Earnings Roundup: Meta, Microsoft & Qualcomm

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**Carol Massar** (0:19)
Big tech earnings, Microsoft rallying 3.5% in the aftermarket. You've got Meta under pressure. Ed Ludlow is host of Bloomberg Tech on Bloomberg Television 11 a.m. Wall Street time Monday through Friday. Ed, pick where you want to start.

**Ed Ludlow** (0:33)
Should we start on Microsoft? I feel like it's probably the most tangible, right? So everything is in the cloud growth, better than expectations. And the math was really simple going into this. They've just closed the book on their fiscal financial year.
And the question still remains, when we get to the call, what does Microsoft tell us about the capital expenditure growth into next year? Because the street sees CapEx growing beyond 50 percent. Top-line growth on Azure is 43 percent, give or take, XTAC. All that the street really wants to see is that pace of growth being near to CapEx growth, right? It's a really simple equation, but going back to Alphabet, which is highly analogous, there's so much commentary here from Microsoft about traction with co-pilot, like more data points that are just easy, tangible to understand about how Microsoft's AI efforts are going, right? And that's the stock reflecting that in After Hours.

**Tim Stenovec** (1:32)
Is the 30 million paid seats a big deal for 365 co-pilot for Microsoft?

**Ed Ludlow** (1:38)
Yes, because it's versus 20 million at the end of March, exactly what I'm pointing to. The other one is, I think you guys mentioned this, but like Nadella was talking about Azure generating more than $100 billion in annualized revenue.
Remember, Amazon went to that figure very early in its kind of like growth of AWS. Then what Amazon did, they report tomorrow, was to say this is the AI specific annualized revenues. So Microsoft's just saying more, giving newer data points, which take us beyond the simple, are the top line numbers growing beyond the capex growth.

**Carol Massar** (2:12)
Which you kind of want to get, right? The company's spending and building and doing all of this. The more information, the more transparency, that's helpful, big time.

**Ed Ludlow** (2:21)
Yeah, I mean, again, from the press release alone, Microsoft's not saying anything about fiscal year 27 capex. So there's this period of time where everyone's like, okay, reading, digesting the statement and the release, and then on the call, everything could change. And that is the jeopardy of big tech earnings, and that's what's fun.

**Tim Stenovec** (2:39)
Well, let's do a little bit with Meta Platforms, and then we'll get back to some of these other names. Shares of Meta down about 6.3%, let's go ahead and say 6%.
Some numbers here, third quarter revenue, 61 to 64 billion, the estimates for 63.17 billion. Second quarter revenue came in above estimates, second quarter EPS came in. Ever so shy of estimates, what is the thing that is moving the stock with Meta today?

**Ed Ludlow** (3:05)
So hard. I mean, revenues up 28% ahead of expectations, right? Ad impressions have improved, pricing has improved, Meta's core business, it's bread and butter, is still advertising. The story was how has AI made that better, more monetizable.

**Tim Stenovec** (3:21)
So revenue should be higher than estimates, right?

**Ed Ludlow** (3:25)
It is ahead of estimates, I think at 28%.

**Tim Stenovec** (3:27)
Sorry, sorry, for the third quarter, the outlook, I'm sorry.

**Ed Ludlow** (3:29)
Yeah, for the outlook, right. The one thing that my brain is going to is that the operating margins didn't just come in significantly below consensus by about four percentage points, but costs are up 55%.
So the operating margin is fallen from 43 to 31, costs are higher and free cash flow has basically disappeared. I'm reading the statement, sorry.

**Tim Stenovec** (3:55)
Ed, is that because they're investing so much in talent? Is it because the tokens cost so much? Like these companies are spending a ton of money. We looked at last week what Alphabet said about going cash flow negative. Meta Platforms is feeling it, Meta is feeling it when it comes to its earnings because it's spending more money.

**Ed Ludlow** (4:16)
Maybe they're disclosing that there was a one-time legal charge of $2.4 billion and then severance costs, super interesting, $1.2 billion charges. We knew about the story, right, about the waves of Meta layoffs. So that could, excluding those, underlying operating performance was kind of much nearest expectations. Maybe they're a big factor. But it also goes to the idea that the free cash flow is basically gone, which is such a common story across the Mag-7.