Wall Street loves winners — winners of a specific kind, that is. Winners who beat short-term earnings and profit estimates, who can tout the best quarterly financial reports.
As for the long term — especially the very long term — Wall Street seems to care little at all. Stock prices are much more likely to spike when a company’s quarterly earnings show a sudden surge than when corporate execs detail a carefully thought-out long-range plan to dominate a fast-growing technology several years from now.
That’s the lesson behind the stock market’s reaction to Microsoft’s earnings report in late July. The big news for investors? That Microsoft’s cloud-based Azure business grew “by only” 30% in the quarter, a single point less than the 31% that the company had projected.
The next day, traders punished Microsoft. The company’s stock dropped more than four points while the overall market rose — the S & P Index, for example, was up a full 86 points. And all that, even as the company reported its revenue was up 15% and net income up 10%.
Wall Street yawns at Microsoft’s big AI news
The much more important news from the latest earnings call — that Microsoft is all in on artificial intelligence (AI) and spending heavily on long-term infrastructure that might not pay for itself for years — didn’t appear to count for Wall Street, at least as measured by the company’s stock price.
Microsoft CFO Amy Hood told analysts on the call that the company’s $19 billion in capital spending was almost all related to AI and the cloud. That’s more than double what that number was two years ago, before the AI boom began in earnest. (Half the spending was for infrastructure-related costs, specifically, building the data centers required for the massive computing power AI requires.
2024-09-05 15:15:02
Link from www.computerworld.com