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Carol Massar
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Carol Massar
Bloomberg Audio Studios.
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Bloomberg Audio Studios Announcer
Podcasts Radio News.
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Ivan Fineseth
This is a breaking.
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Tim Stenovec
News update from Bloomberg. Instant reaction and analysis analysis from our 3,000 journalists and analysts around the world.
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Carol Massar
Big drop of earnings as we mentioned. Really. Three of the mag seven reporting you've got Microsoft down about 3.3 and a half percent. Let's just round it up here. You've got Alphabet. It is up about 4%. So pressure on Microsoft, a rally in Alphabet and then you've got Meta. Right now it is dropping in a big way. Tim, we've got that What? Down about 6%.
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Anurag Rana
Yeah.
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Tim Stenovec
So long term Meta says it expects a significant reduction in our federal US federal cash tax payments for remainder of 2025 and future years due to the implementation of the One Big Beautiful Bill Act. But they reported net income of just 2.71 billion. That was a huge drop from last year. The company says that number would have actually been 18.64 billion if not for a one time non cash income tax charge of $15.93 billion. I want to know.
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Carol Massar
I don't understand it so well.
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Tim Stenovec
It's a one time charge. I get that they're paying it now.
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Carol Massar
Okay.
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Tim Stenovec
It reduces net income to something that looks way below what everybody thought it would be.
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Carol Massar
This charge though that's a question that.
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Tim Stenovec
We'Re going to have to ask. Ivan finds that why investors work. We're not expecting this because it's not.
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Carol Massar
Like taxes change from the year before.
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Tim Stenovec
And why matter the company that has, that has this hit and not these other companies.
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Carol Massar
That's what I'm saying. Like I understand the big beautiful, you know Bill act is going to change their tax situation going forward.
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Tim Stenovec
Why the one time hit right now but.
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Carol Massar
Right. Exactly what changed from the previous year that we're seeing all of this? So, so.
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Tim Stenovec
And they were, they were very clear. It seemed like they want to be very clear in their communication. There was like this paragraph devoted to this in the earnings release just below Mark Zuckerberg's commentary.
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Carol Massar
Right.
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Tim Stenovec
The street is not, not buying that right now.
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Carol Massar
I will also say that, you know our Kurt Wagner is pointing out. Here we go from the release. Our current expectation is that capital expenditures, dollar growth will be notably larger in 2026 and 2025. I have to say that that was one of the things I was looking at in terms of their expenses and so on have gone up about 32% year over year. And if spending even more maybe there are some concerns again about the spend, the AI spend which many say you need. You got to get ahead of all of this to meet the demand. But will that ultimately pay off?
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Tim Stenovec
Yeah, let's put some numbers there. 66 billion to 72 billion as of June. That was the 2025 CapEx guidance for the year. Things have tightened a little bit to 70 billion to 72 billion. It's coming in at the high end of the original range. But if that's what it's going to be for this year. And then the company says Capex dollar growth will be notably larger in 26 than in 25.
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Carol Massar
Right.
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Tim Stenovec
How much bigger than 70 to 72 billion dollars is it going to be.
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Carol Massar
Exactly place to the spend. I will point out third quarter ad revenue that was a beat 50 billion versus the estimate of 48.59 billion. If you recall last quarter we got to this and we saw how the company was monetizing the spend. So there are still some more questions to be known. Again I'm just going to pull up matter here in the aftermarket Folks, it's down about 6.6%. Let's also talk about Microsoft because this one also under pressure, Tim, it's down and a half percent.
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Tim Stenovec
Yeah. First quarter revenue did beat estimates Microsoft reported revenue for the first quarter or Azure and other cloud services. Revenue X facts for the first quarter that beat the average analyst estimate. Here's some numbers. 77.67 billion. That beat estimates of 75.55 billion. That was for the first quarter. Earnings per share came in at $3.72. Operating income came in above estimates at 37.96 billion. That beat estimates Carolina of $35.1 billion.
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Carol Massar
All right, let's see if the growth rate so you know, is what are. Seems like the investors are a little disappointed. As we said, the stock down 3 1/2% here in the aftermarket.
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Tim Stenovec
What the guidance on the call. Guidance on the call, yeah, that's true.
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Carol Massar
Right. And we'll find out the outlook. This stock, keep in mind, is up almost 30% year to date here in 2025. Let's head out to our Chicago news bureau. That's where we find Bloomberg Intelligence senior technology analyst Anuragrana Anurag. We want to give you a little time to stew over this. Walk us through what we've got so far from Microsoft because investors seem a little disappointed.
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Anurag Rana
I mean, I don't, I don't really find a whole lot of mistakes in this, these numbers. And you look at azure growth of 39%. I mean given that size, that's pretty good. The margins actually stood out, which, you know, way higher than what we were anticipating. We thought there was going to be pressure on margins because of all the spending. And then the lastly when you look at the CapEx number, substantially higher than the 30 billion that they talked about now in, you know, to some people maybe that's a disappointment but for us that's a good thing because I think they have so much demand coming in, they're going to add more capacity this year. This year. And that's something, you know, we have been saying for a while.
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Tim Stenovec
You know, I'll ask you the same question that I asked Angelo Zeno a little earlier and maybe it's too early to tell, maybe we won't hear anything about on the call. But the cloud race between the three biggest providers out there, Azure, Google Cloud. Is there an opportunity for Azure to get market share from companies that might have been affected by last week's AWS outage? Is that an opportunity?
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Anurag Rana
Well, typically I would say no because they are Facing the same problem today, frankly. So when you look at some of these large install bases, it's very difficult to change your applications. But what is the big opportunity, not just for Amazon or not just for Microsoft, but for all of them, including Oracle, is most companies eventually will have a backup cloud provider. They don't have it right now, but that is going to be one of the bigger growth drivers down the road after the AI boom is done, you know, so I mean from our side, the market is big enough for all of them to prosper very, very well in the coming years.
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Carol Massar
I mean, as you said, the Azure cloud computing unit posted a 39% revenue gain in the first in the quarter when adjusting for currency flux fluctuations. That did beat the street estimate of 37%. I'm reading some, you know, analysis that says, well, that was a. Disappointed, the, the expectations were high. What, what was there a whisper number in terms of growth on the street?
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Anurag Rana
No, the consensus was 37. This is what the company said. Now that is if you really want to dissect it, you know, badly then you could say, well, Google cloud growth accelerated in the quarter compared to the previous quarter. But Microsoft, it was 39. It's still at 39. But you know, they're different basis. That one's, you know, Microsoft is running at about 75 to 80 billion dollars in annual run rate. You know, Google cloud is still at 30% and yet Azure growth is higher than Google's cloud growth. So you know, I think people are probably just splitting hairs at this point.
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Tim Stenovec
Yeah, and you referenced that when you were answering my question. You referenced the, the outage that Microsoft is has having right now, this global Microsoft outage. So we should note that. Yeah, just cloud, cloud companies are cloud companies and sometimes it's AWS that has the outage, sometimes it's Microsoft that, that has the, that has the outage. Hey, the open AI question, we talked a lot about this with you yesterday and I imagine that on the call investors will have a lot of questions about, okay, this close to 30% ownership of OpenAI, the parent company of Chat GPT. What is that going to do for Microsoft?
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Anurag Rana
See, I think from our side the equity part is not what, you know, for our concern, it's really the technology that Microsoft is holding on to that's really the critical piece because you know, one of the ways we think about is they will sell more products, they will sell more cloud services using that technology than they would just on the share side of it. And that's a bigger thing for us. Because they have, you know, a hold of that for the next seven years.
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Carol Massar
Hey, one of the things I want to ask you, and I know this isn't typically your coverage but you know, you're smart and you cover all things technology, but Metta met a down almost 8% here in the aftermarket as you see this. What's, what's the, this one tax, one time tax charge? I guess we're still trying to figure this out, but is it all about that or is it just that we were caught off guard?
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Anurag Rana
See, I think that could be a lot of the noise than the number and you know, I'm very sure they're going to give clarity on that. But the big question or the overhang, Metta always is, you know, how are you monetizing you're spending all this money? Where is the revenue you show for it? I think that's where management really needs to give and address that in a much more succinct way than they have. The other side is they don't have a cloud platform just like Google does or Amazon does or Microsoft does. So, so Meta is the one that needs to explain these things far better than frankly the other three I want to bring in.
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Tim Stenovec
Ivan Findseth, Research director and Chief Investment officer with Tigris Financial partners got over $500 million in assets under management and posed that same question to him about Meta platforms. The company saying that the implementation of the one big beautiful bill act led to the recognition of a valuation allowance against our US federal deferred tax assets reflecting the impact of the US corporate alternative minimum tax. The result of one time non cash income tax charge of $15.93 billion shares Carol down 7.8%. Ivan, you've had some time to dig into this a little bit on the Meta platform side. What's going on here?
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Ivan Fineseth
Well, all right, so the big beautiful bill caused the recognition of a deferred tax asset. It's actually a non cash charge and they're. Well, it caused a spike in their tax rate 87% for the quarter. It actually goes down significantly going forward. I think this is really a non event. It's an accounting issue and, and I think any weakness is a buying opportunity in the stock because there's so many positive long term trends that will continue to drive the stock higher.
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Tim Stenovec
But is that why the stock is down right now? Because of this one time charge affecting the bottom line? Is that, is that the concern or is it what Carol brought up the idea of Capex going up next year.
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Ivan Fineseth
The spend well now we have seen investors make a mistake consistently in selling Meta Meta platforms on capital investment increases. They continue to invest in driving their AI capabilities, which drives increased user engagement. It drives increased return on ad spend investment. So I like when they continue to invest. And we've seen this multiple times. If you listen to what Mark Zuckerberg does every time he invests from the beginning, from changing the company from Facebook to better and when he was investing in mobile, the stock sold off. Now most of the people engaging in Facebook and Instagram do it on their phone. So you have to listen to him. He says what he does and he does what he says and he continues to create value. So on any weakness over the increase in Capex, and again, this is positive because there's been a fear that we're going to see this AI bubble burst, that companies are not going to continue to invest. We've seen all three companies reporting today, Alphabet, Microsoft and Meta all increasing capital in investment in AI development. And that's positive for the companies, those three companies. And it's positive for the bullish investment theme.
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Carol Massar
You know, this 15% corporate alternative minimum tax. Yeah, I'm Googling some stuff here folks, because I want to understand it. It came out of the Inflation reduction Act of 2022 and it generally applies, I think, to corporations with an average annual adjusted financial statement income exceeding $1 billion over three consecutive years. Yeah, we're all going to be learning a little bit more about this. But Tim, you keep bringing up like why, why aren't we seeing this with maybe some of the other ones?
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Tim Stenovec
Yeah. Why is Metta plot. Why are we only talking about this with regard to Metta platforms?
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Ivan Fineseth
They may be one of the ones that has the largest deferred tax asset and that has really to do with timing and expensing of things like R and D as an example.
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Carol Massar
So, you know, we're talking about a lot of things and Ivan, we want to get, you know, your view on some of the other companies that have reported Anurag, we do want to ask you though, what are you thinking that you want to. You're going to be looking for on the call going back to Microsoft, if you will, as we continue to see that one trading lower here in the aftermarket. Let me just pull it up on my Bloomberg because we do have seen some pressure here. The stock continuing, it's down still about 3.4%. Is it? What do you want to hear from this company?
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Anurag Rana
I think.
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Carol Massar
Let me, let me get an Iraq first. Forgive me, Ivan.
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Anurag Rana
All right, so the biggest thing for us is going to be, you know, what's the back half a capex spending. The capex in the first quarter was very high 35 billion compared to 30 which they guided to. We want to know what is it going to be in the the back half of the year? Are they going to slow down tremendous dramatically or is it going to keep pace at where we are right now?
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Carol Massar
All right, Anurag, we know you've got research to write. We're going to let you go and look forward to reading that. Ivan, we want to stay with you for a little bit. We are talking Ivan Fineseth, research director and chief investment officer with Tigris Financial Partners. Anuragran, of course our senior tech analyst here at Bloomberg Intelligence. Ivan, other companies that reported Metta obviously caught our attention. We just talked with Microsoft or talked about Microsoft. Anurag, what's your take on what we got from them? Because that Stock's down about 3% here in the aftermarket.
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Ivan Fineseth
Well right now we're in an environment of, you know, people have been buying these stocks ahead of results. They sell into the results. But I still say that this AI investment theme is powerful and the companies leading it are Metta, Google and Microsoft. And you got to buy on any weakness. I want to hear from Microsoft about increased AI driven Apple application engagement and subscription increases, how users are buying and implementing and using Copilot. Of course you want to see growth in all key categories like cloud, Azure.
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Carol Massar
I mean azure was up 39%. That's pretty good, right?
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Ivan Fineseth
Phenomenal. And that's their big growth engine and they have been announcing huge contracts. So has Google. Unfortunately Amazon had that outage which was, it was disappointing but didn't really set back the stock. But these are the growth drivers that the cloud hosted AI platforms.
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Tim Stenovec
Yeah, I was, I was surprised to see Amazon stock actually higher that day. I know but I think it also speaks to the power of Amazon and like you got in a good understanding of how much it has. Remember the company is investigating outages. This is Microsoft is investigating outages of Office and game applications today also. So this kind of goes both ways, Ivan, on Microsoft. One more and then we're going to get back to some more meta platforms I think. But a small 1.2% beat on adjusted diluted EPS on Microsoft. You know everybody. The company does not give guidance in the statement. It does that on the conference call. It's doing that on the conference call. Is it like worth even talk talking about it without even having it oftentimes we wait for the call to get more information, but in this case, like forward guidance coming from the call, it's kind of a moot point.
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Ivan Fineseth
Well, the disconnect in the dichotomy that exists between companies and Wall street is that companies plan for one, three and five years and Wall street wants to measure everything on a quarterly basis. I mean, the guidance, it's somewhat important, but you wanted to see consistent growth driven by their investments in technology, the adoption and use of their technology that creates their competitive advantage. And those are the key things to look at. And we are in the first inning of the world series of AI driven economic, global economic growth. And this trend is going to continue and it's going to be powerful and it's going to be game changing. And I think that AI is going to enhance and create many more jobs than it will eliminate.
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Carol Massar
Going back to the cost thing though, for Metta, you know, I'm just that operating margin, 40% for the third quarter, down from 43% last year. Is that worrisome or you think manageable?
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Ivan Fineseth
Not really.
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Carol Massar
Okay.
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Ivan Fineseth
We've looked at companies that have had huge growth trajectories while their margins were contracting. In fact, Amazon doesn't focus on margin. They focus on revenue growth. They don't focus on return on capital, actually, which is one of the key things we focus on. But they do drive a huge return. So, you know, there are times where your gross margin can contract, but your economic margin can increase. And that is the economic margin is the difference between return on capital and cost of capital. That is the most powerful driver of shareholder value creation. So it's not so much important about what happens with gross margin. It's in fact, I've seen many companies drive huge growth by lowering their growth margin because you're just becoming more competitive and they're actually making it up on return on capital.
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Tim Stenovec
Okay, we're going to talk about Alphabet with you in just a minute. Carol reminded me that shares are surging higher in the after hours. 6%. Okay, one, one more on Metta platforms down 8.4% in the after hours Reality Labs losses for the third quarter. $4.4 billion. It's about the same as one year prior. Obviously it's a huge investment area for meta platforms. In the press release, Mark Zuckerberg specifically calling out the success of the eyewear and saying essentially, I don't have it in front of me. To be essentially said, if we think the future is going to be what it is, this is going to be the most exciting moment For Meta Platforms ahead of us. These will be the most exciting years for Meta Platforms. What is the opportunity that Meta platforms has when it comes to eyewear?
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Ivan Fineseth
This is going to be a tremendous communication and interactive platform and it's only going to get better in a few years. We're going to look back on these original glasses, the ones that they've launched from Ray Ban, the recent ones from Oakley and the functionality in a few years from now is just going to be more and more incredible. But this ability to engage with real time information, to share pictures and images and videos in real time with other people that you're talking to. And while Mark Zuckerberg believes that the glasses are going to replace your, your smartphone, you're just going to keep your smartphone in your pocket and you're going to interact with data and information and people who you're communicating with with these glasses. And eventually we're going to see once that Meta just launched ones with displays, it's going to be all about having displays embedded in, in the lens so you don't even have to touch your phone. So this is going to be a huge growth. This is going to be what the cell phone was in the mid-90s.
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Carol Massar
No rose color, no rose colored glasses though right now because MetaShare is now down near their lows in the aftermarket, down about 9%.
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Tim Stenovec
I'm going to remember that Ivan said this is going to be what's, what cell phones were in the 90s. And by the way, he's not wearing any metal glasses right now.
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Carol Massar
Well, and I will say our Mark Gurman really, really likes them as well. Hey, we do have to ask you about Alphabet because we are seeing this one actually up about 6% here in the aftermarket. What do you like, what's, what's of note do you think in their release.
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Ivan Fineseth
Cloud growth, big cloud contract wins that they've had over the past few months with, with Metta, with Open Air, with other companies this, you know, that matter. Amazon and Microsoft. I'm sorry, Alphabet. Amazon and Microsoft are building the AI and cloud infrastructure that everybody is connecting to and going to continue and increasingly coming are going to be connected cars as we move through to full autonomy. So we are going to need high speed, real time, constant connectivity to the cloud and those are huge opportunities for the three major public cloud service providers, Alphabet, Google and Microsoft.
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Carol Massar
Well, and they're spending big. They're now seeing fiscal year CapEx 91 to 93 billion. They had seen about $85 billion. So hey, you got to Spend money.
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Tim Stenovec
To make money, Carol. You got to spend money to make money. That's what they say.
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Carol Massar
It's wild, right? Like the number. They also Gemini, their app now has over 650 monthly active users.
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Tim Stenovec
650 million.
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Carol Massar
650 million. Yeah. Didn't I say that? It's a lot. How do we. How do we know that this. I think. How do we know that all this spend is going to pay off? Ivan, are we still a little exuberant?
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Ivan Fineseth
Well, because the functionality we see today is going to be blown away by the functionality in the future. More and more people are going to rely on this technology for all different aspects. And I do give credit to Tom Siebel, the founder of siebel Systems and C3AI, that I believe he said it, that every company is going to be an AI company. Every company is going to use AI on all aspects of their business, whether it's to manage supply chain, manage pricing, target marketing. That the functionality is going to increase and people are going to. Just like you said when Carol, when you wanted to understand more about Mehta's tax charge, you googled it.
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Carol Massar
Yeah.
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Ivan Fineseth
And we're going to get more information. I did. Also, I like Perplexity. I looked up. It looked it up in perplexity, kind of. And I did understand what they said, but it gave me a little more detail and you know it's right, Ivan.
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Tim Stenovec
You know it's right.
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Ivan Fineseth
Yeah.
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Tim Stenovec
Is it right? What perplexity gave you back is right?
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Ivan Fineseth
Yes. Well, because I do understand that the tax that it's really the timing and chart and of managing your tax payment and your tax liability that you tend to offset through capital investment, through R and D and other types of things that happen. So it's really timing issues on how your accrued tax liability or your accrued tax asset falls versus the taxes you will eventually have due or the tax credit you will eventually earn.
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Carol Massar
I just want to know, is this Sora? Is this really. Ivan finds it, Seth. I just want to make sure it is really me. Listen, perfect guest to talk about all of this. So much coming at us, Ivan. Thank you so much. Really appreciate it. Ivan.
- [24:22]
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- [24:22]
Carol Massar
Seth, Research Director, Chief Investment Officer over at Tigris financial partners. Over 500 million in assets under management as of the middle of this year. Joining us right here in New York City.
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Carol Massar
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