Big earnings week
It has been a busy week for financial markets, with geopolitical developments and lots of companies reporting their financial results.
Any hopes of a breakthrough in the peace talks between the US and Iran that were supposed to take place in Islamabad, Pakistan, last weekend quickly faded as these talks were never held. A new peace proposal from Iran does not seem to lead to a quick resolution either. As a result, oil prices continue to climb and the Brent price reached a new high since the start of the conflict. Against this background, equity markets are holding up relatively well with strong performance from the energy sector. US stock markets have been outperforming European markets lately as Europe is more reliant on energy imports and is considered to be more vulnerable to the disrupted environment.
On a company level, it has been a very busy week. Many companies opened their books with first-quarter results. The US-market rebound since the end of March was largely driven by Big Tech. As such, investors were particularly curious what Wednesday night would bring as Amazon, Alphabet, Meta and Microsoft published their results after market close.
However, prior to the ‘big night’ the positive sentiment around tech-related companies was dented somewhat after the Wall Street Journal reported that OpenAI recently missed some of their targets. The article also claimed management was rethinking capital investments and this caused the IT sector to trade down.
On the Wednesday earnings night, Alphabet published very strong results that surprised on nearly all key metrics. Revenue and earnings clearly topped market estimates. Google Cloud revenue was one of the outstanding items and management sounded very positive on demand for their AI offering.
Amazon was able to deliver a strong start to the year. Growth in their cloud business, AWS, is accelerating and marking its fastest growth rate in 15 quarters. Also, management sounded positive on future investment monetization. The outlook for the second quarter was a bit mixed.
Meta Platforms results and guidance for most items were meeting or beating market expectations. One of the positive elements was the improvement in advertising momentum. An increase in capital investments, however, reignited concerns on their spending path which caused some stock price pressure.
Finally, Microsoft reported better than expected results as well. Also, their Azure cloud unit growth rate accelerated, although with a slower pace compared to the other two hyperscalers Amazon and Alphabet. Margins improved and the amount of paid Copilot seats jumped to 20 million from 15 million last quarter.
Furthermore, all companies announced an increase in their capital spending plans, showing confidence in future payoff from current investments. This can also be seen as a positive sign for the AI infrastructure companies as they benefit from the spending boom.