King of Capitalism Keeps His Crown
In this issue of the peel:
Market Snapshot
Banana Bits
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Macro Monkey Says
America’s Real Overlords
Today, Americans will sound the deafening ring of freedom on every mountain from sea to shining sea as we line up to vote in a totally secure, valid, and non-partisan election.
Meanwhile, our real overlords will continue swimming in the oceans of cash they’ve built on top of our personal data.
The election gets all the buzz, but I’d bet Microsoft’s market cap that, for most Americans, Big Tech firms have much more of an impact on your day-to-day life than whoever gets to run up our national debt for the next four years.?
So, on that positive note, let’s get into it.
What Happened?
We already broke down the Q3 earnings of the world’s second most valuable company—Apple —last week. So, today, we’re focused on the world’s third, fourth, fifth, and seventh-most valuable firms. Let’s go in that order.
Microsoft: Microsoft’s 6.05% decline on the day it released earnings helped it fall to the Bronze medal position in the global market cap. But the numbers weren’t so bad.
The firm beat on sales and earnings estimates with revenue up 16% YoY and net income growth of 11%.
Weaker bottom-line growth signals a transitionary period as the firm spends more to incorporate AI tech in operational processes that will (hopefully) lower costs long-term.
The strongest aspect of Microsoft’s report was 31% revenue growth for Azure, their cloud computing segment, which signaled market share growth in this key industry.
Revenue at Microsoft’s Xbox segment shot up 62%, mostly due to incorporating Activision Blizzard. The size of the acquisition and restructuring of reporting segments in its wake speaks to Microsoft’s view that gaming is a huge growth sector.
The last quarter was technically Microsoft’s Q1 2025. As such, the firm reported a total of $50bn spent on capital expenditures in fiscal 2024, primarily going to AI and cloud infrastructure.
In fiscal 2025, Microsoft plans to spend $80bn in this segment—Music to Nvidia’s ears.
Alphabet: The first of today’s bunch to report last week, Alphabet shares rose 2.82% on the day of the release and made Microsoft super jealous of their cloud growth.
Needless to say, Google’s parent company beat estimates. Revenue grew 15%, a YoY acceleration, to $88.27bn. Search revenue of $49.4bn grew 12.3%, while YouTube ad revenue of $8.92bn beat estimates as well.
Traffic acquisition costs of $13.72bn increased and missed expectations for $13.53bn. But nobody cared.?
All eyes were on Google Cloud revenue, which shot up 35% YoY, an acceleration from Q3’23 and signaling further market share gains against Amazon’s AWS.
On the CapEx side, Google spent $13.1bn, a 62% YoY increase. The firm plans to spend another $13bn in Q4.
CEO Sundar Pichai shouted from the rooftops that the “full stack” of AI applications is? “operating at scale” and “creating a virtuous cycle.” Many of the firm’s AI-driven “Other Bets,” like DeepMind, Google Brain, and Waymo, are becoming increasingly important to both growing revenue and cutting costs.?
Amazon: Flexing on everyone with the biggest cloud business and unhappiest employees, Amazon had the best earnings day of the group, up 6.19% last Thursday.
The firm easily beat on sales and earnings despite Amazon Web Services (AWS, Amazon’s cloud unit) revenue of $27.4bn, missing estimates by $100m.
AWS grew revenue by 19%, the slowest of the group. But, investors weren’t too concerned, considering Amazon’s cloud segment is the size of Microsoft’s and Google’s combined. Plus, 19% is >150% of the 12% growth AWS saw in Q3’23.
However, Amazon’s e-commerce and advertising units picked up the slack. Ad revenue of $14.3bn just beat estimates, also growing by 19%.?
We usually call Amazon the King of Cloud, but with spending growing this fast, they may be the King of CapEx, too.?
Capital expenditures ballooned 81% to $22.62bn. Like the others, Amazon is racing to give Nvidia as much money as possible, spending heavily on their GPUs in addition to other AI and data center infrastructure.
Meta Platforms: Lastly, the youngest firm led by the CEO with the most hair, Meta Platforms beat estimates in Q3, but shares dipped 4.09% in the aftermath.
Meta’s ad business grew revenue by 18.7%, which is solid growth at its size (pause) but slower than Amazon’s 19%. However, net income grew 35% as Zuck & Co. continued the cost-cutting crusade they began for all of Corporate America in early 2023.
Reality Labs, where Meta sells its birth control, I mean VR headsets and AR glasses, grew revenue by 29%. Losses in this segment grew slightly slower at 18.4% to $4.43bn. That brings Reality Labs' total losses since 2020 to a criminal $58bn.
Like the others, Meta is doing its part to make Nvidia the world’s most valuable company. The firm spent $9.2bn on AI and related infrastructure within its capital expenditures and plans to ramp that up going forward.
For fiscal 2024, Meta intends to spend up to $40bn in this segment.
The Takeaway?
This has gone on way too long already, so let’s end it nice and quick so you all can go out and vote.
First, the global advertising market has roared back to life in 2024. Sure, that’s primarily driven by the two names you’ll see on the ballot today, but it also speaks to the economic recovery much of the world has experienced in recent years.
Second, it’s clear where the industry is heading. Unlike other recent fads like digital assets and arguably AR/VR, these companies are putting actual money where their mouth is—in huge amounts—to “win” on AI, whatever that means for these players.
Each has its own advantage in the AI sector. However, the challenge going forward will be offering differentiated services with effective monetization strategies.?
It’s not hard to imagine how Amazon and Microsoft might offer different AI use cases to customers, but the question is which of those will command the most economic value.
The industry is at an inflection point where AI integration is not just a buzzword but a tangible driver of financial performance.?
领英推荐
Now, if only someone could build an AI Jerome Powell…
Career Corner
Question
After the initial coffee chat, if I am not getting a response to my emails, is it okay to be persistent and follow up a third time via email again?
Answer
In that case, fortune is in the follow-up. In sales, on average, it takes three to four emails to hear back from a lead, whether they are interested or not, and it takes about six emails and three phone calls to close an interested prospect. Just make sure you use the networking script that we provide as a base.
Head Mentor, WSO Academy
What's Ripe
Plug Power (PLUG) 20.10%
FOX Corporation (FOX) 2.75%
What's Rotten
The New York Times (NYT) 7.71%
Constellation Energy Group (CEG) 12.46%
Thought Banana
Earnings Spotlight: The King of Capitalism
According to my research, at 94 years old, Warren Buffett will officially be old enough to run for President by the next election cycle in 2028.
We’ll see if he does, but for now, the chairman and CEO of Berkshire Hathaway—and 10th wealthiest person in the world—has some money to make.
His firm just dropped earnings, so let’s dive in.
The Numbers
Insurance, railroad, manufacturing, and investment conglomerate Berkshire Hathway delivered class A per-share NOPAT earnings of $7,019 (shares trade >$661k/sh), 4% short of consensus estimates.
This calculation of earnings excludes impacts from investments, purely focusing on the operational side. Total earnings, including investments, were $26.48bn, far beyond the $12.5bn loss in Q3’23 that was linked to nearly $30bn in investment losses.
Adjusting for currency impacts, operating earnings were $11.2bn, up 8% YoY. Revenue of $92.995bn fell 0.2% annually.
Insurance revenues, which make up more than 2/3rds of the total, grew 3.22% YoY. Revenues from Berkshire’s railroad, utility, and energy segment declined 8.90%.?
Investment income from Berkshire’s insurance business made up the largest segment of operating earnings in Q3. Year-to-date, earnings from investments are up 41%, primarily thanks to higher yields on Berkshire’s growing cash balance.
Speaking of which, cash now makes up 49% of Buffett & Co’s investment portfolio, a huge increase from the 28% in Q1. 48% of the portfolio remains invested in publicly traded stocks, but Berkshire was a massive net seller yet again in Q3.
The firm bought $1.5bn worth of stock but sold $36.1bn. The vast majority of Berkshire’s sales could be found in the company that arguably did the most to make Buffett and his company so rich—Apple.
The firm will drop a 13F filing with the SEC disclosing its entire investment portfolio, as all managers over $100mn AUM are required to, on November 14th. We’ll then get a more thorough and accurate update of their holdings.
The Takeaway?
Buffett’s partner in crime, Charlie Munger, passed away almost a full year ago now. Since then, Berkshire has operated like Tom without Jerry or SpongeBob without Patrick. It’s a sad sight, but the show must go on.
With more than $325bn in cash and Treasury bills, Berkshire now officially has a larger cash balance than the U.S. Federal Reserve.?
While the operating arm of Berkshire Hathaway is experiencing some slowdown in manufacturing, this part of the company is mostly business as usual (no pun intended).
However, Berkshire’s investment portfolio is the exact opposite, with two possible reasons why.
First, Buffett has always made clear to investors that Berkshire “only swings at pitches we like.” It could be the case the firm views the market as overvalued and thus has not seen anything coming right down the middle.
Second, Buffett could be reallocating the portfolio into a large cash position to allow an easier succession plan. Perhaps Greg Abel and Ajit Jain, the firm’s presumed successors, want to start from scratch.
If they need any ideas for that $325bn, I’m happy to send them my Venmo.
The Big Question: Why is Berkshire continuing to amass a cash pile that would make Mansa Musa jealous? Could any large acquisitions be under consideration?
Banana Brain Teaser
Previous
At the opening of a trading day at a certain stock exchange, the price per share of stock K was $8. If the price per share of stock K was $9 at the closing of the day, what was the percent increase in the price per share of stock K for that day?
Answer: 12.5%
Today
Three people each contributed x dollars toward the purchase of a car. They then bought the car for y dollars, an amount less than the total number of dollars contributed. If the excess amount is to be refunded to the three people in equal amounts. Each person should receive a refund of how many dollars?
Send your guesses to [email protected]
?
It takes character to sit with all that cash and to do nothing. I didn't get top where I am by going after mediocre opportunities.
Charlie Munger
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Happy Investing,
David, Vyom, Ankit & Patrick