Month: January 2024

© Reuters. Workers move a Google logo during the opening of the new Alphabet’s Google Berlin office in Berlin, Germany, January 22, 2019. REUTERS/Hannibal Hanschke/File Photo

By Jeffrey Dastin and Akash Sriram

(Reuters) -Alphabet disappointed Wall Street on Tuesday as holiday-season advertising sales came in below expectations and the company said its spending on items such as servers to power artificial intelligence would jump this year.

Alphabet (NASDAQ:GOOGL) shares fell 6% in after-hours trade.

Against a backdrop of mixed U.S. economic signals, Alphabet’s powerhouse units Google and YouTube have faced competition for ad budgets from other online platforms, including Facebook (NASDAQ:META), Instagram, TikTok and Amazon.com (NASDAQ:AMZN).

With retail sales a bright spot, the company’s fourth-quarter ad revenue rose to $65.5 billion from $59.0 billion a year prior. That was short of analysts’ average expectation for $66.1 billion according to LSEG data.

“Alphabet’s disappointing ad revenue numbers suggest that corporations worldwide are still uncertain about the pace of interest rate cuts from global central banks,” said Thomas Monteiro, an analyst at Investing.com.

Google, inventor of foundational technology for today’s AI boom, is also locked in battle with two industry players that have captured the business world’s attention, ChatGPT’s creator OpenAI and its backer Microsoft (NASDAQ:MSFT).

While Google Cloud’s revenue topped Wall Street targets and growth rebounded with a boost from AI, Microsoft’s Azure grew faster in the same period.

Powering such AI requires heavy investment in servers, data centers and research. Alphabet’s capital expenditure shot up 45% to $11 billion, the highest in years, and Chief Financial Officer Ruth Porat told analysts on a conference call that capital expenditures would be notably larger this year than in 2023.

To restrain costs, technology giants have been winding down non-priority projects and cutting jobs. Alphabet expects $700 million in severance-related expenses in the first quarter, Porat said.

Google is bringing a powerful suite of models called Gemini to its ChatGPT rival Bard. It also struck a deal to invest up to $2 billion in high-profile AI startup Anthropic as it courts customers from larger cloud rivals Microsoft and Amazon. And it is putting Gemini into advertisers’ hands to keep their dollars flowing to Google’s search business.

Still, AI’s advertising boost may remain far off as geopolitical and economic uncertainty could discourage ad buyers. The U.S. has started probing AI investments including Alphabet’s, and Google is gearing up to appeal a major antitrust case it lost.

Alphabet posted fourth-quarter profit of $20.7 billion.

‘MORE LIKE AN AGENT’

In the call with analysts, CEO Sundar Pichai touted progress with AI across Alphabet’s business, for instance opening up new questions Google can deftly answer.

Frenzy has gripped the technology sector since OpenAI’s November 2022 launch of ChatGPT, which showed the public how so-called generative AI can conjure new text and images on a simple command. Advances have also raised the prospect of AI “agents” handling humans’ requests with greater autonomy.

Asked about the company’s digital aide known as Google Assistant, Pichai said AI “allows us to act more like an agent over time” and “go beyond answers and follow through for users even more.”

As Alphabet focuses on AI, investors have grown increasingly interested in Google Cloud. Last year the division earned its first-ever quarterly profit, but revenue growth had slowed as customers streamlined cloud spending.

Microsoft has been a fierce competitor, adding AI to its cloud and productivity suite long embraced by enterprises, while Google has marketed rival tools.

Pichai told analysts that generative AI was boosting cloud growth. Google Cloud revenue in the latest quarter of $9.2 billion beat expectations for $8.9 billion. That marked a re-acceleration of cloud revenue growth from the previous quarter to 25.7% but was slower than 32% growth in the year-ago quarter.

Microsoft on Tuesday reported that sales of its cloud platform, Azure, grew 30%.

Overall Alphabet’s revenue for the quarter ended Dec. 31 stood at $86.3 billion, compared with estimates of $85.3 billion according to LSEG data.

© Reuters. Nassim Taleb warns rising US debt could turn into ‘death spiral’ – Bloomberg

Black Swan author Nassim Nicholas Taleb warned that “a debt spiral is like a death spiral,” and the US deficit is increasing to a point where it would take a miracle to reverse the damage.

In an article, Bloomberg reported that Taleb spoke at an event for Universa Investments on Monday night, the hedge fund he advises.

The publication states that Taleb described the increasing US debt load as a “white swan,” a risk event that is more probable than a surprise “black swan” event.

Taleb didn’t comment on the impact on markets but explained that white swans include the US deficit and an economy far more vulnerable to shocks than in previous years.

He is said to have added that as long as you have Congress continually extending the debt limit and doing deals “because they’re afraid of the consequences of doing the right thing, that’s the political structure of the political system. Eventually, you’re going to have a debt spiral.”

With the world far more interconnected due to globalization, Taleb told listeners that problems in one region can ricochet around the world.

Bloomberg added that when Taleb was asked how the US “spiral” could play out, he said, “we need something to come in from the outside, or maybe some kind of miracle,” adding that this makes him “kind of gloomy about the entire political system in the Western world.”

© Reuters. A person walks past Microsoft signage at the headquarters in Redmond, Washington, U.S., January 18, 2023. REUTERS/Matt Mills McKnight/File Photo

By Stephen Nellis, Yuvraj Malik and Anna Tong

(Reuters) -Microsoft beat market estimates for quarterly profit and revenue on Tuesday, as new artificial-intelligence features helped attract customers to its Azure cloud service as they built out their own AI services.

But Microsoft (NASDAQ:MSFT) shares were down 1% after-hours as investors absorbed news about rising costs to develop these AI features.

The company forecast operating expenses of $15.8 billion to $15.9 billion in the current quarter, up from $15.4 billion in the previous one. It also said it expects capital expenditures to “increase materially” on a sequential basis.

Microsoft, in collaboration with ChatGPT creator OpenAI, has pushed chatbots into its core products such as its Office software and Bing search engine over the past year, attracting business customers eager to try the tech industry’s next breakthrough. Investor buzz over AI helped Microsoft’s shares rise by 57% in 2023.

But this has also increased Microsoft’s costs, and investors are watching growth in its Azure and Office business closely to see if that keeps up with the massive investments it plans to pour into data centers this year to deliver generative AI.

“We’ve moved from talking about AI to applying AI at scale,” CEO Satya Nadella said in a statement. “By infusing AI across every layer of our tech stack, we’re winning new customers and helping drive new benefits and productivity gains across every sector.”

Brett Iversen, Microsoft’s vice president for investor relations, told Reuters that 6 percentage points of the growth rate of cloud-computing platform Azure in the second quarter was attributable to AI. That is double the 3 percentage points in the first quarter.

There are now 53,000 Azure AI customers, a third of whom were new to the service in the past 12 months, Nadella told analysts on a conference call.

“Overall, we are seeing larger and more strategic Azure deals with an increase in the number of billion dollar plus Azure commitments,” he said, without giving a time frame.

Total revenue grew 18% to $62 billion in the quarter ended Dec. 31, compared with the average analyst estimate of $61.12 billion, according to LSEG data. Adjusted profit of $2.93 per share beat an average estimate of $2.78 per share.

Revenue at Microsoft’s Intelligent Cloud unit, which houses the Azure cloud computing platform, grew 20% to $25.9 billion. Sales of Azure grew 30% – its best growth rate in four quarters – compared with a 27.7% consensus estimate from Visible Alpha, and outstripping a 25.7% growth in Google Cloud.

Sales at Microsoft’s More Personal Computing segment, which includes its Windows operating system and gaming business, grew 19% to $16.9 billion, powered in part by the close of its $69 billion purchase of “Call of Duty” maker Activision Blizzard (NASDAQ:ATVI). Analysts had expected $16.8 billion.

Microsoft’s Productivity and Business Process segment, which contains the LinkedIn social network in addition to Office sales, reported that sales rose 13% to $19.2 billion, just beating estimates.

“The software giant has delivered a healthy set of results, but not in a strong enough dose to appease the market,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

AI-related companies lost $190 billion in stock market value late on Tuesday after Microsoft, Alphabet (NASDAQ:GOOGL) and Advanced Micro Devices (NASDAQ:AMD) delivered quarterly results that failed to impress investors who have sent their stocks soaring.

AI-POWERED SURGE

While analysts have said that any meaningful gains from AI may not come before next year, investors have rewarded the company’s push into AI and strategic partnership with Silicon Valley startup OpenAI.

In November, Microsoft started selling Copilot, an AI assistant that can summarize an email inbox or craft a slide show, for $30 per month, which analysts say is a premium price.

Early sales of the product showed up in the firm’s commercial sales of Office software, where revenue grew 17%, compared with analyst expectations of commercial Office sales growth of 14.2%, according to data from Visible Alpha. Microsoft does not provide an absolute dollar figure for the sales.

Microsoft’s Iversen said on Tuesday that Office’s commercial offerings, where Copilot is being sold, now stand at 400 million paid seats, up from 382 million in April 2023.

The company’s capital expenditures grew by $300 million from the previous quarter to $11.5 billion, putting the company on track to spend more than $46 billion this fiscal year.

“That’s a sign of the customer demand that we’re seeing,” Iversen said.

Microsoft’s stock surge has helped it topple Apple (NASDAQ:AAPL) as the world’s most valuable listed company in the past few trading sessions. That was undented by a power struggle within OpenAI that highlighted the software giant’s lack of direct control over its important partner. Microsoft also faces some legal and regulatory challenges.

© Reuters. ‘The future’s so bright’: Large banks upgraded at Morgan Stanley

Morgan Stanley equity analysts have adopted a bullish stance on major US banks, anticipating that forthcoming regulatory adjustments concerning higher capital requirements will be less burdensome than initially proposed.

This expected leniency could pave the way for an uptick in stock buybacks, analysts wrote in a note.

“Reading the tea leaves, it looks like Basel Endgame will be lightened up. This opens the door for a significant increase in buybacks, as large cap banks have the highest excess capital levels ever,” analysts said.

The upgrade by Morgan Stanley analysts is based on three key reasons:

The risks associated with the “Basel Endgame,” a set of international banking regulations, are becoming clearer.
The potential for a substantial increase in buybacks is emerging, particularly as large banks currently hold the highest levels of excess capital ever recorded, and this is in a context where loan growth is relatively sluggish.
There is a growing confidence in a rebound within the capital markets sector.

On the individual bank stocks level, Bank of America Corp (NYSE:BAC) is upgraded to Overweight while Citigroup Inc (NYSE:C) is double upgraded from Underweight.

This is because analysts argue that Citigroup is the “biggest beneficiary from incremental buybacks.”

“Buybacks at roughly half of book value are a very accretive financial transaction,” the analysts added.

Similarly, Goldman Sachs Group Inc (NYSE:GS) stock is raised to Overweight, while Bank of New York Mellon (NYSE:BK) is lifted to Equal Weight. On the other hand, Northern Trust (NASDAQ:NTRS) is cut to Underweight on valuation concerns.

© Reuters. FILE PHOTO: A person puts gas in a vehicle at a gas station in Manhattan, New York City, U.S., August 11, 2022. REUTERS/Andrew Kelly/File Photo

By Nicole Jao

NEW YORK (Reuters) -Oil prices rose on Tuesday as a higher global economic growth forecast and escalating tensions in the Middle East offset concerns around Chinese demand.

March Brent crude futures, which expire on Wednesday, rose 47 cents to settle at $82.87 a barrel. The more active April contract settled up 67 cents at $82.50.

U.S. West Texas Intermediate crude settled up $1.04, or 1.35%, at $77.82.

The International Monetary Fund raised its forecast for global economic growth, upgrading the outlook for both the U.S. and China on faster-than-expected easing of inflation.

On Monday, both crude contracts fell by more than $1 as a deepening real estate crisis in China fueled concerns over demand in the world’s biggest crude consumer, with a Hong Kong court ordering the liquidation of property company China Evergrande (HK:3333) Group.

“There’s still concerns about what we’ve seen in China, but the fundamentals, from a supply risk standpoint, are still very bullish,” said Phil Flynn, analyst with Price Futures Group.

Continuing conflict in the Middle East also provided support to the market.

U.S. President Joe Biden said he has made up his mind on how to respond to a drone attack as he weighs punishing Iran-backed militias without triggering a wider war.

” (The) latest upticks might be driven by some market participants adding some positions now that US President Biden has decided how to react,” said Giovanni Staunovo, analyst at UBS.

On the supply side, the U.S. began reimposing sanctions on Venezuela this week after the country’s top court upheld a ban blocking the candidacy of the leading opposition hopeful in a presidential election later this year.

Saudi Aramco (TADAWUL:2222) said it had received a directive from the Saudi energy ministry to maintain its maximum sustainable capacity at 12 million bpd and not to continue increasing it to 13 million bpd.

Saudi Arabia is the world’s biggest oil exporter.

“While we remain hesitant to speculate on motivations for this decision, within it, we see potential acknowledgment of a firmer global supply picture than has been broadly appreciated,” Walt Chancellor, an energy strategist at Macquarie, said in a note.

An OPEC+ meeting on Feb. 1 is unlikely to bring a decision on the group’s oil policy for April, analysts are hoping it could shed some light on production plans.

U.S. crude stocks dropped by 2.5 million barrels while gasoline inventories gained 600,000 barrels in the week ended Jan. 26, according to market sources citing American Petroleum Institute figures on Tuesday. Official U.S. government data is due on Wednesday.