Good morning.
There's apparently no such thing as talking up your own A.I. investments too much this year. But apparently there can be collateral damage—for your competitors. At least that's what Jim Cramer, host of CNBC's "Mad Money,” said.
On Tuesday, Microsoft reported its earnings for the quarter ending June 30. Cramer believes comments by the tech giant’s CFO Amy Hood resulted in Amazon trading lower.
He said the following on X (what the platform originally known as Twitter is now called): "Amazon is not down because of a (weak) FTC, it is down because of comments made by Amy Hood, the CFO of Microsoft, who talked about the need to spend for A.I. despite its lead, and what it could mean for cloud costs..."
On Tuesday, Amazon closed at $129.13, and Microsoft released its Q2 earnings aftermarket that day. On Wednesday, Amazon opened at $126.38 and closed at $128.15. (The stock price has gone down about 4% in the past five days.)
Amazon Web Service (AWS) and Microsoft's Azure are certainly going head to head in cloud computing. Microsoft Azure OpenAI Service provides access to OpenAI's large language models (Microsoft first invested $1 billion into OpenAI in 2019; the investment has since grown to at least $13 billion).
For the quarter, Azure and other cloud services had revenue growth of 26% year over year, down one percentage point from the quarter prior. Overall for the quarter, revenue at Microsoft reached $56.19 billion, beating analysts’ expectations of $55.49 billion, and income was $20.1 billion, increased by 20%.
But during the earnings call, Hood didn't mince words that there will be a lot of spending on A.I. before there’s a payoff. She said that for Microsoft's current 2024 fiscal year, ending in June 2024, the payoff would mainly come in the second half of the fiscal year.
“Even with strong demand and a leadership position, growth from our A.I. services will be gradual as Azure A.I. scales and our Copilots reach general availability dates,” she said. “To support our Microsoft Cloud growth and demand for our A.I. platform, we will accelerate investment in our cloud infrastructure."
Hood said the company expects capital expenditures to “increase sequentially” each quarter through the year as “we scale to meet demand signals.”
In after-hours trading on Tuesday night, MSFT shares fell as much as 4%, as investors absorbed the message of how long it will take to start seeing A.I. generate profits. Wedbush managing director and tech analyst Dan Ives says that Microsoft is on the right track. "We believe a year from now Microsoft joins Apple in the $3 trillion club with a $400 valuation, the base case for this cloud stalwart, in our opinion," Ives wrote in a note released this morning.
Hood has been playing the long game for a long time: She joined the company in 2002, and for the past nine years, has served as EVP and CFO, and a strategic partner to Microsoft CEO Satya Nadella. Microsoft credits her with playing a key role in advancing the global momentum in cloud and helping digitally transform the company throughout her tenure.
“I define my role as making Microsoft a place our customers, partners, and employees want to pick every day,” Hood said at Fortune Most Powerful Women Summit back in 2018. “If you do that, you also create a culture that you want.”
So far, during this week's earnings calls, Microsoft wasn’t the only tech company continually referring to A.I. “This is our seventh year as an A.I.-first company, and we intuitively know how to incorporate A.I. into our products,” Alphabet and Google CEO Sundar Pichai said on Tuesday.
"A.I. is driving results across our monetization tools, through our automated ads products, which we call Meta Advantage," Meta CEO Mark Zuckerberg said during the company's earnings call on Wednesday. "Almost all our advertisers are using at least one of our A.I. driven products...Our investments in A.I. continue."
Amazon will announce its second quarter 2023 financial results on Aug. 3. I think it's safe to say we can expect plenty of A.I. on that call too.
Sheryl Estrada
sheryl.estrada@fortune.com
