MSFT

What to Do During This Market Selloff

by

By Brian Nelson, CFA In short, nothing. The U.S. stock market (SPY) was chugging along nicely until what was interpreted as a very favorable Consumer Price Index (CPI) print on July 11 that sent a rotation out of large cap growth and big cap tech into the beaten down areas of smaller cap stocks, prompting a broader market sell-off. The reasoning goes that, with inflation largely under control, smaller companies will benefit more from future rate cuts via reduced interest expense relative to larger companies. Though this is true, to varying degrees, the magnitude of the rotation was somewhat surprising, as rate cuts should benefit large cap growth (SCHG) and big cap tech (XLK), too, but we’ve seen this rotation … Read more

Microsoft’s Cash Flow Generation Robust, Azure Expected to Accelerate

by

Image Source: Microsoft By Brian Nelson, CFA On July 30, Microsoft reported better-than-expected calendar second quarter (fiscal fourth quarter) results with revenue and GAAP earnings per share beating the consensus forecasts. Revenue jumped 15% (16% in constant currency), while operating income advanced at a similar year-over-year pace. Net income of $22 billion increased 10% (11% in constant currency) on a year-over-year basis. Diluted earnings per share also increased 10% (11% in constant currency). Management was upbeat in the press release: Our strong performance this fiscal year speaks both to our innovation and to the trust customers continue to place in Microsoft. As a platform company, we are focused on meeting the mission-critical needs of our customers across our at-scale platforms … Read more

Oracle Misses in Q4 But Bookings Performance and Outlook Strong

by

Image: Oracle’s shares have done quite well since the beginning of 2023, and management’s outlook speaks to continued strength. By Brian Nelson, CFA On June 11, Oracle (ORCL) reported fourth quarter fiscal 2024 results that missed expectations on the top and bottom line, but the company’s total remaining performance obligations increased a whopping 44% on a year-over-year basis, to $98 billion–up $18 billion from the fiscal third quarter. Total quarterly revenue advanced 4% in constant currency, while non-GAAP operating income jumped 9% in constant currency. Management commented positively in the quarterly earnings press release about the pace of orders and the visibility it provides into the coming fiscal years: In Q3 and Q4, Oracle signed the largest sales contracts in … Read more

Microsoft’s Balance Sheet and Cash Flow Generation Make It a Strong Consideration

by

Image: Microsoft’s cloud business continues to showcase strong growth momentum. By Brian Nelson, CFA On April 25, Microsoft (MSFT) reported fantastic third-quarter results for fiscal 2024 that showed continued fundamental momentum at the tech giant. Revenue increased 17% in the quarter, while operating income surged 23%. Both net income and diluted earnings per share advanced 20% in the quarter on a year-over-year basis. The big standout in the quarter was Azure and other cloud services revenue, which increased a better-than-expected 31% in the period. Management spoke to continued opportunities in artificial intelligence [AI] and cloud revenue: Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry. This quarter … Read more

3 Dividend Growth Stocks for the Long Run

by

Image Source: Mike Mozart By Brian Nelson, CFA Stock prices and returns are in part a function of a company’s net cash position on the balance sheet and the free cash flows that it will generate in the future for shareholders. We call net cash and future expected free cash flow generation the two primary cash-based sources of intrinsic value in determining a company’s fair value estimate. When it comes to assessing dividend health, we examine these two cash-based sources of intrinsic value, too. For example, a company with a strong net cash balance has greater financial flexibility than a firm with a large and prohibitive net debt position. Entities that generate strong free cash flows in excess of their … Read more

Alphabet or Microsoft in Artificial Intelligence with Respect to Search? We Like Both

by

Image Source: SEO By Brian Nelson, CFA The race to capture the next-generation opportunity in web search technology is fast-developing. OpenAI took the world by storm when it released ChatGPT in December 2022, sparking the proliferation of ChatGPT rivals, the list of a dozen of which can be found here. In this article, we provide a timeline of our take as it relates to large language models with respect to web search technology, and why we view playing both Alphabet (GOOG) (GOOGL) and Microsoft (MSFT) as it relates to search and AI technology may be the best way to approach new developments in this area, which are still in their very early stages. It’s very likely that, if Google search … Read more

We Remain Bullish; Is This 1995 – The Beginning of a Huge Stock Market Run?

by

Image: Large cap growth stocks have trounced the performance of the S&P 500, REITs, and bonds since the beginning of 2023. We expect continued outperformance in this area of the market. By Brian Nelson, CFA We’re now roughly four years past the depths of the COVID-19 meltdown, where equities collapsed in February and March of 2020. As the markets began to recover through 2020, our long-term conviction in equities only grew stronger. We think the biggest risk for long-term investors remains staying out of the market on the basis of what could be considered stretched valuation multiples. As we outlined heavily in the book Value Trap, valuation multiples hardly tell the complete story about a company and often omit key … Read more

Palantir’s Fourth-Quarter Results Showcase Strong Trends in Artificial Intelligence

by

Image: Palantir’s revenue continues to march higher, and the company’s performance continues to showcase the growing strength in artificial intelligence. Source: Palantir By Brian Nelson, CFA Palantir Technologies (PLTR) has three core software platforms called Gotham, Foundry, and Apollo that “provide the critical infrastructure needed to integrate (its) customers’ data and operations and run their software in virtually any environment (Form 10-K).” On February 5, the firm reported solid fourth-quarter results that showed revenue growing 20% on a year-over-year basis and GAAP net income coming in at $93 million, representing the fifth consecutive quarter that the firm has driven positive GAAP profits. We liked Palantir’s quarterly results, but we wanted to bring to members’ attention the commentary surrounding artificial intelligence [AI]: … Read more

Alphabet, Microsoft Remain Cash-Rich, Secular Growth Powerhouses

by

Image Source: Shawn Carpenter By Brian Nelson, CFA All eyes were on Alphabet (GOOG) (GOOGL) and Microsoft (MSFT) after the bell January 30. We include both Alphabet and Microsoft in the newsletter portfolios due to their tremendous cash-based sources of intrinsic value: net cash on the balance sheet and free cash flow generation. It would take a monumental shift in the trajectory of these fantastic businesses for us to ever consider removing them from the newsletter portfolios, and we’re reiterating our favorable long-term view on both following their respective calendar fourth-quarter reports. Let’s first start with Alphabet. Revenue advanced ~13% on a year-over-year basis in the fourth quarter, while the company’s operating margin expanded ~3 percentage points, to 27%. Net … Read more

3 Substantial Benefits of Dividend Growth Investing

by

Dear members: There are three primary benefits of a well-executed dividend growth strategy, one that is carried out with prudence and care and one that pays careful attention to the intrinsic value of the stock and its critical cash-based components. Albert Einstein is reported to have called compound interest the “eighth wonder of the world,” but dividend growth investing has the potential to offer long-term investors so much more! Let’s explain. 1) Reinvested Dividends Compound Over Time Over the past decade, I have grown to appreciate the compounding dynamics of reinvested dividends on appreciating stocks even more than historical studies have revealed. The strategy of dividend growth investing not only benefits from the reinvestment of dividends into the purchase of … Read more