they have built and they've done a very good job about it in the last 12 months. They're allocating it differently, whether it's their GitHub copilot, which is the coding agent, or the M365 copilot, their Azure business and also internally for their R and D. And that if you, if you can only have this much capacity, you can, you know, you will realize the revenue only on the Azure side. And I think that's where the mismatch is. The biggest question people are asking is, well, the CapEx is growing in the 60s, but their cloud revenue is growing on the 30th. I think it's a bit silly to be very honest with you. You know, they know what they're doing in terms of R and D for future growth. But frankly from our side, 38% growth is not a bad number.

[Paul Sweeney]

No, it's hard to, to, to hold your nose at that. But is this a company that, you know, gets worried about this kind of market reaction or like you said, they're confident in their strategy overall, they're going to move forward with this regardless of whatever message investors might be trying to send?

[Anurag Rana]

No, I don't think they will change their strategy. I mean they have to, they are doing whatever is right for the Microsoft product of families. They and because you think about it this way, in seven years, by 2032 they will lose the IP that they get from OpenAI. They need their own models by then. They have to have it. So if they're going to put some R and D dollars to take care of that, so be it. I mean, I don't think that's a problem. They will be. They are actually even now one of the bigger beneficiaries of all the Genai spending that's out there. You know, it will all come back to the cloud, whether it takes a year, two years. I don't think that's a problem from a long term point of view.

[Paul]

How about capex? We saw Meta put a huge capex number up there, way above where the street was forecasting here from Microsoft. Their CapEx up dramatically as well, up 66% from the year earlier. How do you think about CapEx or how's the market thinking about CapEx?

[Anurag Rana]

So it depends on who's spending the CapEx. So when we think about it, the three most important companies in our view is Amazon, Google and Microsoft because they have really strong cloud business that can monetize it. How Meta monetizes it I don't know. And frankly the reason for that is because they are saying they're going to drive more engagement internally with their products but they don't have a cloud business that can monetize it. Their model is not being bought by Apple to put it in the operating system. So I have no idea what the future for that capex is but I feel very comfortable with the capex that's driven by the three large hyperscale cloud providers because they, we know the business that they're in and where the monetization is going to happen.

[Paul Sweeney]

Okay, before we let you go, just a quick recap of what happened with IBM. Good enough for an almost 5% gain. What were investors responding to?

[Anurag Rana]

Yeah, I think it's again a game of low expectations. That's where the revenue growth rate was better. They came at the total revenue growth was 9% but the software division was around 11%. So I think that's really the benefit. But think about it. Service now down so big their growth rate was in the twenties. Microsoft same thing. So it's all a matter of relative expectations, you know today.

[Paul]

Stay with us. More from Bloomberg Intelligence coming up after this.

[Paul Sweeney]

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[Podcast Host / Bloomberg Announcer]

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[Paul]

It's been tech here. We had a lot of tech numbers after the close yesterday. One of the ones that just I think surprising people is just is Microsoft and we talked about that with Anuragrana Metta. We want to talk about Metta as well here. Mandeep Singh joins us, Global tech research head for Bloomberg Intelligence, joining us live here in our studio. Their top line came in better than expected, gave a pretty strong forecast for the current period. So from a revenue perspective the story seems very much on track. What'd you take away, Mandeep?

[Mandeep Singh]

Yeah, I mean it's hard to find a business in Mag 7 that's growing 30% top line at the revenue base that Meta is at. And that probably explains why they got a green light when it comes to the capex increase they had in their guide. Mark was asked a number of questions around large language models and what he's doing and his answer was I don't have a ton of clutch in terms of what those products are going to look like. All I know is we have a great team. We have all the compute. In fact, they're renting compute from third party new cloud providers because they feel they've got a lot of ideas and they'll be launching a lot of new products this year. So that's what got everyone excited.

[Paul Sweeney]

Right. But they didn't give any details on these new products or services and it's.

[Paul]

Up seven and a half percent.

[Paul Sweeney]

Right. So I wonder, is this just. He was able to, to craft a better tale, a better story than he had in the quarters past.

[Steve Mann]

Yeah.

[Mandeep Singh]

And look when you are raising your guide. So consensus was 25% growth for 1Q. They said we'll do 33% at the high end.

[Paul Sweeney]

But no details?

[Paul]

No, well that's, that's just core advertising revenue.

[Mandeep Singh]

Core advertising. And they said this quarter. So they beat this quarter, fourth quarter's print by 200 basis. They attributed that to, you know, all the AI ad conversions that they are seeing in the current. So without even launching an LLM or a new product, they're applying AI and GPU clusters to the existing ad stack.

[Paul Sweeney]

Execution.

[Mandeep Singh]

It is execution and they're able to do it when Pinterest, Snapchat, Reddit are not even able to grow 20%. So that's the difference between, you know, a company like Meta and what the smaller digital ad companies are doing.

[Paul]

Can that be their AI story or does the market longer term want to see new products?

[Mandeep Singh]

Absolutely.

[Paul]

And what would those be?

[Mandeep Singh]

Well, AI Assistant and there were references of, you know, meta's AI is going to look different from the leading frontier models like OpenAI or you know, Gemini. So they, their standalone app, Meta AI doesn't have any usage right now. So you compare that to a Gemini and ChatGPT. Nobody uses Meta AI. But what they're saying is we'll have something different in terms of the content, what you can do with meta AI and you have to take a leap of faith with Mark Zen.

[Paul]

Would that be embedded in Facebook in the gram. That's what the kids call it, the gram insta. It'll be embedded in those apps and that will be the use case.

[Mandeep Singh]

I mean imagine Facebook groups, they've got so many users. If you have meta AI that actually works. How many things a user can ask a meta AI when you are reading the group notes or something like that. So it can be very conversational and that's where the audio part, the text chatbot part, all that would be customized to the family of apps.

[Paul Sweeney]

So when it comes to the advertising business, I wonder if what Meta told us based on how it's implementing AI might inform how a snap, a Pinterest, a Yelp or Reddit might harness that technology as well because you look at the share price reaction in those stocks and it's pretty mixed. Reddit is little change, but all the other names are down, I think.

[Mandeep Singh]

I mean there is nothing that's stopping a Pinterest or a Snap from applying AI to their ad ecosystem. So to my mind, in fact, Matter called out E Commerce specifically as a vertical where they're seeing the most traction in terms of ad conversions. And these are companies, smaller ones. Pinterest is heavily exposed to E Commerce, so to my mind they should come out with a print where they also talk about some benefits of leveraging AI in their ad stack.

[Paul]

Stay with us. More from Bloomberg Intelligence coming up after this.

[Podcast Host / Bloomberg Announcer]

You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app Listen on demand wherever you get your podcasts or watch us live on YouTube.

[Paul]

Tesla reported numbers Last night, the things that jumped out of focus is Tesla said it will spend over $20 billion on a dramatic reshuffling of factory lines to ramp up production of cars, batteries and robots across the half a dozen plants. A lot going on at Tesla as usual. Let's get the latest analysis there from Steve Mann covers all the autos companies globally for Bloomberg Intelligence is down there in Princeton, home of the best Bloomberg lunch, I'll tell you that right now. Steve, talk to us about Tesla. What's going on there with Elon? How's he shuffling up this company?

[Steve Mann]

Yeah, Paul, I think what stood out for me was really that the AI investments that they have made in the past few years, it's actually being converted into returns and that visibility of that return is much better. After the call, you know, they actually codified and put in black and white in their presentation the rollout plan for the Robotaxi. And you know, they're looking to roll out into nine different cities, mostly in the south in the first half of this year.

[Paul Sweeney]

Okay, so some visibility is always great when it comes to Tesla because so much of the story driving Tesla is Elon Musk's storytelling skills and capabilities here. Tell us a little bit more about what Elon Musk said when it comes to Tesla needing to build its own semiconductor factory. I mean we're just getting our head around the cars and the, you know, the self driving vehicles, AI robotics. And now we're talking about chip making.

[Steve Mann]

Yeah, that's, that's, that's the, that's the Tesla business model. They, they are vertically integrating, they're looking at the whole supply chain, whole value chain to see where they can cut costs. But the other thing that, you know, Elon Musk mentioned is geopolitics, that that plays a role in why they want to build their own chips. But the other thing is there is a huge demand for chips across the board. AI chips, memory chips. We already are seeing some shortages on memory chips in the automotive supply chain. So it's not a surprise that they, they're going vertical. They want to ensure there's a source and they want to make sure that the technology stays in house and they have control of that technology.

[Paul]

Optimus Humanoids, what is that and is that something that's going to be material for this company?

[Steve Mann]

Yeah, according to what the company is saying, they are making progress. They're going to launch the next version of the humanoid robot. They're actually stopping the Model S and X production and sales. It's pretty low anyway and converting that factory to two minute robots. But we still think it's years away. I think for it to be commercially viable and interest from the marketplace, it's probably won't build, won't be until the end of the decade, but they will use some of that robot within their own factories.

[Paul Sweeney]

Steve, what about Tesla sinking another $2 billion into Elon Musk's own startup, the X AI, have we, I mean, do people have a way of seeing whether that has a return on that investment? I mean, is it just money that goes in that one direction?

[Steve Mann]

Yeah, there seems to be a lot of confusion in market but to me is actually a right thing to do because first of all Grok, which is part of xai, it's already in their vehicles, operating in their vehicles as a navigational assistant and then as robo taxi rolls out, I think they want to personalize those robo taxis and GROK through XAI is the perfect tool to do that system to do that. So if Tesla is going to use the services from XAI, I think they need to pay for it. So $2 billion investment into XAI makes sense.

[Paul]

Stay with us. More from Bloomberg Intelligence coming up after this.

[Podcast Host / Bloomberg Announcer]

You're listening to the Bloomberg Intelligence podcast. Catch us live weekdays at 10am Eastern on Apple CarPlay and Android Auto with the Bloomberg business app. Listen on demand wherever you get your podcasts or watch us live on YouTube.

[Paul]

Are you looking for an AI stock? How about this one? But you didn't think about this one. Caterpillar got an earnings boost from selling power generation equipment to AI data centers in its fourth quarter. Quarter stocks trading up today it's hitting a 52 week high. How about that Chris Giano, he covers Caterpillar and all those other construction companies, manufacturing companies, senior US machinery analysts for Bloomberg Intelligence. So Chris, I bet you didn't think early in your career that Caterpillar would be a tech play. Talk to us about their quarter.

[Chris Giano]

Yeah, no, certainly not. And you know it was one of the, I think the top performers last year in the market and certainly off to a good start this year. Quarter was solid beats both on the top and bottom line really driven by higher than expected volume in their power and energy business as you alluded to. But I think the real standout and the takeaway this quarter was really the unprecedented order and backlog growth that we saw. Now we came into the quarter with backlog already sitting at a record level but we saw orders increase more than 70% which drove nearly a third 30% increase sequentially in the backlog. And what's encouraging, it seems that it's pretty broad based. It's not just the data centers and it's construction starting to contribute, mining starting to contribute. So you're really starting to see a lot of momentum starting to build moving into 26 as we get these not only the cyclical recovery start to materialize but also the secular tailwinds kind of converging here.

[Paul Sweeney]

So it sounds like a number of different drivers and do they all move to their own timeline in terms of that cycle? You know they're all kind of hitting their stride at the same time.

[Chris Giano]

Yeah, I think as we go into 26 you are starting to see those, those cycles converge. The more cyclical mining and construction businesses have kind of been bouncing along trough for a couple of years now. We're finally starting to see some stronger order activity and activity momentum building on the non res and even on the residential side in North America mining you're starting to hear of some more projects on copper and gold and then obviously they can't add capacity fast enough when it comes to power generation. They're going to be more than doubling their large engine capacity through the end of the decade. So that's more of a supply constraint as we look here, at least in the near term.

[Paul]

Chris so when you talk to institutional investors about your group, do people just buy the group that is machinery construction and when the cycles are coming together and then sell them when they're not or do I have to be real bottoms up on individual companies?

[Chris Giano]

You know it varies and I think it is becoming a little bit more bottom up. You know, historically, for example, trucks. Right. You'd always buy when truck orders were at their worst. And bottoming, that's a short cycle business. You'd kind of pile into those names at that point in time. AG is a little bit idiosyncratic in terms of how those cycles work and a little bit detach from your traditional economic cycles in that it's more driven by crop prices and farmer incomes and then construction equipment. Certainly a more cyclical GDP type play. But what you're seeing now is you're starting to see some divergence between, you know, those names that have the data center AI exposure like the Caterpillars and the Cummins of the world. And those have really outperformed over the last 12 months because of their exposure. Where a lot of the other machinery names just aren't as levered to the. To the data center play.

[Paul Sweeney]

How exposed is Caterpillar to tariffs? I mean there are some tariffs in place and there is on a daily basis threats of new tariffs being put in place.

[Chris Giano]

Yeah, if you want to pick apart one negative in the quarter, it was the tariffs. They did come in a little bit higher than we expected. And it continues to weigh on margins, particularly in the construction and mining businesses. Tariffs in aggregate were roughly $1.67 billion headwind in 2025. That's going to step up in 2026 to about 2.6 billion. We've really seen Caterpillar kind of hesitant to push price to start to offset these. I think that's really been a concerted effort to try to gain market share, particularly as we are at a softer part in the cycle. I think pricing is going to become much more of a contributor as we look into 26. Right now they're guiding to about a 2% contribution on the pricing side. But I won't be surprised to see that go a little bit higher, particularly as some of their end markets start to recover.

[Paul]

Those front loaders, dump trucks, all that kind of stuff. Where do they actually manufacture this stuff?

[Chris Giano]

All over the world. Right. They are the largest equipment producer globally. They have a pretty extensive manufacturing footprint here in North America. But. But it is a very global business and they certainly have a market leadership position in most of the products that they sell.

[Paul Sweeney]

I know we like to look at Caterpillar as kind of this barometer for global GDP because it's so exposed to all over the world. Did the company say anything in regards to what it is anticipating for growth for this year? Like hot spots and maybe slower parts of the world.

[Chris Giano]

Yes. So they put out back in November at their Analyst Day a 5 to 7% revenue CAGR target through the end of the decade. They're kind of guiding us to 26 being kind of towards the top end of that range. So think 7% plus type growth. We actually think that might end up being a little conservative just given the strength that we're seeing in the order book, just given that the backlog continues to sit at a record level. So we have really extended production visibility here for 2026. So I, I actually think that outlook could be a little bit conservative, particularly as we continue to see a lot of their end markets come off the trough.

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