Investing.com -- Here is your weekly Pro Recap on the biggest headlines out of tech this week: huge earnings beats at Alphabet, Meta, and Intel - and a spending warning from Microsoft.
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Alphabet beats on strong ad and cloud growth; appoints CFO as chief investment officer
Alphabet (NASDAQ: GOOGL ) (NASDAQ: GOOG ) shares were riding high after the search giant said Tuesday that it earned $1.44 per share on a top line of $74.6 billion in the second quarter , driven by advertising growth and robust performance in its cloud business.
Analysts polled by Investing.com had expected EPS of $1.34 on revenue of $72.82B.
Google Advertising climbed 3.2%, to $44.68B, with Google Search & other rising 4.8% to $40.69B; Google Cloud was up 28%, to $8.03B, ahead of analyst estimates of $7.87B.
The company also said CFO Ruth Porat will assume a newly created role of chief investment officer, starting in September, which will put her in charge of Alphabet’s "Other Bets" investments.
After the results, research firm Bernstein highlighted the Search beat and "solid progress" on the AI front, commenting: "A clean quarter. Balanced risk/reward from here for a company steadily improving top-line while all-in on an expensive AI endeavor."
Goldman Sachs hiked the price target by $12 to $152 per share on Buy-rated GOOGL stock, writing:
While some questions remain around AI’s impact on core products or cost structure, we continue to see Alphabet as a leader that is well positioned to capitalize on a consumer/enterprise computing shift across multiple platforms/products.
GOOGL shares closed the week up 9% to $132.58.
Microsoft tops estimates but warns of rising capex for AI investment
Microsoft (NASDAQ: MSFT ) beat on earnings for the second quarter, but shares lost ground after the company warned that capex should rise over the next several quarters in a race to meet strong AI demand.
“For FY '24, the impact will be weighted toward H2. To support our Microsoft Cloud growth and demand for our AI platform, we will accelerate investment in our cloud infrastructure,” CFO Amy Hood said on the earnings call.
For Q2, Microsoft announced EPS of $2.69, better than the $2.55 consensus, on revenue of $56.2B vs. expectations of $55.44B.
“Organizations are asking not only how – but how fast – they can apply this next generation of AI to address the biggest opportunities and challenges they face – safely and responsibly,” said CEO Satya Nadella.
Bank of America says the expensive AI investment cycle is "justified given opportunity," adding that it views the results "as validation that Microsoft is ahead of the curve in AI. AI-enabled offerings across Azure and Office are likely to drive meaningful uplift to revenue and operating income at scale."
Goldman Sachs believes the near-term debate will center on when these investments will ultimately pay off:
Microsoft has a strong track record of proving that its capex acceleration is owed to increased business confidence. ...Furthermore, Microsoft is poised to deliver double-digit revenue and earnings growth despite a step-up in CapEx and ~200bps of GM decline in FY24.
Shares closed down 3.7% on Wednesday and were off 2.2% for the week, closing Friday at $338.37.
Meta (NASDAQ: META ) surged after the company said it earned $2.98 per share in the second quarter - $0.07 better than the Street had anticipated - on above-par revenue of $32B, driven by a 12% year-over-year jump in advertising revenue.
The Facebook operator also projected Q3 revenue of $32B to $34.5B, exceeding the $31.2B consensus.
Daily active users (DAUs) on Facebook rose 5% to 2.06B, while monthly active people (MAUs) climbed 3% to 3.03B.
The results come as Meta has continued to make progress on its "year of efficiency" pledge in 2022, and as advertising revenue climbed 12% to $31.50B. Meta increased its total expenses forecast "due to legal-related" costs while cutting its capex forecast. It also committed to continue hiring in key areas.
After these results, Morgan Stanley hiked Meta's price target by $25 to $375 per share, writing:
META's AI investments continue to drive higher engagement, advertiser return, platform monetization and EPS. And the product pipeline is flush with a September AI event catalyst.
Bernstein was very bullish, as well, writing:
They've simply done everything right: revenue and [free cash flow] growth keep surpassing even the most ambitious expectations, and they continue to build for the future... which is what we always wanted our Internet companies to do.
UBS raised its price target by $65 to $400, citing September's Meta Connect virtual reality conference as a "likely positive catalyst" and citing new generative artificial intelligence (AI) announcements pointing to "the next leg to the bull case." BofA similarly believes the company's "growing AI capabilities" could drive its multiple higher.
Shares were up 10% for the week to $325.48.
The surprise results came as the PC market began recovering from the post-pandemic hit it took over the past year, and Intel did see a 15% decline in revenue overall.
But CEO Pat Gelsinger said these results "exceeded the high end of our guidance as we continue to execute on our strategic priorities, including building momentum with our foundry business and delivering on our product and process roadmaps."
For the third quarter, Intel expects revenue in the range of $12.9B-13.9B, the midpoint of which is slightly better than Wall Street's $13.23B consensus. Adjusted EPS is seen at $0.20, well above analyst expectations for $0.13.
Bernstein lifted Intel's share-price target by $2 to $34, reflecting "quite strong" results, but kept its Market Perform rating on the stock. The analyst added, "We admit to warming (very slightly) to it, but there is more than enough here to keep us sidelined for now."
Barclays also raised Intel's price target by $2, although the firm also remains quite cautious on the stock and stayed at Equalweight, commenting: "[Intel] beat low hurdle on a quicker PC recovery but see little catalyst for growth and a hard transition roadmap to navigate."
Intel shares were up 8.8% to $36.83 for the week.
Yasin Ebrahim, Senad Karaahmetovic, and Davit Kirakosyan contributed to this report.
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