"Magnificent Seven" Companies Microsoft, Amazon, Alphabet, and Meta Just Reported Earnings. Here Are the Winners and Losers
Key Points
All four of these companies continue to guide for increased capital expenditures.
The cloud providers all reported strong results.
Wall Street has high expectations and is clearly signaling that high capex should be met with blowout results.
Four "Magnificent Seven" companies reported earnings after the market closed on April 29, resulting in a busy night and day, as investors parsed through the reports to determine winners and losers.
The broader market also had an interesting response today, with the Dow Jones Industrial Average blasting higher by over 700 points, while the Nasdaq Composite rose marginally, as of X p.m. ET.
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The four companies that reported last night were Microsoft, Amazon, Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), and Meta Platforms. Here were the results:
- Microsoft reported adjusted earnings per share (EPS) of $4.27, beating Wall Street consensus estimates by $0.21. Revenue of $82.89 billion beat estimates by $1.5 billion.
- Amazon reported EPS of $2.78 beat estimates by $1.10. Revenue of $181.5 billion beat by over $4 billion.
- Alphabet, the parent company of Google, reported adjusted EPS of $2.62, missing estimates by a penny. Revenue of nearly $110 billion beat estimates by $2.7 billion.
- Meta reported adjusted EPS of $7.31, beating estimates by $0.52. Revenue of roughly $56.3 billion beat estimates by $860 million.
While some companies beat estimates by more than others, there are clearly other factors impacting the market's reaction to these earning prints. Here are the winners and losers.
Companies that spend big need to show even bigger results
As of this writing, the market had rewarded Alphabet, sending its stock up nearly 8%. The other three stocks were all in the red. Amazon was down roughly 1.7%, Microsoft was down 5%, and Meta was down nearly 9%.
All four companies raised their capital expenditure guidance for the year, signaling that investments in AI infrastructure are not slowing. The cloud providers also reported staggering growth. Microsoft said its Azure cloud business saw revenue surge nearly 40% year over year, above estimates.
Amazon Web Services (AWS) reported revenue growth of 28%, 200 basis points (2%) above estimates. Google took the cake, reporting cloud revenue up 63% year over year, ahead of Wall Street's 47% growth estimate. Google Cloud's backlog also nearly doubled to $460 billion.
While this is certainly positive for the artificial intelligence sector as a whole, AI-capex investments are also starting to really eat into free cash flow (FCF), which is why the bar is seemingly set so high.
In the quarter, Amazon reported FCF of roughly $1.2 billion, down from nearly $26 billion a year earlier. Meta increased its FCF by about $2 billion year over year, but capex has really cut into it, and the company spent less on capex than analysts expected in the quarter, yet still raised its full-year capex guide.
Meta also reported a 20 million decline in users across its platform from the prior quarter, due to "internet disruptions in Iran, as well as a restriction on access to WhatsApp in Russia." Management also said that damages from lawsuits associated with "youth safety" could be material.
Winners and losers
Wall Street is no longer willing to be lenient on this massive capex spend. The message is clear: if you are going to spend big, you'd better blow out earnings.
Google clearly did this most emphatically. Google Cloud now accounts for 18% of the company's revenue, and it is also seeing strong sales from its custom chips. "Google Cloud is differentiated because we are the only provider to offer first-party solutions across the entire enterprise AI stack," CEO Sundar Pichai said on Alphabet's earnings call.
Meta raised its full-year capex guidance but expects second-quarter revenue to be in line with consensus estimates. Not going to cut it in this environment.
The one stock I think is being oversold today is Microsoft, which reported better Azure growth and said Copilot seats increased by 5 million in the quarter to 20 million overall. Maybe it's not ChatGPT-like growth, but it's still strong growth. The company also guided for Azure revenue growth of 39% to 40% in the current quarter, which is also very strong, given the size of the business.
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Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool has a disclosure policy.
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