Instant Reaction Earnings Roundup: Microsoft, Meta & Tesla Deliver Results

0:01Bloomberg Audio Studios Podcast Radio News. This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3 ,000 journalists and analysts around the world. Carol Masser along with Tim Stanovic live in our Bloomberg Interactive Broker Studio. As we mentioned, those big three of the mag seven reporting. Right now, Meta is up about four and a quarter percent. Microsoft down about five percent off its aftermarket lows. Tesla has also bounced back. I want to bring in Bloomberg Intelligence Senior Technology Analyst Anurag Rana. He joins us in Bloomberg's Chicago Bureau. Microsoft down 5 % right now.

0:46Taking a look at some of the headlines, Anurag, that crossed. I know you've only had a few minutes to actually look at these. Second quarter, Azure and other cloud revenue. XFX was up 38 % meeting estimates. Second quarter, revenue for the company beat estimates at$81.27 billion. Second quarter, intelligent cloud revenue beat estimates. We also saw Microsoft 365 commercial seats grew 6%. 45 % of commercial RPO was driven by open AI commitments, commercial remaining performance obligation,$625 billion. What's not to love here? Is it all about CapEx? No, I think it's usually high expectations. And, you know, the fact that they only met Azure growth rates, which was 38%, I think that's probably weighing on the stock because, you know, one would have expected them to blow out that number.

1:37It has been around 39 % the last couple of quarters. So I think that's where a little disappointment could be. But that could also be because of supply constraints. That's something we have highlighted in our research before. But, you know, if you look at some of the other numbers, such as RPO, you mentioned above 600 billion. That's very impressive. And we already know the CapEx was going to go up. So I think in tandem, that's the only number that sticks out that they didn't beat by a decent amount. All right. So then I don't know, what do we want to dig into a little bit more deeper? It does Microsoft's quarter includes net gains from investments in open AI.

2:10Are we going to get a little bit more of a picture about that and what's going on there? I think the question I have is, you know, there's a big number that, you know, that 690, 600 plus billion RPO you mentioned. There is a large portion of that comes from OpenAI. So the big question is, you know, how is OpenAI going to fund this thing? Do they have the capital to actually fund, let's say, a 200 plus billion dollar commitment? But other than that, what are other clients spending that are not OpenAI? And, you know, how is that business going? And if that wasn't the case, how should we look at Azure growth in the coming quarters?

2:44I think those are the big questions that we need answered right now. I don't remember where I saw this. I don't remember if it was on our program yesterday. I think my brain is mush. I'm sorry, Anurag. What was it? It was all about Claude from Anthropic competing with Copilot and Claude offering products and services at a fraction of the cost or even free versus what companies are paying for when it comes to Microsoft Copilot. How big of a threat is that? Oh, actually, to be very honest, right now, the entire software sector has been absolute under threat because of a lot of what you are mentioning, whether it's cloud or whether it's OpenAI tools or whether it's open source.

3:29I mean, look at the valuations of software companies. They've been completely destroyed over the last six to nine months. And a large portion of that is driven by what you just said. So interesting. Well, you know, yeah. Yeah. I mean, so is it in flux still, safe to say, Anurag, in terms of who ultimately are going to be the leaders when it comes to this AI world? Or will there be multiple big players? So we are absolutely in flux right now as to who will own the final product. And that's partially the reason when you have these valuations go all over the place. But I would comfortably say when it comes to somebody like a Microsoft's cloud portfolio or Amazon's cloud portfolio or Google's cloud revenue, I think these three companies will dictate a large portion of that market share just because they have the capital to do it.

4:18They have massive market shares and they have also the distribution. So these three, I think, will remain the way it is. The rest of the industry will shift around. We still think software has a place in this world and, you know, there will be some damage, but it's not going to get completely blown up. and then let's see how that shapes up. What's the damage that we'll see in your view? What's your prediction? So if you are just selling a tool out there in the public to an enterprise or a small business, you may not get the same kind of premium that you were before. Remember, software are a business with 80, 90 % gross margin business.

4:53But if you can spin some of that code up, you know, using wipe coding or internally, you may not need some of those tools out there. Now we think, at least on the enterprise side, having a core system of record, something like, you know, the one that's sold by SAP or a workday, they're far more important and people are not going to rip them apart and use wipe coding tools internally out there. But if you are a visualization software or some kind of connector in between, you may not need to have that software. So there is a lot that's going to happen over the next three to five years. You know, interestingly, you know, looking at Microsoft Meta this year and last year, how the stock, the stocks have done, they've definitely underperformed some of the other Mag7 names and certainly some of the other large cap tech names.

5:36But I'm just curious, you know, the concerns have been about the AI spend and whether it's going to pay off. Signs here for Microsoft, Anarag, that you're seeing that it does make sense, this spend that Microsoft is doing, the ROI is there. Yeah, for Microsoft, it's definitely there. I mean, the only, I would say, the long-term hangup is, you know, what happens when the open AI relationship breaks through. I mean, it all goes away. That's the only big risk for Microsoft in the long run. They'll have to figure out their own LLM by then. But other than that, I mean, their cloud infrastructure product is pretty good.

6:08And, you know, it's gaining market share. And according to our calculations, it will overtake Amazon in the next, you know, let's say, three odd years or so. Anurag, do they really have to figure out their own LLM? I mean, how much of OpenAI do they own? But it just doesn't matter if they own or not, because they They have the IP rights only till I think it's 2032, one of those years. And after that, they can't use those models after that. So remember that part of it as well. The financial part will stay, but it's the actual engine that is driving Copilot, that's driving GitHub Copilot or the Microsoft 365 Copilot that you talk about.

6:43You know, that's the intelligence that goes into that model. How do you do that? How do you do that from just a resources perspective if you have spent so many billions of dollars supporting OpenAI and ChatGPT? Well, they have their own models that are going on. It's just not as good as whether it's OpenAI or Cloud at this point. But they are putting a lot of effort behind it and most of our leads that. And that's where we need to see what kind of ROI do we see there and do they actually get their act together over the next few years? All right, I want to go over to IBM, which actually outperformed Microsoft last year.

7:16It was up about 35%. And we are seeing this stock up about 8.4 % following its earnings release here. They post revenue that topped estimates. They talked about software gains, specifically its software unit revenue up 12 % to$19.7 billion in the fourth quarter. Software business jumping 14 % to just over$9 billion. and the company projecting that revenue will grow more than 5 % this year. And the company's CEO saying, quote, we enter 2026 with momentum and in a position of strength. I don't know if you've had a chance to look at IBM, Anurag. Walk us through what we're seeing with this company.

7:56Yeah, I was a bit surprised, actually, the 9 % number on the software side. It is a bit shocking. I mean, for them to be, you know, total growth rate of 9 % and software in double digits. I mean, we were not expecting that. So there's a lot to peel in that particular one and go back and see, you know, which segments outperformed. Now, there's a tiny bit of M &A there, but even without that, I mean, I think this is very good. And the big number for us is that the cash flow is going to go up by a billion dollars next year. So I think IBM's turned them around very well. I think the strategy is executing well, and Arvind's done a good job in this case.

8:28The acquisitions, Red Hat, HashiCorp, Confluent, that's a big part of the spend. Is that like looking to sort of what Salesforce has done in recent years growing through these acquisitions? I think there's nothing wrong in growing through acquisitions if you don't pay enough for them, if you pay the right amount. And in this case, for IBM, every two years, they'd go out and buy something that would help their gross margins, that would help their adjusted EBITDA, that would help their free cash flow. and they use that cash flow to buy more. But they're already concentrated in certain areas, such as hybrid cloud or the ability to make sure that the internal infrastructure of a company or the enterprises is something that they have a good handle on.

9:09And I think they're executing it very well. Listen, their bookings for their AI business at IBM exceeded 12.5 billion since mid-2023. That's an increase from the 9.5 billion disclosed during its prior earnings report, a bit more than 80 % of the bookings come from the consulting unit with the rest in software, according to the CFO in an interview. Their AI exposure, I mean, this is something that has been, I think, helping the long-struggling consulting division. So are we seeing improvement? But the consulting division only grew up 1%. So even though they are getting a lot of that, as you said, 80 % of those bookings from consulting, it's not driving the entire division up because as we know from some of the other vendors and we'll find out today also the non-AI IT spending is pretty bad right now throughout the ecosystem so people are cutting back on that and deploying those funds into AI related services and that's something that's hurting IBM as well but imagine even with consulting growing only one percent their total company growth rate was nine percent and I think that's something to you know be proud of.

10:19All right. Bloomberg Intelligence Senior Technology Analyst, Anna Raghana. Just stay with us for a moment because we do want to bring in James Chokmok, Partner and Chief Investment Officer at Clockwise Capital with about$70 million in assets under management, a fund that we often talk about, owns and invests in a lot of these big cap names. I want to go back to Microsoft. James, tell us your take on what we got from Microsoft. The stock right now, down about four and a quarter percent. Yeah, it's interesting. Right before earnings came out, I was getting the latest bogey numbers for the Azure number.

10:54And, you know, it remained in the high 30s, around 39 percent. And that's kind of where the numbers landed right around there. And I was telling our team that, you know, this is a pretty lofty expectation, especially the fact that, you know, it's retraced somewhat heading into the quarter. So, you know, a lot of high expectations on all these companies. Microsoft right on up there with all of them and the valuation. It is where it is with that double digit times sales. You know, you want it. It's great that it's a subscription asset. It's a recurring revenue business. But at the end of the day, you know, you got to deliver the growth.

11:30And it's all about the growth relative to expectations. And in this case, it was just in line. On Microsoft, James, you own Microsoft in your clockwise US core equity ETF ticker time. It's the sixth biggest holding, about 4.6 % of the fund. It's down 3.6 % after hours, 464 roughly. Would you buy at these levels, add to your position? No, no. I think we're maintaining it. The way we're looking at it is we're about half the weight of where it is in the NASDAQ. We feel comfortable being underweight that. And that's on a gross basis, we actually have hedges within the ETF as well, where we're short the NASDAQ and the S &P.

12:14So the net weight is actually closer to 4%. So it is a top 10 weight within the fund, but we think that where you want to be overweight is outside of big cap. We're looking at small cap, we're looking at continue to look at commodities. We think that's where the money's going to go. James, we're going to broaden out, but safe to say you're not that impressed with Microsoft, it sounds. It was a ho-hum, you know, kind of what we expected. It just didn't surpass expectations, but the results do not warrant a change in our view. All right, we're going to broaden out in just a moment. I want to bring in Anurag Rana back from our Bloomberg Intelligence team.

12:53He's senior tech analyst. Just a final thought. James isn't impressed. Should he be? Well, the thing is, think about it this way. The backlog is up and the capex is up. Then why isn't growth accelerating? And I think that's the biggest question for all of us. I personally think it's a supply problem, but it's a temporary problem. But as we know right now, the trade is to sell software and buy semis. And I think, you know, I don't see that changing tomorrow morning. All right, we're going to leave it there. Hey, listen, we'll be checking out your research. Anurag, thank you so much. Bloomberg Intelligence Senior Technology Analyst Anurag Rana.

13:28James Chakmok, though, still with us. Right now, we want to get more meta platforms. Bloomberg News senior technology reporter Kurt Wagner with us. He is author of Battle for the Bird, Jack Dorsey, Elon Musk, and the$44 billion fight for Twitter. So he's out there in the Bloomberg San Francisco Bureau. Take it away, Meta. What jumps out for you? Because right now we're looking at a stock that's up here in the aftermarket. Yeah, I mean, it's pretty much all good news, especially if you believe in this AI vision that Mark Zuckerberg has. The Q4 holiday quarter sales were a beat. The Q1 projections were a beat.

14:01The real maybe surprising thing was just how high the capital expenditures are supposed to be in 2026. I think the estimate was around$111 billion. Metis forecasting between$115 and$135 billion. But again, if you are a believer in this sort of AI world that we're living in right now, that's an exciting thing. I mean, this is a company that is going absolutely full steam ahead into AI. And, you know, I think those numbers reflect that. Not into the metaverse. We should note that MetaShares extend their gain to more than 5 % right now. So there are a lot of people out there, Kurt, who are believing this story.

14:39It's not like this, though, every quarter. There have been quarters of late where meta platforms, I almost said Facebook, comes out and says, we're spending more money than you want us to spend. And then investors do not reward them for it. What is different this time? Well, not just quarters of late. How about just last quarter? This is exactly what we talked about in Q3. They didn't have these specific numbers, but they basically said, hey, our CapEx is going to increase meaningfully in 2026. The stock went down 14%. Everyone was very concerned with this added spending. And yet today, when the numbers come out and they're higher than estimates, estimates have presumably built in that commentary from last quarter, it doesn't seem to be as much of a problem.

15:26My guess is that they are seeing this Q1 revenue, for example, which is going to come in two, three, four billion dollars higher than expected. They're just seeing this ads business that is completely churning money out. And so if you feel that you have the money coming in, maybe you stomach those higher numbers than you would have expected. Yeah. I mean, on the live blog, you guys, I think you put this out, Kurt, family, daily, active people, 3.58 billion, an increase of 7 % year over year. And then the average price per ad increased by 6 % to 9 % year over year for the fourth quarter and full year 2025, respectively.

16:06So, I mean, this is showing that they're investing in AI. We're seeing it on the platform. We're seeing it in the ad dollars. Yeah. I mean, my guess is that we're going to jump on this earnings call here in a minute or two, and you're going to hear the company talk a lot about how AI is impacting the ads business, because that's what they need to do to sell this right now, right? It's hard to say. But are they right? But Kurt, is it? Like, are we seeing it in the numbers? It is in part because you see that that rise in average cost per ad. That's because people are getting more granular, more targeted.

16:39They're spending less to create some of this ad copy because AI can do it for them. There's a bunch of ways that that AI can truly improve the ads business. You just don't it's not as sexy, right? It's not as obvious, maybe, because a lot of it's happening incrementally behind the scenes. That is a story and a narrative that this company needs to sell. Because if you're just simply saying, trust us, we're building a$50 billion data center in Louisiana, and you'll see the returns of that in seven years, that's a hard pitch. But if you say, hey, look, check it out. The ads business is growing quarter after quarter because of these ad improvements, these AI improvements we're making.

17:16That's the narrative that they're going to want to sell to people today. Kurt Wagner, you got to go. You got some work to do. I want to let you get back to that work. Thanks so much for joining us. That's Kurt Wagner, senior technology reporter who covers social media. He's the author of Battle for the Bird, Jack Dorsey, Elon Musk, and the$44 billion fight for Twitter's soul. All right. Right now, we're looking at MetaShares. They're up about 6.2 % as we speak. We've got Microsoft down about 3.6%. Tesla is up 3.25%. And then check this out. IBM, been around for a while. It's up about 8 % here in the aftermarket.

17:49All right. James Chakmok, we're talking with him, partner and chief investment officer at Clockwise Capital with us from Miami. He is not going anywhere. Ed Ludlow, also with us, Bloomberg Tech, co-host on Bloomberg Television. He's out there in the Bloomberg San Francisco Bureau. He has been glued to his phone and computer watching all of the results since he did his broadcast earlier on BTV. Hey, Ed, what's jumping out? You know, I don't know. Where do you think we should start with, whether it's Meta, Microsoft or Tesla? I would start with Tesla, but only because, you know, the story that jumped out wasn't the story we were prepared for.

18:21And I think that it's important to be honest about that. And that is Tesla pulling the trigger on a$2 billion investment in XAI. If you guys remember, this was a non-binding shareholder resolution in November as part of the annual shareholder meeting. And the outcome was kind of weird because a lot of shareholders abstained from voting. That told us that even though the board wasn't bound to the outcome, a lot of shareholders were like, do we really want to go down that route? Well, Tesla's done it. Not only are they investing$2 billion into XAI through XAI's recent series E-Round, but they now have an agreement in place, what they call a framework, to work on technology and product together.

19:02Okay. And it's this closer intermesh of Elon Inc., right? So what's the sales pitch to investors in Tesla as a car company, in Tesla as a robo-taxi company, in Tesla as a robot company that says, you know, this is in the best interest of shareholders to make an investment in Elon's AI company, XAI? There are like 10 different answers to that. I mean, the first thing to state is that this was, believe it or not, double check the Bloomberg, the first annual revenue decline that Tesla's ever had. So revenues, overall revenues from all its divisions dropped 3%. And they blame that on lower vehicle deliveries and sales and lower regulatory tax credits.

19:42So that's kind of interesting. But this shareholder deck is about the future where Tesla doesn't sell vehicles as its principal line of business. it does physical AI through robotics and through robo taxi and as it relates to xai there were definitely two schools of thought there were the tesla bulls that basically said if they invest in xai all of this stuff will happen quicker because xai is so good at the the software side of ai there are very bullish tesla shareholders that were like whoa this xai is a company that burns billions of dollars a quarter, do you want Tesla to be the entity that's propping that up?

20:20If Tesla's already doing work internally on software. So this was a really interesting deck. The quarter's numbers gone, the quarter gone. I mean, it doesn't really mean anything at this point. James Chakmok, come on in. Ed, you know, highlighting that Tesla agreed to invest about$2 billion in Elon Musk's ex-AI startup. We talked with you a little bit about Tesla before a small position in your fund. How significant do you think that is? Does it make it more interesting, the Tesla story here? Yeah, I mean, it adds another element to the story, but that's not why we're investors in it. I don't think that that's going to be something that's factored in in a material way, one way or another.

21:12at the current time. So, you know, we're looking at it from a long-term standpoint, the optionality on all those areas that you listed, from robotics to self-driving, autonomous driving. And, you know, that's where the opportunities lie, and that's why we're invested in it. But at the valuations that it's at, and, you know, question marks around, you know, the demand side and giving the macro backdrop, you know, we just think, you know, it's prudent to be cautious with it, but still maintain a small position in the portfolio. But keep that small position and not make it any bigger? At this time, I got to listen to the call, see what happens.

21:54But you could hear something today that would make you change your mind. If and only if it provides a change in my estimates. Because really, one of the things that I focus on, I prioritize is what is the degree of the change in the estimates in absolute terms? And also, what is the percentage change in estimates? And what is the percentage change in the rate of growth? Because these companies, with these valuations, you have to be able to show the sustainability of those growth curves. Without that sustainability, then you come into questions about the sustainability of the valuations. And with these valuations being where they are, not only from a stock perspective, but the market perspective, you know, one little thing can cause things to break.

22:41I mean, you saw what happened with Intel last week, down 17 % on that quarter. And, you know, this is a company that the White House is backing. So, you know, it doesn't take, it takes an instant, you know, to break the valuation, even though it takes a long time for that valuation to expand. So you got to be careful. All right, we got to run. Hey, James, thank you so much. Hanging around with us for about 45 minutes. Really appreciate going through all these earnings with you. James Chokmok, Partner and Chief Investment Officer at Clockwise Capital, joining us from Miami. Still with us, of course, our own Ed Ludlow, Bloomberg Tech co-host on Bloomberg TV.

23:22You know, Ed, I was thinking about what you were talking about with XIAI. What would you want to ask? What do you hope is asked on the call with the company here? Oh, just the why they decided to go ahead. What like the more specific rationale was. So, you know, the concerns were well stated. The worry that Tesla would be kind of the cash cow to fund the loss making business. But they have explained in detail, you know, that there's a plan for them to work both on products and technology sharing. And that and that was, you know, those that were more. Sorry, guys, Chelsea have just taken the lead in the 84th.

23:55The only thing, the only thing, the only thing that can get your attention away. That's funny. If the bosses are watching, I'm really sorry, but my phone's going ballistic because it means we qualify for the next phase automatically. Anyway, you know what your guest was just talking about, though? The thing that Tesla's done in the shareholder deck in a lot more detail than it's done before is talk about how these future products are currently contributing to top and bottom line. Tesla has always done the plus and minus columns of revenue and profit. But actually, they started giving a bit more data.

24:30So, for example, as of the fourth quarter, there were 1.1 million FSC paid subscribers, active subscribers. And in the profit column, they are saying that our profit has been boosted by those software revenue sales. And so, like, extrapolate out to XAI, you can just envisage a world. I drive every day using FSD to work, and in the cockpit of the car, I use the Grok voice assistant to communicate. How do they monetize that? You'd expect them to talk about that kind of stuff on the call, I think. This is what I'm interested in. Well, we want to throw another voice into this. Do not leave us, Ed Ludlow.

25:12We want you still here. I think our own Steve Mann of Bloomberg Intelligence, Global Autos and Industrials Research Manager, is here with us as well. Steve, come on in to, hopefully you've been listening to what Ed has to say. What jumps out for you in this Tesla results? Well, I think on the car side, nothing of surprise. Margin's a lot better than we expected, but that's only from higher production. But what's really interesting for us is really now, you know, Elon Musk has been talking a lot about rolling out RoboTaxi. It was just talk. But now it's kind of codified in the presentation now that they're going to roll out in nine cities beyond Austin.

25:58So I think a lot of the investors are expecting, you know, the timeline of that scaling up on RoboTaxi. And I think we're seeing that. But the only thing is, like, I'm going to go to our live blog, and Ed, come on back in here. I'm looking for it on the live blog. But how that they have made promises before to kind of roll out, and it just hasn't happened. That's par for the course for Elon. No, I know. And we used to have a clock thing, I think, on the Bloomberg, like, tracking, you know, Elon and his promises. We did an episode of Wall Street Week last month on RoboTaxi, right? and the opening line was five years ago, Elon Musk promised that there would be robo-taxis all over public roads by the end of that year.