Unpacking Microsoft’s Earnings and the Way forward for AI

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“Write a newsletter about Microsoft’s second-quarter earnings for fiscal 12 months 2023.”

That is something you possibly can ask ChatGPT if you happen to desired to create an article that dives into Microsoft Corporation’s (NASDAQ:MSFT) second-quarter earnings, which were released on Tuesday.

ChatGPT is a man-made intelligence (AI) chatbot that you would be able to essentially consider as a “language machine.” Standing for “chat generative pre-trained transformer”, ChatGPT is an engine that may produce texts on every thing from solving math problems to writing a book report. And its use is easy. When you’re on the chatbot’s public website and have created an account, all you might have to do is type your query into its search bar, and also you get your answer.

And, folks, I even tested it out. After I asked it to explain itself, the AI chatbot said:

OpenAI, ChatGPT’s developer, is a non-profit AI research company. It launched the chatbot last November with huge success. ChatGPT crossed a million users in its first week, and went as much as 21 million in December. It’s now considered the paradigm of how extensive and influential AI-generated content could be.

So, in today’s Market 360 – which, don’t worry, wasn’t written by AI – let’s dive into Microsoft’s partnership with OpenAI after which review the corporate’s second-quarter earnings.

Microsoft first partnered with OpenAI back in July 2019. Microsoft invested $1 billion into the research company, and its cloud service Azure became OpenAI’s exclusive cloud provider. The plan between the 2 corporations was to construct AI that might solve more complex tasks, resembling “more personalized healthcare and education.”

Microsoft invested in OpenAI again in 2021 and did so for a third time last Monday. Microsoft announced a brand new $10 billion, multiyear cope with the ChatGPT maker. This renewed partnership could pave the best way for Microsoft to include the chatbot AI into its applications, like Word, PowerPoint, and Outlook.

The partnership comes with greater than a multibillion-dollar cost, though. Microsoft also announced last week that it plans on shedding 10,000 employees as a part of cost-cutting measures.

Further, ChatGPT isn’t foolproof. It could give inaccurate information or biased answers about a problem. And it may well – a minimum of for now – only provide users with information prior to 2021, because that’s the 12 months its training stopped.

The truth is, I had also asked ChatGPT the query I began with here: What was Microsoft’s second-quarter earnings? But because the current earnings are for fiscal 12 months 2023, it couldn’t give me the latest numbers.

A Have a look at Microsoft’s Earnings

So, how exactly did Microsoft fare in its second quarter?

Microsoft reported earnings of $2.32 per share, down 7% year-over-year from earnings of $2.48 per share, but beat analysts’ estimates of $2.29 per share. Revenue of $52.75billion was up barely from $51.73billion a 12 months ago, but missed analysts’ estimates of $52.94 billion. Microsoft’s Cloud business rose 18% year-over-year to $21.51 billion, topping analysts’ expectations for $21.44 billion. Total revenue increased 2%, which is the slowest rate since 2016.

The stock jumped 4% in after-hours trading on the earnings and cloud revenue beat on Tuesday, but it surely took a turn once the corporate’s poor forward-looking guidance was released.

For the third quarter, Microsoft anticipates revenue of $50.5 billion to $51.5 billion, a possible 4% decrease from the second quarter, while analysts forecasted revenue of $52.43 billion. Earnings per share are forecast to are available at $2.32, up from earnings per share of $2.22 a 12 months ago, but flatlining from the second quarter.

Nevertheless, company management stays optimistic in regards to the company’s future, saying in a press release:

The age of AI is upon us, and Microsoft is powering it…We’ve essentially the most powerful AI supercomputing infrastructure within the cloud. It’s getting used by customers and partners, like OpenAI, to coach state-of-the-art models and services, including ChatGPT.

And Microsoft is getting one other partner in AI: NVIDIA Corporation (NASDAQ:NVDA).

Last November, NVIDIA announced it’s teaming up with Microsoft for a multi-year collaboration to construct “some of the powerful AI computers on this planet.” NVDIA is a number one computer graphics company, making graphic processing units (GPUs) for consumers and businesses. From video games to skilled visualization, datacenter and automotive applications, NVIDIA’s graphics cards enhance the processing capability of its users’ computers.

Chipmakers are critical for various AI innovations, and right away NVIDIA is on the forefront of helping to develop autonomous vehicles.

For instance, the AI platform to assist construct automobiles for Foxconn, which makes the iPhones, is well respected. The truth is, NVIDIA’s AI platform is used to assist construct vehicles for Foxconn, and its chips are utilized in all Mercedes systems. Mainly, NVIDIA is pioneering self-driving and is taking the lead over Tesla, Inc. (NASDAQ:TSLA).

Here’s why:

The Tesla system uses cameras. The NVIDIA system will use cameras, but especially LIDAR. Well, what’s LIDAR? It’s a forward infrared radar. It’s what the military uses to send missiles through smoke and rain and things like that in order that they could be accurate.

After I order a automobile out West, I all the time order a LIDAR system because I would like to see the animals at night. If infrared sees an animal, it’s going to stop the vehicle. Tesla got away from LIDAR, so when a Tesla gets in heavy rain, sleet, snow, ice, fog or smoke, the system doesn’t work.

The underside line is NVIDIA is the AI and graphic chips leader.

Regarding its fundamentals, the corporate is predicted to release its fourth-quarter earnings for fiscal 12 months 2023 on February 22. Earnings are projected to say no 38.6% year-over-year to $1.32 per share, down from earnings of $1.32 per share, while revenue is projected to drop 21.4% year-over-year to $6.01 billion. Nevertheless, the analyst community has revised fourth-quarter earnings estimates higher within the three months – and that’s all the time a positive sign.

NVIDIA has been certainly one of my favorite stocks for a lot of, a few years – and it’s up around 380% since I added it to Growth Investor back in May 2019. And while it was stuck at a D-rating in Portfolio Grader recently, its upgrade to a C-rating over the weekend tells me that institutional investor interest within the stock is growing.  We’ll get a greater pulse on the corporate’s fundamentals after its fourth-quarter results and guidance are released, but I do think it’s the higher AI bet right away.

With that said, given its C-rating in Portfolio Grader, I’d not add recent money to the stock just yet. Microsoft, alternatively, holds a D-rating in Portfolio Grader, making it a “Sell.” Given the corporate’s mixed earnings and weak stock performance, I don’t expect it to be upgraded to a B-rating (a “Buy”) anytime soon.

For those who do have some money to speculate, you would possibly want to think about my Growth Investor service. Today, I’m adding three exciting recent buys in my Growth Investor Monthly Issue for February, in addition to revealing my latest Top Stocks lists.

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Source: InvestorPlace unless otherwise noted



Louis Navellier

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